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IBCWhether an application under Section 7 & 10 of the IBC can be admitted in case a winding up order has been passed against the Corporate Debtor, IBC

June 8, 2019by GLC & Partners

windup

In the case of Indiabulls Housing Finance Ltd. v. Shree Ram Urban Infrastructure Ltd. (Company Appeal (AT) (Insolvency) No. 252 of 2018) the main issue before NCLAT was whether another petition under section 7 or 10 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) can be entertained when winding up order has already been passed against the Corporate Debtor.

In this case an application under Section 7 of the IBC was filed against the Corporate Debtor by Indiabulls Housing Finance Ltd even though the Hon’ble High Court of Bombay initiated winding up proceeding against it.

The case of M/s Unigreen Global Private Limited v. Punjab National Bank & Ors.[1] was referred by the Adjudicating Authority in which it was held that “in a case where a winding up proceedings has already been initiated against a Corporate Debtor by the Hon’ble High Court or Tribunal or liquidation order has been passed in respect of Corporate Debtor, no application under Section 10 can be filed by the Corporate Applicant in view of ineligibility under Section 11(d) of IBC.” However, an application under Section 10 cannot be rejected if a petition for winding up is pending before any authority

Once the Corporate Insolvency Resolution Process has come to an end without any Resolution Plan being passed then on the orders of an Adjudicating Authority, the Liquidation Process will start after which, the question of admitting petitions under Section 7 or 9 of the IBC does not arise as the creditors can claim their amount before the Official Liquidator/Resolution Professional.

When a winding up order has been passed by the Hon’ble High Court and has also been initiated, an application under Section 7 or 9 of the IBC cannot be accepted, as if the Resolution Process fails it would ultimately lead to Liquidation Process (winding up) being started. “The argument can be that once second stage i.e. liquidation (winding up) proceedings has already initiated, the question of reverting back to the first stage of ‘Corporate Insolvency Resolution Process’ or preparation of Resolution plan does not arise.”[2]

[1] Company Appeal (AT) (Insolvency) No. 81 of 2017

[2] Company Appeal (AT) (Insolvency) No. 81 of 2017