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TMI Blog2024 (5) TMI 998X X X X Extracts X X X X X X X X Extracts X X X X ..... rt appoints the liquidator and the process is governed by the Rules set up in the Act and other applicable laws. This process is initiated when the company is unable to pay its debts or when it is just and equitable to do so. The mechanism of winding up is applied for the recovery of debt. On the other hand, it has been repeatedly held by the Hon ble Supreme Court that the Code is not a debt recovery mechanism but a mechanism for revival of a company fallen in debt. It has been held that the Code is a beneficial legislation intended to put the corporate debtor back on its feet and is not a mere money recovery legislation. The CIRP is not intended to be adversarial to the CD but is aimed at protecting the interests of the CD. The primary focus of the legislation is thus to ensure the revival and continuation of the CD by protecting the CD from its own management and from a corporate death by liquidation. The preamble of the Code speaks of maximisation of value of assets of the CD and balancing the interests of all the stakeholders with an object to keep the CD as a going concern. Section 252(3) travels into an altogether different direction rather than the way it has been observed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence, filed the application under Section 9 of the Code for the resolution of the aforesaid amount mentioned in the demand notice. 5. The application, filed under Section 9 of the Code, by the Appellant has been dismissed by the Adjudicating Authority, vide its order dated 05.09.2023, on the ground that since the name of the Corporate Debtor has already been struck off by the RoC, therefore, the application under Section 9 cannot be further prosecuted. 6. Aggrieved against this order, the present appeal has been preferred by the Appellant under Section 61 of the Code. 7. Counsel for the Appellant has submitted that striking off the name of the Corporate Debtor from the register maintained by the RoC is not a bar to initiate Corporate Insolvency Resolution Process (in short CIRP ) against the Corporate Debtor and a separate application is not required for restoration of the name of the Corporate Debtor. In support of his submissions, he has relied upon two decisions of this Court i.e. Hemang Phophalia Vs. The Greater Bombay Co-Operative Bank Ltd. Anr., (2019) SCC OnLine NCLAT 1220, CA (AT) (Ins) No. 765 of 2019 decided on 05.09.2019 (three members bench) and Elektrans Shipping Pte. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be specifically challenged by way of an appeal provided under Section 252(3) to prove before the Adjudicating Authority that at the time when its name was struck off, the company was carrying on business or was in operation or otherwise it is just that the name of the company be restored to the register of companies. 12. It is further submitted that the Company takes birth with its incorporation in terms of Section 7 of the Act and ceased to exist/dissolved in terms of Section 248(5) and remain as such till it is restored in appeal filed either under Section 252(1) or 252(3) of the Act. 13. It is further submitted that the judgments relied upon by the Appellant in the case of Hemang Phophalia (Supra) and Elektrans Shipping Pte. Ltd. (Supra) are not applicable rather it is submitted that the said judgments are per in curium because this Tribunal has not referred to various provisions of the Act and the Code. 14. We have heard Counsel for the parties and perused the record. 15. In order to appreciate the arguments raised by both the Counsel for the parties and to arrive at a logical conclusion, we shall refer to various provisions of the Act and the Code at the first instance. 16. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articles as the first directors of the company, their names, including surnames or family names, the Director Identification Number, residential address, nationality and such other particulars including proof of identity as may be prescribed ; and (g) the particulars of the interests of the persons mentioned in the articles as the first directors of the company in other firms or bodies corporate along with their consent to act as directors of the company in such form and manner as may be prescribed. (2) The Registrar on the basis of documents and information filed under sub-section (1) shall register all the documents and information referred to in that subsection in the register and issue a certificate of incorporation in the prescribed form to the effect that the proposed company is incorporated under this Act. (3) On and from the date mentioned in the certificate of incorporation issued under sub-section (2), the Registrar shall allot to the company a corporate identity number, which shall be a distinct identity for the company and which shall also be included in the certificate. (4) The company shall maintain and preserve at its registered office copies of all documents and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Registrar, on the basis of the documents and information, filed under sub-section 7(1), shall register all the documents and information received, in the register and issue a certificate of incorporation in the prescribed form to the effect that the proposed company is incorporated under the Act. 21. As per section 7(3) of the Act, on and from the date mentioned in the certificate of incorporation, issued under subsection 7(2), the Registrar has to allot to the company a corporate identity number, which shall be its distinct identity which shall also be included in the certificate. 