INITIATION OF RESOLUTION PROCESS BY FINANCIAL CREDITOR

[Dr. Sanjiv Agarwal]

Under the Insolvency and Bankruptcy Code, 2016 (IBC), Section 7 deals with initiation of Corporate Insolvency Resolution Process (CIRP) by a Financial Creditor (FC). Accordingly, a financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government, may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.

For this, the financial creditor shall make an application and along with the application furnish -

1. record of the default recorded with the information utility or such other record or evidence of default as may be specified,
2. the name of the resolution professional proposed to act as an interim resolution professional, and
3. any other information as may be specified by the Board.

Where the Adjudicating Authority is satisfied that-

1. a default has occurred and the application is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application, or
2. default has not occurred or the application is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application.

The corporate insolvency resolution process shall commence from the date of admission of the application.

In MARS REMEDIES PVT LTD VERSUS BDH INDUSTRIES LIMITED - 2023 (6) TMI 418 - SUPREME COURT , financial creditor filed an application under Section 7 against the appellant corporate debtor for initiation of CIRP. The NCLT dismissed the application. However, the NCLAT allowed the application forcing the corporate debtor to come up with the main appeal before the court.

On appeal filed by corporate debtor, court directed to issue of notice and granted stay of further proceedings. However, in the meantime, another financial creditor of the corporate debtor independently filed an application for initiation of CIRP against the corporate debtor and same was dismissed by NCLT. However, order of NCLT was reversed by the NCLAT, and order passed by NCLAT attained finality. In view of the stay granted by the Court, the NCLT passed an order stating that the subsequent CIRP application of the applicant could not be considered, however granted opportunity to the applicant to avail remedy of restoring main CIRP petition  subject to outcome of the appeal filed by the corporate debtor before the court. The applicant filed instant application for appropriate directions.

It was contended by the corporate debtor that there could not be two CIRPs simultaneously going against the same debtor. The court observed that such a contention is legally correct but both the CIRPs were on hold. This was despite the fact that the order passed in favour of the proposed intervenor in his own application under Section 7 of IBC, by the NCLAT has attained finality and there is no impediment for the CIPR initiated by the proposed intervenor to proceed further.

It was thus held that the Corporate Debtor cannot be allowed to have benefit of the best of both the worlds.  Where appeal against order initiating CIRP against corporate debtor was pending before Supreme Court, subsequent CIRP order passed by NCLT on application of another financial creditor having attained finality, was to be allowed to proceed further.

The Apex Court disposed of the matter by clarifying that the intervenor may again move an application before the NCLT for restoration and the NCLT shall pass fresh orders keeping in mind the observations.