PETITION BEFORE NCLT CAN BE ADMITTED EVEN IF A LIQUIDATOR HAS BEEN APPOINTED BY THE HIGH COURT

liquidator-appointed-by-high-court

Status as on- 07/10/2020

In Punjab National Bank v. M/s Hanung Toys and Textiles Limited, the New Delhi bench of the National Company Law Tribunal [“NCLT”] has held that application under §7 of the Insolvency and Bankruptcy Code, 2016 [“IBC”] can be admitted even if a liquidator has been appointed by the High Court.

Factual Matrix

The factual matrix of the case was such that the Punjab National Bank [“Financial Creditor”], along with 6 other banks, had sanctioned a Working Capital Facility in favor of Hanung Toys [“Corporate Debtor”]. The account of the corporate debtor was declared an NPA in 2013. Thereafter winding-up petitions were admitted by the Delhi High Court and an official liquidator was appointed. However, the financial creditor opted to file an application under §7 of the IBC despite the pendency of liquidation proceedings. The corporate debtor challenged the application on this ground, stating that an application for initiation of CIRP cannot be entertained while liquidation proceedings are pending.

Rejecting the argument of the corporate debtor, the NCLT held that there is no bar on the proceedings under IBC. To bolster this stand, the NCLT relied on the decision of the Supreme Court in Jaipur Metals and Electricals Employees Organisation vs. Jaipur Metals and Electricals Ltd. and in Forech India Ltd. vs. Edelweiss Assets Reconstruction Co. Ltd, wherein it was held that:

Ruling by Hon’ble Supreme Court

Section 7 application filed under the Code is an independent proceeding and must run its entire course, which has nothing to do with the pendency of winding up proceedings before High Court. In view of the precedent laid down by the Hon’ble Supreme Court, pendency of winding up petition before High Court will not be a bar for initiation of proceedings under Section 7 of the Code.

…the order of admission or the order of appointment of liquidator will not create any bar on the applicability of the provisions of IBC to the proceedings instituted under the Code. Till the company is ordered to be wound up i.e. the final dissolution order is passed; Adjudicating Authority can entertain a petition filed under the Code.” (emphasis supplied)

Benefits of opting to IBC

As compared to the appointment of Office liquidator by High Court, the application before IBC is beneficial in the following points :

  1. There is specified time-limit under IBC but not time limit for Office Liquidator (OL)
  2. CIRP under IBC has overriding effect whereas OL under Companies Act does not have it
  3. IRP under IBC has pre-definded schedule to get the resolution plan whereas OL does not have it
  4. OL can take even multiple years to solve whereas IRP has 180 days time to resolve it.

 Conclusion

In light of the foregoing, it has been made clear that the pendency of the liquidation proceedings before a High Court will not bar the proceedings under IBC.

Disclaimer: The above article is based on the interpretation of the related laws and judicial pronouncements. The readers are expected to take legal advice before relying on this article. The author can be reached at support@centrik.in or call the IP expert at 8383011629

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