22. The effect of registration is also provided in Section 9 of the Act which is reproduced as under : - 9. Effect of registration. From the date of incorporation mentioned in the certificate of incorporation, such subscribers to the memorandum and all other persons, as may, from time to time, become membersof the company, shall be a body corporate by the name contained in the memorandum, capable of exercising all the functions of an incorporated company under this Act and having perpetual succession 1*** with power to acquire, hold and dispose of property, both movable and immovable, tangible and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of paid-up share capital, file an application in the prescribed manner to the Registrar for removing the name of the company from the register of companies on all or any of the grounds specified in subsection (1) and the Registrar shall, on receipt of such application, cause a public notice to be issued in the prescribed manner: Provided that in the case of a company regulated under a special Act, approval of the regulatory body constituted or established under that Act shall also be obtained and enclosed with the application. (3) Nothing in sub-section (2) shall apply to a company registered under section 8. (4) A notice issued under sub-section (1) or sub-section (2) shall be published in the prescribed manner and also in the Official Gazette for the information of the general public. (5) At the expiry of the time mentioned in the notice, the Registrar may, unless cause to the contrary is shown by the company, strike off its name from the register of companies, and shall publish notice thereof in the Official Gazette, and on the publication in the Official Gazette of this notice, the company shall stand dissolved. (6) The Registrar, before passing an order under subsect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfy himself that sufficient provision has been made for the realisation of all amount due to the company and for the payment or discharge of its liabilities and obligations by the company within a reasonable time and as found necessary, shall obtain necessary undertakings from the managing director, director or other persons in charge of the management of the company. It is further provided that notwithstanding the undertakings referred to in sub-section 248(6), the assets of the company shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name of the company from the register of companies. Section 248(7) of the Act fasten the liability upon every director, manager or other officer who was exercising any power of management, and every member of the company, dissolved under sub-section 248(5), shall continue and may be enforced as if the company had not been dissolved. Section 248(8) of the Act further provides that nothing mentioned in section 248 of the Act shall affect the power of the Tribunal to wind up a company, the name of which has been struck off from the register of companies. 29. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ster of companies, he may within a period of three years from the date of passing of the order dissolving the company under section 248, file an application before the Tribunal seeking restoration of name of such company. (2) A copy of the order passed by the Tribunal shall be filed by the company with the Registrar within thirty days from the date of the order and on receipt of the order, the Registrar shall cause the name of the company to be restored in the register of companies and shall issue a fresh certificate of incorporation. (3) If a company, or any member or creditor or workman thereof feels aggrieved by the company having its name struck off from the register of companies, the Tribunal on an application made by the company, member, creditor or workman before the expiry of twenty years from the publication in the Official Gazette of the notice under sub-section (5) of section 248 may, if satisfied that the company was, at the time of its name being struck off, carrying on business or in operation or otherwise it is just that the name of the company be restored to the register of companies, order the name of the company to be restored to the register of companies, and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A company may, on a petition under section 272, be wound up by the Tribunal, (a) if the company has, by special resolution, resolved that the company be wound up by the Tribunal; (b) if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality; (c) if on an application made by the Registrar or any other person authorised by the Central Government by notification under this Act, the Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purpose or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it is proper that the company be wound up; (d) if the company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years; or(e) if the Tribunal is of the opinion that it is just and equitable that the company should be wound up.] 35. Chapter XX of the Act deals with the wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured 41. The Financial Debt and Operational Debt are defined in Section 5(8) and 5(21) of the Code which are reproduced as under:- (8) financial debt means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non- recourse basis; (f) any amount raised under any other transaction, including any forwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of unpaid operational debt (i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or (ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor. Explanation. For the purposes of this section, a demand notice means a notice served by an operational creditor to the corporate debtor demanding repayment of the operational debt in respect of which the default has occurred. 