Summary of Judgment: Company Appeal (AT) (Insolvency) No. 1434 of 2019

Factual and Procedural Background

SREI Equipment Finance Limited ('Financial Creditor') filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("I&B Code") against Shree Ram Urban Infrastructure Limited ('Corporate Debtor'). The Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, admitted that Section 7 application. Action Barter Private Limited, a shareholder of the Corporate Debtor, challenged the admission of the Section 7 application before this Appellate Tribunal.

The Appellant's challenge rested on the fact that a winding up petition against Shree Ram Urban Infrastructure Ltd. had already been admitted by the Bombay High Court on 5 October 2016 and that an Official Liquidator had been appointed as Provisional Liquidator from 15 November 2017. It is recorded that the Provisional Liquidator, on notice to SREI, took over assets and properties of the Corporate Debtor on 17 April 2018 and carried out boundary determination on 1 May 2018.

The appeal arises from the NCLT order dated 6 November 2019 in CP(IB) No. 494/NCLT/MB/2019. The Appellate Tribunal considered relevant precedent of the Hon'ble Supreme Court in Forech India Ltd. v. Edelweiss Assets Reconstruction Co. Ltd. (2019 SCC OnLine SC 87) and ultimately dismissed the appeal with observations summarized below.

Legal Issues Presented

1. Whether an application under Section 7 of the Insolvency and Bankruptcy Code is maintainable where a winding up petition against the corporate debtor has already been admitted by a High Court and a provisional liquidator has been appointed.
2. Whether the bar contained in Section 11(d) of the I&B Code (which prevents a corporate debtor in respect of whom a liquidation order has been made from initiating proceedings under Section 10) has any bearing on the maintainability of Section 7 or Section 9 applications filed by financial creditors.

Arguments of the Parties

Appellant's Arguments

• The Appellant (Action Barter Private Limited), a shareholder, contended that the Section 7 application should not have been admitted because a winding up petition against the Corporate Debtor had already been admitted by the Bombay High Court on 5 October 2016, and an Official Liquidator had been appointed as Provisional Liquidator from 15 November 2017.
• The Appellant further submitted that the Provisional Liquidator took over the assets on 17 April 2018 and conducted boundary determination on 1 May 2018, indicating active liquidation proceedings.
• Relying on the chronology and on a prior rejection of a Section 7 application (filed by Indiabulls Housing Finance Limited) by the Adjudicating Authority on 18 May 2018 (which order was under challenge in the Supreme Court as Civil Appeal No. 6814/2018), the Appellant argued that applications under Section 7 or Section 9 cannot be filed or entertained after the admission of a winding up petition.

The opinion does not contain a detailed account of the Respondents' specific arguments in this appeal.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal first recorded the factual matrix: admission of the winding up petition in the Bombay High Court and the appointment and actions of the Provisional Liquidator; admission of the Section 7 application by the NCLT; and the Appellant's challenge to that admission.

The Tribunal examined the principles laid down by the Hon'ble Supreme Court in Forech India Ltd. (supra). The Tribunal noted the Supreme Court's interpretation that Section 11(d) of the I&B Code is limited in scope and specifically prevents only a corporate debtor in respect of whom a liquidation order has been made from initiating insolvency proceedings under Section 10. The Supreme Court had held that this does not imply that Section 7 or Section 9 applications (filed by financial or operational creditors) are necessarily barred by mere pendency of winding up proceedings or an application under corresponding companies provisions.

Applying the Forech ratio, the Tribunal concluded that the question whether a Section 7 application is maintainable must be decided under the Code and that the mere existence of a pending winding up petition (and appointment of a provisional liquidator) does not automatically render a financial creditor's Section 7 application incompetent or non-maintainable. The Tribunal further observed that the Supreme Court, while not interfering with the Appellate Tribunal's order in Forech, granted liberty to the corporate litigant there to apply under the proviso to Section 434 of the Companies Act (as amended in 2018) to transfer the winding up proceedings to the NCLT, which could then be treated as a proceeding under Section 9 of the Code.

On that basis, the Tribunal held that the present Appellant's challenge is covered by the Forech decision and that the Section 7 application admitted by the NCLT was maintainable. The Tribunal also indicated that the Appellant may approach the Bombay High Court under the mechanism indicated in Forech if it wishes to seek transfer of the winding up proceedings.

Holding and Implications

Final Disposition: The appeal is DISMISSED.

Core Ruling: The Tribunal held that the application under Section 7 of the I&B Code filed by SREI Equipment Finance Limited is maintainable despite the prior admission of a winding up petition by the Bombay High Court and the appointment of a provisional liquidator. The Tribunal relied on the Supreme Court's decision in Forech India Ltd. (supra) to reach this conclusion.

Direct Consequences:

• The NCLT's admission of the Financial Creditor's Section 7 petition stands.
• The Appellant (shareholder) is granted the same procedural liberty as recognized in Forech: it may move the Bombay High Court under the proviso to Section 434 of the Companies Act (2018 amendment) to seek transfer of the winding up proceeding to the NCLT, if it chooses to do so.
• The appeal was dismissed with no costs.

The Tribunal did not purport to lay down a new precedent; it applied and followed the Supreme Court's decision in Forech India Ltd. (supra) and confined its decision to the circumstances of this case.