Winding Up Petitions Transferred From High Court To NCLT Cannot Be Admitted Mechanically: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi has recently held that a winding up petition transferred from a High Court to the National Company Law Tribunal under the Insolvency and Bankruptcy Code cannot be admitted mechanically.

Even if the High Court had already admitted the winding up petition, the NCLT must independently examine whether the requirements for admission under Section 9 of the Code are satisfied.

A bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra observed, “After transfer of the Winding Up Petition by the High Court to the NCLT after admission of the Winding Up Petition, NCLT has not to mechanically admit the petition and has to examine the application in accordance with provisions of the I&B Code and to pass a judicial order after considering as to whether the application need to be admitted under Section 9 or not"

"After transfer of the Winding Up Petition which has been converted into the Section 9 application, the Operational Creditor has to satisfy all parameters for admission of Section 9 application including threshold.", the bench added

The appeal arose from an order passed by the NCLT, Ahmedabad Bench, admitting the transferred winding up petition after treating it as a Section 9 proceeding filed by operational creditor Falcon Industries against Geeta Prints Ltd. The appeal was filed by Navin Ashokkumar Aswani, suspended director of the corporate debtor.

Falcon Industries had supplied goods between 2002 and 2004 and claimed an outstanding principal amount of Rs.7,62,500 along with interest at 24 per cent per annum. A winding up petition was filed before the Gujarat High Court in 2004 and was admitted on 11 December 2006.

The High Court later transferred the petition to the NCLT on November 25, 2021 in light of the Supreme Court's ruling in Action Ispat and Power Pvt. Ltd. v. Shyam Metalics and Energy Ltd. The matter was subsequently converted into a Section 9 proceeding on 4 March 2022.

Before the appellate tribunal, the suspended director argued that the threshold for Section 9 proceedings had been enhanced to ₹1 crore with effect from March 24, 2020, and that the principal debt was only Rs 7,62,500.

It was also contended that the 24 per cent interest claim was unilateral and never contractually agreed upon, and that disputes regarding invoice rates had been raised in May 2004.

The NCLAT held that once the winding up petition stood transferred and converted into a Section 9 proceeding, it had to satisfy all parameters under the Code, including the statutory threshold. The earlier admission of the winding up petition by the High Court could not automatically result in admission under the Code. Since the proceeding was converted in March 2022, the applicable threshold was Rs 1 crore enhanced with effect from 24 March 2020.

On the question of interest, the tribunal held that interest cannot form part of the operational debt unless there is material to show that the corporate debtor had agreed to it or accepted liability for it.

The invoices contained a clause stating, “We charge interest at 24% if payment is not received within 30 days from the date of this bill.” However, the Tribunal observed that this was merely a unilateral statement by the creditor. There was no agreement between the parties providing for such interest, nor was there any material to indicate that the corporate debtor had ever paid or acknowledged liability to pay interest at that rate.

Without the interest component, the operational debt remained Rs 7,62,500, which was far below the statutory threshold of Rs 1 crore.

The tribunal also rejected the plea of pre existing dispute. It noted that an account confirmation dated 3 March 2004, signed by the corporate debtor, acknowledged the outstanding amount of Rs 7,62,500. A subsequent letter dated May 24, 2004 alleging exaggerated rates was not treated as a bona fide dispute, particularly in the absence of particulars and in view of the earlier confirmation.

Allowing the appeal, the NCLAT set aside the NCLT's order admitting the Section 9 proceeding and held that the statutory threshold of Rs 1 crore was not met. The Tribunal further directed the corporate debtor to pay Rs 4.5 lakh, which had earlier been directed by the Gujarat High Court in April 2006, along with 12 percent compound interest from 4 April 2006 until payment. It also permitted withdrawal of the amount deposited before the High Court and directed that the payment be made within 30 days.