44. Since the application under Section 9 has been filed, therefore, Section 9 is also reproduced as under:- 9. (1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under subsection (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process. (2) The application under sub-section (1) shall be filed in such form and manner and accompanied with such fee as may be prescribed. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of admission of the application under sub-section (5) of this section. 45. As per Section 13 of the Code, the Adjudicating Authority, after admission of the application, either filed under Section 7, 9 or 10 of the Code, shall pass the order for (a) declaration of moratorium for the purposes referred to in Section 14 (b) cause a public announcement of the initiation of CIRP and call for the submission of claims under section 15 (c) appoint an IRP in the manner as laid down in Section 16 and as per Section 13(2) of the Code, the public announcement which is provided in Section 31(b) shall be made immediately after the appointment of the IRP. 46. From the reproduction of the various provisions of the Act and the Code as well as narration of the said provisions in context of its applicability, we have tried to highlight that CIRP can be initiated only against a corporate debtor which may be either by the financial creditor, operational creditor or the corporate debtor itself. The corporate debtor, defined under Section 3(8) of the Code, means a corporate person who owes a debt to any person. The corporate person is defined under Section 3(7) to mean a company as defined in clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation under Section 7 of the Code against the Corporate Debtor for resolution of an amount of Rs. 9,11,08,439.37/- with interest. The said application was admitted on 12.06.2019 and the order of admission was challenged by Hemang Phophalia, ex-director and shareholder of the CD. On whose behalf it is argued that since the name of the CD was struck off from the register of RoC under Section 248 of the Act, therefore, the application under Section 7 against a non-existent company is not maintainable. It was also argued by the Appellant in that case that the CD has become non-functional from last many years and there is no employee working in company and even assets are not there, therefore, the RP cannot make the CD a going concern. In the said case, this Court after framing the question in para 6, referred to Section 248 of the Act and concluded in para 12 that from sub-section 8 of Section 248, it is clear that Section 248 in no manner will affect the power of the Tribunal to wind up a company, the name of which has been struck off from the register of Companies. Thereafter, reference has been made to Section 250 and 252 of the Act. Though, it is observed that Instead of liquidatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Code was not maintainable. This Court while referring to the provisions of Section 248, 250, 252 and relying upon the decision rendered by it in the case of Hemang (Supra) dismissed the appeal. 51. The aforesaid two decisions are on the same issue on which the present appeal has been filed as to whether the application filed under Section 9 of the Code for initiation of CIRP, is maintainable against the CD if the name of the CD has been struck off from the register of RoC? 52. After taking into consideration the various provisions of the Act, mentioned and reproduced hereinabove and the provisions of the Code also referred to in the earlier part of this order, we are of the considered opinion that the judgments relied upon by the Appellant in the case of Hemang (Supra) and Elektrans (Supra) are not laying down the correct law and are per incuriam. 53. The reason for expressing this opinion by this three-member bench is that the Hon ble Benches in the aforesaid two cases have not referred to various provisions of the Code as well as the Act and has not even appreciated as to who would be the Corporate Debtor, for the purposes of initiation of CIRP, on an application either file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... going concern. 57. Thus, in our humble opinion, the Hon ble Benches, while delivering the aforesaid two judgments relied upon by the Appellant, have not appreciated the provisions of the Code and the Act in its true sense that it shall apply only to the CD which means a company duly incorporated and shall not apply to a company which cease to exist in terms of Section 248(5) and 250 of the Act and is thus no more a Corporate Debtor. 58. Even if a right of recovery is provided from the asset of the company under Section 248(6) or from the director etc. under Section 248(7) or even as per the exception in Section 250, the application under Section 7 or 9 shall still not be maintainable because it would lead to another form of recovery which shall be on the basis of the provisions of the winding up. 59. Thus, in our considered opinion, the finding recorded in para 21 of the judgment in the case of Hemang (Supra) is not correct and is per incuriam. It is held by the Hon ble Supreme Court in the case of Government of A.P. and Anr. Vs. B. Satyanarayna Rao by LRs. And ors. (2000) 4 SCC 262 that the rule of per incuriam can be applied where a court omits to consider a binding precedent of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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