NCLAT – Corporate Insolvency Resolution Process cannot be initiated against a company if winding-up process already initiated by High Court.

In a judgment passed by the National Company Law Appellate Tribunal, on 02.02.2018, it is now clarified that the Corporate Insolvency Resolution Process cannot be initiated against a company if winding-up process has already been initiated by High Court.

The Bench further clarified that the said issue has already been covered in a judgment passed in M/s. Unigreen Global Private Limited Vs. Punjab National Bank & Ors.─ Company Appeal (AT) (Insolvency) No. 81 of 2017. Although the said judgment relates to issue of application by ‘Corporate Applicant’ under Section 10 of the IB Code, the Bench clarified that the ratio laid down in is also applicable to the ‘Financial Creditor’/’Operational Creditor’.

Further the Court stated that essentially the pertinent issue is covered in its judgment in ‘Forech India Pvt. Ltd. Vs. Edelweiss Assets Reconstruction Company Ltd. & Anr.’, wherein it had already observed and questioned that where ‘winding up’ proceeding has been ordered by the Hon’ble High Court and thus stands initiated, where is the question of filing an application under section 7 or 9 or initiation of Corporate Insolvency Resolution Process, which, on failure ultimately culminates into liquidation proceedings (winding-up proceedings) ?

The issue is not squarely covered by section 11 Clause (d) of the code which reads as follows :

“Section 11 – Persons not entitled to make application – The  following persons shall not be entitled to make an application to initiate corporate insolvency resolution process under this Chapter, namely:—   
(d) a corporate debtor in respect of whom a liquidation order has been made”

The bench in this regard clarified and pointed out its observation in Forech India judgment were it had done an analogous interpretation of Section 11(d) to the Applications made by financial creditor and operational creditor under section 7 and 9 of the IB Code.

Also, the amendment in definition of ‘Company Liquidator’ under Section 2 (23) and insertion of Clause (94A) in Section 2 of the Companies Act, 2013, had further expanded the meaning and scope of the term winding up and liquidation to mean winding up under CA, 2013 or liquidation under the Insolvency and Bankruptcy Code.

Section 2 Clause (23) and (94A) of the Companies Act, 2013 read as follows:

Section 2(23)  “Company Liquidator” means a person appointed by  the Tribunal as the Company Liquidator in accordance with the provisions of section 275 for the winding up of a company under this Act;   
Section 2(94A)  “winding up” means winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as applicable.

Thus, keeping in view the position of law as it stands the Bench held that the Applications under section 7 and 9 of the IB Code, against a company, are barred if winding-up proceedings have already been initiated by a High Court.