Fresh IBC Plea Maintainable Despite No Liberty To File Fresh Petition At Withdrawal Of Earlier Plea: NCLT Chennai

The National Company Law Tribunal (NCLT) Chennai has recently held that withdrawal of an insolvency application at the pre-admission stage, even without liberty to file afresh, does not bar a subsequent petition. It ruled that such proceedings are governed by the Insolvency and Bankruptcy Code as a self-contained framework and not by the Civil Procedure Code.

A coram of Judicial Member Sanjiv Jain and Technical Member Venkataraman Subramaniam admitted a Section 7 application filed by Malco Gems against Prince Foundations Limited. The order initiates the corporate insolvency resolution process (CIRP) against the company.

“We are in agreement with the submission of the Petitioner that the proceedings under IBC are the special proceedings governed by a selfcontained code and the strict provisions of CPC do not apply unless expressly adopted. Therefore, Order 23 Rule 1(4) has no applications and fresh petition is maintainable,” the tribunal held.

The petition was filed by Malco Gems, a proprietary concern, seeking initiation of CIRP against the corporate debtor.

According to the petition, the corporate debtor approached Malco Gems in 2020 for financial assistance. A total sum of Rs 16.90 crore was disbursed between September 2020 and August 2021 through banking channels.

On March 31, 2022, the corporate debtor executed a demand promissory note acknowledging the liability. It agreed to repay the amount with interest at 18% per annum. Despite issuance of a demand notice dated July 30, 2022, which was served on August 3, 2022, the corporate debtor failed to repay the dues.

The total default was stated to be Rs. 29.32 crore. The date of default was recorded as August 14, 2022.

Malco Gems contended that the disbursal was against consideration for time value of money, qualifying as a financial debt under the Code. It also submitted that an earlier petition had been withdrawn before admission, without issuance of notice and without adjudication on merits. On that basis, it argued that the present petition was maintainable.

Opposing the plea, the corporate debtor argued that the earlier petition had been withdrawn without liberty to file afresh. It claimed that a fresh petition was therefore barred under Order XXIII Rule 1 of the Civil Procedure Code. It also contended that the transaction was not a loan but a project investment linked to a real estate development.

The Tribunal noted that the earlier petition had been withdrawn at the pre-admission stage after defects were pointed out. No notice had been issued to the corporate debtor. There was also no adjudication on merits.

Referring to Section 424 of the Companies Act, the Tribunal observed that proceedings before the NCLT are not bound by the procedure laid down under the CPC. They are instead guided by principles of natural justice.

It further held that Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 permits withdrawal of an application before admission. The rule does not impose any bar on filing a fresh petition. In such circumstances, CPC provisions governing withdrawal of suits would not apply.

On merits, the Tribunal rejected the corporate debtor's contention that the transaction was a project investment. It noted that although no loan agreement existed at the time of disbursal, the subsequent execution of the promissory note acknowledged liability and provided for interest, evidencing a financial debt.

“We are of the view that the Petitioner has established its case that it is a Financial Creditor and had advanced the loan being a financial debt which is more than the threshold limit of Rs.1.0 Crore which the Corporate Debtor defaulted in repayment. This petition has been filed within limitation,” the tribunal concluded.

Accordingly, the tribunal admitted the petition, initiated CIRP against the corporate debtor, and appointed Sudhir GS as the Interim Resolution Professional.

For Petitioner: Advocate J Manivannan

For Respondent: Advocate K.K Vijay Vigneshwar