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2019 (12) TMI 563 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - suppression of facts or not by the Corporate debtors before NCLT - matter was pending before BIFR / AAIFR - Whether the application preferred by the Company in terms of Section 4(b) of the 'SIC Repeal Act, 2003' is barred under Section 11(d) of the I B Code? - prosecution against the Company under Section 77(a) of the I B Code. HELD THAT - From the plain reading of the Form-6 filed by the Company ('Corporate Debtor'), it appears that in absence of any specific or separate Form for filing reference in terms of proviso to sub-section (b) of Section 4 of SIC Repeal Act, 2003 r/w Section 252 of the I B Code, application in Form-6 was filed by the Company. It cannot be treated as an application under Section 10 of the I B Code. The Adjudicating Authority while admitting the application by order dated 16th June, 2017 mentioned that this Company Petition was filed by Amar Remedies Ltd. (Company-'Corporate Debtor') under Section 10 of the Insolvency and Bankruptcy Code, 2016 r/w Rule 7 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Though, wrong reference of Section 10 has been made therein, in the opening paragraph, the Adjudicating Authority noticed that the 'Corporate Insolvency Resolution Process' was sought for and earlier the matter was pending before the BIFR in reference No. 55/2014, followed by Appeal No. 4/2016 filed before AAIFR. Therefore, it is clear that reference case was filed by the Appellant, while admitting the application mentioning of a wrong provision of law such as Section 10 by the Adjudicating Authority, cannot takeaway the right of the Company to file application for 'Corporate Insolvency Resolution Process' under sub-section (b) of Section 4 of the SIC Repeal Act, 2003. In view of Section 252 of the I B Code read with Schedule Eighth annexed thereto; and substituted sub-section (b) of Section 4, particularly proviso thereto of SIC Repeal Act, 2003 is a part of the Code. In terms of the proviso to Section 4(b) of SIC Repeal Act, 2003, as the Appeal before the AAIFR stood abated, the Company had a right to file reference for initiation of 'Corporate Insolvency Resolution Process' against it under the I B Code - Applications under Section 7; Section 9 and Section 10, are the only applications, which are filed for initiation of 'Corporate Insolvency Resolution Process' under Chapter II of Part II, cannot be filed, if prohibited in terms of Section 11. The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 also do not mandate to provide such intimation to the Adjudicating Authority - Therefore, it cannot be alleged that the Company/'Corporate Debtor' or the Appellant-Pratima P. Shah, Director suppressed the material fact of the pendency of the winding-up petition. Initiation of proceeding under Section 77(a) of I B Code - HELD THAT - The Adjudicating Authority before referring the matter was required to record its prima facie opinion after giving opportunity of hearing to the Appellant. Such procedure is required to be followed before referring any matter to the Registrar of Companies/Insolvency and Bankruptcy Board of India or the Central Government for punishment under Chapter VII of the I B Code. The 'Corporate Insolvency Resolution Process' was initiated more than a year back by a separate Bench of the Adjudicating Authority (National Company Law Tribunal) on 16th June, 2017. Subsequently, at the stage of approval of the 'Resolution Plan' under Section 31(1), it was not open to the another Bench of the Adjudicating Authority to declare the initiation of 'Corporate Insolvency Resolution Process' as illegal. The case remitted back to the Adjudicating Authority (National Company Law Tribunal) to pass appropriate order under Section 31 of the I B Code, taking into consideration the fact that the 'Resolution Plan' has already been approved by the 'Committee of Creditors' in their 7th meeting with a voting share of 83.02% - appeal allowed.
Issues Involved:
1. Whether the application preferred by the Company in terms of Section 4(b) of the SIC Repeal Act, 2003 is barred under Section 11(d) of the I&B Code? 2. Whether the impugned order directing the Registrar of Companies to lodge prosecution against the Company under Section 77(a) of the I&B Code is uncalled for and without jurisdiction? Issue-wise Detailed Analysis: 1. Whether the application preferred by the Company in terms of Section 4(b) of the SIC Repeal Act, 2003 is barred under Section 11(d) of the I&B Code? The Company filed Form-6 for the initiation of 'Corporate Insolvency Resolution Process' (CIRP) against itself. The Adjudicating Authority treated this as an application under Section 10 of the I&B Code and admitted it. However, the Adjudicating Authority later observed that the Company had suppressed material facts, specifically that a liquidation order had already been passed by the Bombay High Court. Section 11(d) of the I&B Code prohibits a corporate debtor, in respect of whom a liquidation order has been made, from initiating a CIRP. The Adjudicating Authority concluded that the Company was ineligible to file the application under Section 10 due to the existing liquidation order and rejected the petition with costs, directing the Registrar of Companies to lodge prosecution under Section 77(a) of the I&B Code. The Tribunal noted that the application was filed under Section 4(b) of the SIC Repeal Act, 2003, which allows a company whose appeal or reference stands abated to make a reference to the National Company Law Tribunal (NCLT) under the I&B Code. The Tribunal clarified that the application should not be treated as one under Section 10 of the I&B Code but as a reference under Section 4(b) of the SIC Repeal Act, 2003. The Tribunal emphasized that the prohibition under Section 11(d) does not apply to references made under Section 4(b) of the SIC Repeal Act, 2003. Thus, the Company had the right to file the reference, and the Adjudicating Authority's order was incorrect in treating it as a Section 10 application and rejecting it based on Section 11(d). 2. Whether the impugned order directing the Registrar of Companies to lodge prosecution against the Company under Section 77(a) of the I&B Code is uncalled for and without jurisdiction? The Adjudicating Authority directed the Registrar of Companies to lodge prosecution against the Company under Section 77(a) of the I&B Code for suppressing material facts. The Tribunal held that before referring any matter for prosecution, the Adjudicating Authority must record its prima facie opinion and provide an opportunity of hearing to the concerned party. In this case, the Adjudicating Authority did not issue any notice or provide an opportunity of hearing to the appellant before passing the impugned order, which violated the principles of natural justice. Additionally, the Tribunal observed that the application for CIRP was initiated more than a year back by a different Bench of the Adjudicating Authority. At the stage of approval of the Resolution Plan, it was not open to another Bench of the Adjudicating Authority to declare the initiation of CIRP as illegal. The subsequent Bench had no jurisdiction to sit in appeal over the order passed by the earlier Bench. Conclusion: The Tribunal set aside the impugned order dated 29th January 2019 and remitted the case to the Adjudicating Authority to pass an appropriate order under Section 31 of the I&B Code, taking into consideration the fact that the Resolution Plan had already been approved by the Committee of Creditors with a voting share of 83.02%. The Adjudicating Authority was directed to pass the order immediately, after hearing the parties, preferably within three weeks. The appeal was allowed with no costs.
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