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Nclat Holds That Nclt Wrongly Rejected The Appellant's Application Under Section 95(1) Due To The Absence Of Pending Proceedings Under Ibc

shentk ,
  01 June 2023       Share Bookmark

Court :
National Company Law Appellate Tribunal, Principal Bench
Brief :

Citation :
Company Appeal (AT) Insolvency No. 60 of 2022

Case title:

SBI v Mahendra Kumar Jajodia

Date of Order:

27 January 2022

Bench:

Justice Ashok Bhushan, Chairperson and Dr. Alok Srivastava, Member (Technical)

Parties:

Appellant: SBI

Respondent: Mahendra Kumar Jajodia 

IMPORTANT PROVISIONS:

Section 60: Adjudicating Authority for corporate persons. 

 (1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate persons located. 

(2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or [liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of such corporate debtor] shall be filed before such National Company Law Tribunal.

OVERVIEW:

  • This appeal has been filed against an order issued on October 5, 2021, by the National Company Law Tribunal, Kolkata Bench, Kolkata. The State Bank of India submitted an application under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 (referred to as the 'Code') seeking the initiation of the Corporate Insolvency Resolution Process against the Guarantor. However, the application was rejected by the Adjudicating Authority on October 5, 2021, on the grounds of prematurity.
  • The reason stated for the rejection of the application as premature. It states that the application was filed by the petitioner/financial creditor under Section 95(1) of the Code, seeking the initiation of the Insolvency Resolution Process against the guarantor. However, since there is currently no Corporate Insolvency Resolution Process or Liquidation Process pending against the principal borrower/Corporate Debtor due to the approval of the Resolution Plan, the requirement under Section 60(2) of the Code is not fulfilled. Consequently, the application was deemed premature and dismissed.

ISSUES RAISED

  • Whether the NCLT was justified in rejecting the application as premature as section 60(2) of the IBC was not met?

ARGUMENTS ADVANCED BY THE APPELLANT

The learned counsel for the appellant argues that the National Company Law Tribunal (NCLT) has misinterpreted Section 60(2) of the Code. It is contended that the application was completely valid and maintainable under Section 60(1) of the Code, even if there was no pending Corporate Insolvency Resolution Process in the NCLT.

ARGUMENTS ADVANCED BY THE RESPONDENT

The learned counsel for the respondent, in response to the submissions made by the appellant's counsel, argues that Section 60(2) of the Code clearly states that an application pertaining to the Corporate Insolvency Resolution Process (CIRP) of the Corporate Guarantor and Personal Guarantor can only be filed before the NCLT if there are pending CIRP or Liquidation Process proceedings. The respondent contends that since there are no such pending proceedings in the present case, as required by Section 60(2) of the Code, the NCLT correctly rejected the application as premature.

JUDGEMENT ANALYSIS

The NCLAT has interpreted Section 60(2) of the Code, stating that it applies when a Corporate Insolvency Resolution Process (CIRP) or Liquidation Process of a Corporate Debtor is pending before a specific National Company Law Tribunal (NCLT). The purpose of this provision is to ensure that proceedings against a Corporate Guarantor are filed before the same NCLT where the CIRP or Liquidation Process of the Corporate Debtor is pending. However, the NCLAT notes that Section 60(2) does not prohibit the filing of proceedings under Section 95 of the Code, even if no proceedings are pending before the NCLT. The use of the terms "a" and "such" before National Company Law Tribunal indicates that Section 60(2) is applicable only when there is a pending CIRP or Liquidation Process of a Corporate Debtor before a specific NCLT. Therefore, if there are no such pending proceedings, Section 60(2) does not apply. Section 60(2) is supplemental to Section 60(1) and does not restrict the filing of applications as referred to in sub-section (1) of Section 60 in the NCLT that has territorial jurisdiction over the Registered Office of the Corporate Person.

CONCLUSION

The NCLT's decision to reject the application filed by the Appellant under Section 95(1) based on the absence of a pending CIRP or Liquidation Proceeding of the Corporate Debtor is deemed erroneous. The Appellant's application falls within the purview of Section 95(1) and should have been considered by the Adjudicating Authority, which is the NCLT as specified in Section 60(1). Therefore, the Appellant's application is deemed fully maintainable, and the rejection solely on the grounds of the absence of pending proceedings was incorrect. Consequently, the order dated 5th October 2021 passed by the Adjudicating Authority is set aside. The Appellant's application under Section 95(1) of the Code is reinstated and should be further processed by the NCLT in accordance with the applicable laws. Appealis allowed accordingly. 
 

 
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