Company under winding up process under Section 271 of the Companies Act, 2013 can apply for corporate insolvency resolution process: NCLT Mumbai

The National Company Law Tribunal, Mumbai Bench in Sheeba Rajan V/s Trans Tech Turnkey Private Limited [CP (IB) No. 223/MB-IV/2023] vide Order dated 25.07.2023 held that even a company undergoing winding up process under Section under 433 of the Companies Act, 1956 in High Court can now apply under for corporate insolvency resolution process.

Facts of the case

The Application was filed by Ms. Sheeba Rajan, the Financial Creditor against Trans Tech Turnkey Private Limited, Corporate Debtor, for initiating Corporate Insolvency Resolution Process (CIRP).

The Corporate Debtor had approached the Financial Creditor in the year 2014 for seeking financial assistance and in lieu of the same, the Financial Creditor provided an unsecured loan of Rs.11,00,00,000/- out of which an amount of Rs. 9,50,00,000/- (Rupees Nine Crore Fifty Lakh Only) was paid by the Corporate Debtor. No payment has been received by the Financial Creditor against the debt so due and the Corporate Debtor has admitted its liability and acknowledged the debt due.

That a Company Petition No. 33 of 2016 was preferred and filed against the Corporate Debtor by one M/s. Flaktwoods ACS (India) Private Limited, before the Hon'ble High Court of Judicature at Bombay under Section 271 of the Companies Act, 2013 for winding up of the Corporate Debtor and vide order dated 19.04.2018, the Hon'ble High Court passed an order for winding up of the Corporate Debtor. Till date no developments have taken place in the liquidation process of the Corporate Debtor under the Companies Act, 2013.

It is submitted by the Financial Creditor that the Corporate Debtor is a valuable company and there are investors that are willing to invest in the company and the Corporate Debtor will get a better value and will be able to maximize the value if it is sold as a going concern.

Held

The National Company Law Tribunal, Mumbai Bench relied upon the decision of the Hon'ble Apex Court in the matter of A. Navinchandra Steels Pvt. Ltd. v. SREI Equipment Finance Ltd (Civil Appeal Nos. 4230-4234 of 2020], wherein it was held that Section 7 is an independent proceeding, as has been held in catena of judgments of this Court, which has to be tried on its own merits. Any "suppression" of the winding up proceeding would, therefore, not be of any effect in deciding a Section 7 petition on the basis of the provisions contained in the IBC.

The said judgement makes it clear that an application for initiation of Corporate Insolvency Resolution Process under Section 7 or 9 of the Insolvency and Bankruptcy Code, 2016 is to be independent proceedings which shall remain unaffected by the winding-up proceedings filed by the same company.

In view of the above, it was held that there exists a debt and default of the said debt on the part of the Corporate Debtor and such debt falls within the definition of “Financial Debt” u/s. 5(8) of the Insolvency and Bankruptcy Code, 2016. Moreover, The Corporate Debtor has admitted the said debt in the ledger of the Financial Creditor maintained by it on 01.04.2018. Hence, the present case was admitted under section 7(5)(a) of the Insolvency And Bankruptcy Code, 2016.

This Article has been Compiled by Ayushi Misra (Senior Associate) and Arun Gupta (Managing Partner). 

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