Applications Under Sections 7, 9, Or 10 Of IBC Filed Before 2021 Amendment Act Retain Priority: NCLAT Principal Bench

The National Company Law Appellate Tribunal, Principal Bench, New Delhi of Justice Rakesh Kumar Jain (Judicial Member), Naresh Salecha (Technical Member) and Indevar Pandey (Technical Member) has held that if an application under Sections 7, 9, or 10 of the Insolvency and Bankruptcy Code was already in process before 2021 Amendment Act came into force, then the amendments in Section 11A would not affect the priority of the proceedings.

Brief Facts:

The matter pertained to two appeals filed by the Appellant, Jaldhara Properties and Trading Pvt. Ltd.. The first appeal contested an order of the National Company Law Tribunal, Mumbai which initiated the Pre-Packaged Insolvency Resolution Process (PPIRP) under Section 54(C) of the Insolvency and Bankruptcy Code, 2016. Sudal Industries Ltd. (Corporate Debtor) filed this application for PPIRP. The second appeal challenged the order which approved the base resolution plan submitted by the Resolution Professional under Section 54K(15) of the Code and Regulation 49(1) of the IBBI (Pre-Packaged Insolvency Resolution Process) Regulations, 2021.

The first appeal arose from the Appellant's contention that the NCLT erred in preferring the PPIRP application over an earlier Section 7 application for insolvency filed by it. The Appellant argued that the NCLT misinterpreted Section 11A(4) of the IBC which mandates that PPIRP procedures should not take precedence over pending applications under Section 7 or 9. The NCLT admitted the PPIRP application and imposed a moratorium and appointed a Resolution Professional. The Appellant's appeal sought to overturn this order.

In contrast, the second appeal challenged the NCLT's approval of the base resolution plan submitted by the Resolution Professional. This appeal was contingent on the outcome of the first appeal.

Observations by the NCLAT:

The central issue before the NCLAT was whether an application under Section 54(C) of the IBC should be prioritized over an earlier application filed under Section 7 of the IBC, given that the former was filed after the Insolvency and Bankruptcy Code (Amendment) Act, 2021 came into effect.

The NCLAT referred to Section 11A of the IBC which outlines how applications under Section 54C and Sections 7, 9, or 10 should be handled by the Adjudicating Authority. Section 11A(1) mandates that if an application under Section 54C is pending, the Adjudicating Authority must decide on it before considering any applications under Sections 7, 9, or 10 related to the same corporate debtor.

Section 11A(2) states that if an application under Section 54C is filed within fourteen days after an application under Sections 7, 9, or 10 has been filed and is pending, the Section 54C application must be given precedence. Conversely, Section 11A(3) provides that if an application under Section 54C is filed more than fourteen days after the filing of an application under Sections 7, 9, or 10, the latter application will take precedence.

The matter pertained to Section 11A(4) which stipulates that these provisions do not apply to applications under Sections 7, 9, or 10 that were filed and pending before the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2021. The NCLAT noted that this meant that if an application under Sections 7, 9, or 10 was already in process before the Act came into force, then the amendments in Section 11A would not affect the priority of the proceedings.

It noted that the application under Section 7 was filed on December 9, 2020 before the amendment came into effect on April 4, 2021. The application under Section 54C was filed on September 4, 2022 well after the amendment. Therefore, it held that the NCLT's decision to prioritize the Section 54C application over the earlier Section 7 application was incorrect. According to Section 11A(4), the priority rules set by the amendment cannot apply to applications that were already pending before the amendment's enactment.

The NCLAT, therefore, held that the NCLT erred by applying the Section 54C precedence rules inappropriately. Consequently, the NCLAT set aside the order that initiated the Pre-Packaged Insolvency Resolution Process (PPIRP) under Section 54C.

Case Title: Jaldhara Properties and Trading Pvt. Ltd vs Sudal Industries Ltd. & Anr.

Case Number: Company Appeal (AT) (Ins) No. 707 of 2023 with Company Appeal (AT) (Ins) No. 1420 of 2023

For Appellants : Mr. Shubhrato Chakraboti, Mr. Sumesh Dhawan, Shaurya Shyam, Adv. For Respondent : Mr. Gaurav Mitra, Aditya Singh, Vineet Gupta, Roy Chowdhury, Lavanya Pathak, Adv. Mr. Amar Dave, Sr. Adv. with Abhinav Agrawal, Adv. for RP

Date of Judgment: 22.07.2024

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