Structured Summary of the Opinion — Company Appeal (AT) (Insolvency) No. 44 of 2019

Factual and Procedural Background

The appellants are workmen/employees of M/s. Tantia Constructions Limited. The State Bank of India (Financial Creditor) filed an application under Section 7 of the Insolvency & Bankruptcy Code (I&B Code) to initiate the corporate insolvency resolution process against M/s. Tantia Constructions Ltd. (the Corporate Debtor). The appellants filed an application for intervention (CA (IB)646/KB/18) asserting that winding up proceedings had already been initiated against the Corporate Debtor under Section 433(e) and Section 434 of the Companies Act, and therefore the Section 7 application was not maintainable under Section 11 of the I&B Code. The Adjudicating Authority (National Company Law Tribunal, Kolkata Bench) held that the intervener had no locus standi and adjourned the matter for argument by the applicant in Company Appeal (AT)(Insolvency) No. 44 of 2019 by an impugned order dated 3rd January, 2019. The impugned order is the subject of this appeal.

Legal Issues Presented

1. Whether an application under Section 7 of the I&B Code is maintainable when winding up proceedings have already been initiated against the corporate debtor under Sections 433(e) and 434 of the Companies Act, in light of Section 11 of the I&B Code.
2. Whether the appellants (workmen/employees) have locus standi to intervene in or oppose the Section 7 admission proceedings before the Adjudicating Authority at the stage of admission.
3. What procedural duties the Adjudicating Authority must perform at the admission stage of applications under Sections 7 and 9 of the I&B Code (i.e., determining existence of debt/default and pre-existing disputes) and the effect of Section 11 on such proceedings.

Arguments of the Parties

Appellants' Arguments

• The appellants filed CA (IB)646/KB/18 seeking intervention to place on record that winding up proceedings have already been initiated against M/s. Tantia Constructions Ltd. under Section 433(e) and Section 434 of the Companies Act.
• The appellants contended that because winding up proceedings were already pending, the application under Section 7 of the I&B Code was not maintainable under Section 11 of the I&B Code.

Adjudicating Authority's Position / Financial Creditor

• The Adjudicating Authority held that the intervener (the appellants) had no locus standi at the admission stage and proceeded to adjourn the matter for arguments by the applicant (Financial Creditor).

Table of Precedents Cited

Court's Reasoning and Analysis

The Court agreed with the Adjudicating Authority's observation at the admission stage of an application under Section 7 that no person other than the Corporate Debtor has a right to be heard; third parties are not ordinarily entitled to oppose or support at that stage. The opinion explains the distinct duties of the Adjudicating Authority depending on the type of application:

• For an application under Section 7 (filed by a Financial Creditor), the Adjudicating Authority must ascertain whether there is a debt and whether a default has occurred by the Corporate Debtor.
• For an application under Section 9 (filed by an Operational Creditor), the Adjudicating Authority must examine whether there is a debt and default and also whether there exists a pre-existing dispute.
• The Adjudicating Authority must additionally keep in mind Section 11 of the I&B Code, which precludes maintainability of applications under Sections 7 or 9 where winding up proceedings have already been initiated against the corporate debtor—a principle affirmed by this Appellate Tribunal in M/s. Unigreen Global Private Limited v. Punjab National Bank & Ors. (Company Appeal (AT)(Insolvency) No. 81 of 2017).

Applying those principles to the present case, the Court declined to permit the appellants to oppose or support the Section 7 application at the admission stage, but it directed the Adjudicating Authority to consider the specific factual material placed by the appellants concerning the initiation of winding up proceedings. If necessary, the Adjudicating Authority should seek clarification from the State Bank of India and M/s. Tantia Constructions Limited about whether winding up proceedings are pending. The Court thus balanced the procedural limitation on third-party participation at admission with the substantive requirement to give effect to Section 11 when relevant facts are brought to the tribunal's attention.

Holding and Implications

DISPOSED OF — The appeal is disposed of with directions and observations recorded in the opinion.

Direct effects and immediate consequences:

• The appellants are not permitted to oppose or support the Section 7 application at the admission stage.
• The Adjudicating Authority is directed to determine, on the material before it (and by seeking clarification from the State Bank of India and M/s. Tantia Constructions Limited if required), whether winding up proceedings have already been initiated against the Corporate Debtor; if so, the maintainability of the Section 7 application must be considered in light of Section 11 of the I&B Code and the authority cited.
• If the appellants are aggrieved by any order subsequently passed by the Adjudicating Authority, they are at liberty to challenge that order before this Appellate Tribunal and raise issues as they have in the present appeal.
• No costs were awarded.

The opinion does not purport to establish a new legal principle beyond applying and directing application of existing statutory provisions and the cited appellate authority; its practical effect is to require the Adjudicating Authority to investigate the factual existence of winding up proceedings before proceeding on a Section 7 admission.

Signed by: [Justice S.J. Mukhopadhaya] Chairperson; [Justice Bansi Lal Bhat] Member (Judicial)