Can a corporate debtor file insolvency petition against another? Yes, says NCLAT
Can a company, against which an insolvency proceeding is undergoing, file insolvency application against another?
In an order dismissing a petition against admission of insolvency petition filed by an entity against which a CIRP process is undergoing, the National Company Law Appellant Tribunal (NCLAT) has said that even if ‘a Corporate Debtor had debts to pay, it can have debt of its own to recover from… another Corporate Debtor’.
The order was passed in Greenopolis Welfare Association Vs Three C Shelters Private Ltd, where the appellant – Greenopolis Welfare Association, a representative of 350 home buyers in the project Greenopolis developed by Three C Shelters – had moved NCLAT against the NCLT order admitting insolvency application against Three C Shelters filed by Straight Edge Contracts Pvt Ltd.
One of the appellant’s arguments against the NCLT order was the fact that insolvency proceedings were being initiated against Straight Edge Contracts Pvt Ltd by one Guptaji Electric Company.
The Appellant claimed that Straight Edge Contracts could not have initiated insolvency proceedings against the Three C Shelters as there was bar under Section 11(b) of IBC. The appellant argued that though the matter between Gupta Ji and Straight Edge was settled and the latter was saved from the rigours of CIRP only on 13 March 2020, the NCLT admitted the insolvency application of Straight Edge against Three C on 20 July 2020 and thus 12 months were not over as required by Section 11(b) of IBC.
According to Section 11(b) of IBC, a corporate debtor is not entitled to make an application to initiate corporate insolvency resolution process if 12 months have not passed after completion of its CIRP process.
The appellant also argued that NCLAT on 28 September had set aside the 13 March NCLT order to withdraw CIRP against Straight Edge Contracts.
The NCLAT argued that if Section 11 is perused, the incompetency attached is to initiation. Specified person is not “entitled” to make an application. Thus, the bar under Sub-Section (a) is for making an application when the person who is a Corporate Debtor is undergoing Corporate Insolvency Resolution Process. Under Sub-Clause (b), the bar is to “making an application” by the person – Corporate Debtor having completed CIRP twelve months preceding the date of making of the application.
The NCLAT said: “It appears to us that when the insolvency petition (against Three C) was filed (by Straight Edge Contracts), the CIRP against the latter had already been set aside. Thus the bar “to making the application” was not there. If subsequently on 28 September 2020, the earlier CIRP has been restored against Straight Edge Contracts that would not hit the making of the application which was already complete and even the Petition was allowed on 20 July 2020.”
Once the application was allowed on 20 July 2020, management vests with the IRP/RP and subsequent developments in another matter will not make difference, the order further said.
