Subsequent CIRP Makes Earlier Appeal Against Insolvency Rejection Infructuous: NCLAT New Delhi
The New Delhi Bench of the National Company Law Appellate Tribunal (NCLAT) on 18 September held that an appeal against rejection of a creditor's application to initiate Corporate Insolvency Resolution Process (CIRP) becomes infructuous once CIRP has already commenced against the same Corporate Debtor in a subsequent proceeding.
A Bench comprising Judicial Member Justice Sharad Kumar Sharma with Technical Members Arun Baroka and Indevar Pandey held that a second, parallel CIRP cannot be initiated against the same Corporate Debtor after commencement of the first CIRP. It observed:
“The very relief sought by the Appellant, namely, commencement of CIRP, has already been effectuated through a subsequent proceeding. The Section 14(1)(a) of the Code specifically bars institution of any proceeding against the Corporate Debtor after the commencement of moratorium. Thus, the initiation of a second and parallel CIRP against the same Corporate Debtor is not possible under the existing provisions of the code.”
Mekaster Finlease Limited filed the appeal against the National Company Law Tribunal (NCLT), Jaipur order rejecting its application under Section 7 of the Insolvency and Bankruptcy Code (IBC) against Prayag Polytech Private Limited. Mekaster had claimed Rs. 1.55 crore along with interest.
During the appeal, the NCLT admitted Prayag Polytech into CIRP pursuant to another Section 7 application filed by Canara Bank. Mekaster thereafter submitted a claim of Rs. 2,97,43,803 before the Resolution Professional. The Resolution Professional rejected the claim based on the material available on record.
Before the NCLAT, Mekaster sought adjudication of its pending appeal, contending that the NCLT's finding that its transaction did not constitute a financial debt could prejudice its claim in the ongoing CIRP.
The Appellate Tribunal considered whether an appeal against rejection of a Section 7 application could survive after CIRP commenced against the same Corporate Debtor in a subsequent proceeding. It noted that once a Corporate Debtor enters CIRP, the insolvency process treats creditors within the applicable framework.
Further, the Bench observed that the creditor whose application resulted in commencement of CIRP does not receive any additional benefit in distribution under the Resolution Plan.
It held that Mekaster did not suffer any adverse consequence merely because Canara Bank's application led to commencement of CIRP. It also clarified that Mekaster could not convert the pending appeal into an independent proceeding for adjudication of its claim merely because both proceedings concerned the same underlying transaction.
Relying on the Supreme Court's judgment in P. Mohanraj & Ors. v. Shah Brothers Ispat Pvt. Ltd., (2021) ibclaw.in 24 SC, the Tribunal noted that the statutory consequences of commencement of CIRP, including the moratorium under Section 14, require creditors to pursue claims against the Corporate Debtor within the framework of the ongoing CIRP.
It further clarified that Mekaster's grievance over rejection of its claim arose subsequently within the ongoing CIRP and that Mekaster must pursue it through the remedy available under the IBC.
Accordingly, the NCLAT dismissed the appeal as having become infructuous.
For Appellant: Advocate Kanishk Rana
For Respondent: Advocate Abhishek Devgan and Vishal Hirawat for the Resolution Professional