On January 22, 2019, the Hon’ble Supreme Court of India in the matter of Forech India Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. [Civil Appeal No. 818 of 2018] has held that a financial creditor’s application under Section 7 of the Insolvency and Bankruptcy Code,2016 (“Code”) is an independent proceeding which must be decided in accordance with the provisions of the Code notwithstanding the winding up petitions filed against the same corporate debtor under the provisions of Companies Act, 1956.
The instant case arose from an operational creditor’s appeal to continue with a winding up petition filed by such operational creditor in the year 2014. The brief facts are as under:
Facts
A winding up petition was filed by Forech India Ltd. (“Forech/Appellant”) before the High Court of Delhi on January 10, 2014 against a company alleging inability to pay dues. The notice under Rule 26 of the Companies (Court) Rules, 1959 in this petition was served.
Meanwhile, sometime in the year 2017, Edelweiss Asset Reconstruction Co. Ltd. (“Edelweiss/Respondent No. 1”) being a financial creditor of the same company moved the National Company Law Tribunal (“NCLT”) in an insolvency petition filed under Section 7 of the Code. This petition was admitted by the NCLT on August 7, 2017. Against the aforesaid order, an appeal was filed by Forech which was dismissed by the NCLAT. The NCLAT referred to Section 11 of the Code and held that since there was no winding up order by the High Court, Edelweiss’s petition would be maintainable.
Issue
Whether a financial creditor’s application under section 7 of the Code would be maintainable in the face of pendency of a winding up petition before the High Court?
Arguments canvassed on behalf of Forech/ Appellant
The Learned Counsel referred to the Notifications of the Ministry of Corporate Affairs, which, in exercise of powers under Section 239 of the Code issued the Companies (Transfer of Pending Proceedings) Rules, 2015. The amendments made in the Eleventh Schedule to the Code was also referred to and it was argued that the winding up petition would clearly fall within the ambit of Rule 5 of the aforesaid Rules in as much as notice under Rule 26 of the Companies (Court) Rules, 1959 had been served much prior to the commencement of the Code. The Learned Counsel argued that this being the case, the winding up petition should be allowed to be continued before the High Court and proceedings filed by other creditors under the Code should not be entertained.
Arguments canvassed on behalf of Edelweiss/ Respondent No. 1
Held
On facts, the Hon’ble Supreme Court did not agree with the reasoning of the NCLAT for upholding the order passed by the NCLT. The Hon’ble Supreme Court observed that any reference to Section 11 of the Code was wholly irrelevant to the issue at hand. However, the final order of the NCLAT was not interfered with and it was held that the financial creditor’s application as admitted by the NCLT is clearly an independent proceeding which must be decided in accordance with the provisions of the Code.
Download Pdf
7A, 7th Floor, Tower C, Max House,
Okhla Industrial Area, Phase 3,
New Delhi – 110020
+91 11 23701284/5/7
The rules of the Bar Council of India do not permit advocates to solicit work or advertise in any manner. This website has been created only for informational purposes and is not intended to constitute solicitation, invitation, advertisement or inducement of any sort whatsoever from us or any of our members to solicit any work in any manner. By clicking on 'Agree' below, you acknowledge and confirm the following:
a) there has been no solicitation, invitation, advertisement or inducement of any sort whatsoever from us or any of our members to solicit any work through this website;
b) you are desirous of obtaining further information about us on your own accord and for your use;
c) no information or material provided on this website is to be construed as a legal opinion and use of this website will not create any lawyer-client relationship;
d) while reasonable care has been taken in ensuring the accuracy of the contents of the website, Argus Partners shall not be responsible for the results of any actions taken on the basis of information provided in this website or for any error or omission in the website; and
e) in cases where the user has any legal issues, the user must seek independent legal advice.