Company Can Enter CIRP Despite Winding-Up Order If No Irreversible Steps Taken: NCLT Delhi

The National Company Law Tribunal (NCLT), at Delhi has ruled that a company facing winding-up proceedings can still be admitted to the corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code (IBC), provided the winding-up has not reached an irreversible stage.

A bench of President Justice Anupinder Singh Grewal and Technical Member Ravindra Chaturvedi examined whether the company could be given an opportunity to revive despite an existing winding-up order.

The tribunal relying on SC rulings observed, “it is concluded that where irreversible steps have not been taken, the Company can be saved from the rigours of winding up or liquidation and, rather, be pushed to survival through CIRP in terms of the IBC. The NCLT, as an Adjudicating Authority, upon receiving a matter on transfer from the High Court does not have an option to skip the process of CIRP and directly start with liquidation. This Adjudicating Authority is bound to admit the company to CIRP (whether with independent verification or through deemed admission) and appoint an Interim Resolution Professional."

The tribunal admitted a Section 7 petition filed by Punjab National Bank against SVOGL Oil Gas and Energy Limited, formerly known as Shiv-Vani Oil & Gas Exploration Services Ltd.

The Delhi High Court had ordered the company's winding up on July 28, 2017, and appointed an official liquidator, who took possession of its assets. By the time the proceedings were transferred to the NCLT on July 25, 2023, some assets had already been sold, while sales of others were being finalised.

The Official Liquidator did not oppose the bank's insolvency petition and expressly stated that she had no objection to its admission.

Examining the Delhi High Court's transfer order, the NCLT noted that secured creditors had sought the transfer because the winding-up proceedings had not reached an advanced stage. The transfer was sought on the basis that no auction had been held and no claims had been invited at that stage.

The tribunal observed that the transfer was intended to give the company an opportunity to revive through CIRP rather than continue with winding up.

Relying on the Supreme Court's ruling in Action Ispat and Power Ltd. v. Shyam Metalics and Energy Ltd., the NCLT noted that winding-up proceedings can be transferred to it even after a winding-up order has been passed, provided the process has not reached an irreversible stage.

The tribunal also referred to the Supreme Court's decision in A. Navinchandra Steels Pvt. Ltd. v. SREI Equipment Finance Ltd., which emphasised that the IBC prioritises revival of a company through the infusion of new management.

In Swiss Ribbons Pvt. Ltd. v. Union of India, the Supreme Court similarly observed that the IBC focuses on the revival and continuation of a corporate debtor, rather than merely recovering dues for creditors. Liquidation is resorted to only when all attempts at resolution fail.

The NCLT noted that SVOGL is a listed public company whose affairs affect not just its lenders but also its public shareholders and other stakeholders. It observed that a collective, time-bound insolvency resolution process offered a better prospect of maximising the value of the company's assets and reviving it as a going concern than continuing with winding up.

The tribunal also clarified that the existing winding-up proceedings did not allow it to bypass the insolvency process. It observed, “This Adjudicating Authority has no power to bypass the process prescribed in IBC and CIRP regulations and therefore, direction commencement of liquidation also cannot be a question under consideration. Therefore, this Adjudicating Authority, in view of no objection raised by the Official Liquidator, is bound to admit the CD to CIRP vide a formal order.”

The tribunal admitted the company into CIRP, imposed a moratorium under Section 14 of the IBC and appointed Resurgent Resolution Professionals LLP as the interim resolution professional. It directed the Official Liquidator to hand over charge of the company, including its assets and documents, to the interim resolution professional.