NCLT Rejects Insolvency Application Filed By Corporate Debtor Suppressing Liquidation Order With Rs 10 Lakh Costs

In a seemingly unprecedented order, the National Company Law Tribunal, Mumbai bench rejected an application filed by a corporate debtor under Section 10 of the Insolvency and Bankruptcy Code(IBC) with Rs.10 lakhs costs, on finding that it was filed suppressing winding up order passed against it by the High Court.

The suppression was detected almost at the fag end of the Corporate Insolvency Resolution Process(CIRP), when a resolution plan approved by the Committee of Creditors was submitted before the NCLT for its approval.

At this stage, one of the several financial creditors of the applicant informed the bench that the Bombay High Court had passed a liquidation order against the company on January 25, 2017.  

The application filed by Amar Remedies Ltd for initiating insolvency process against itself did not make any mention of the winding up order.

On being asked to explain this suppression, the applicant said that one of its creditors had filed a winding up application in the High Court in 2013, which was admitted on  August 27, 2014. Later, the company sought reference to Board for Industrial and Financial Reconstruction(BIFR) under Sick Industrial Companies Act(SICA).  On this application getting rejected, it filed appeal before the Appellate Authority for Industrial and Financial Reconstruction(AAIFR). Noting the pendency of proceedings in AAIFR, the High Court adjourned the liquidated proceedings sine die, by order passed on November 15, 2016. The corporate debtor said that the appeal in AAIFR abated when SICA wasrepealed following the enactment of IBC. Therefore, in terms of Section 6 of SICA, the application was filed in NCLT, submitted the applicant.

The NCLT however noted that the Bombay High Court had in the meanwhile, taking notice of the abatement of appeal in AAIFR, passed liquidation order against the company on January 25, 2017. Without revealing that, Amar Remedies filed the application under Sec.10 IBC on May 29, 2017.

The Tribunal observed that issue was not whether the corporate debtor was eligible to file Section 10 application, but whether it was bound to reveal the fact of liquidation order.

"Here point in issue is not the right of the corporate applicant for initiation of CIRP. But we are only examining whether the application U/S 10 of the IB Code 2016 is filed after the suppression of material facts known to be material",said the bench of V P Singh(Judicial Member) and Ravikumar Duraiswamy(Technical Member).

In this regard, the Tribunal referred to Section 11(d) IBC, which barred an applicant against whom a liquidation order has been passed from initiating CIRP. Reference was made to the January 22 decision of SC in Forech India Ltd vs Edelweiss Asset Reconstruction Co.Ltd, where it was observed that Sec.11(d) barred a corporate debtor from filing application under IBC if liquidation order has been passed against it. The Tribunal hence observed in the order passed on January 29 as follows:

It is clear that after liquidation order passed in a winding-up petition against the corporate debtor then it is barred from filing a petition under section 10 of the Code. Here the  corporate debtor has not only suppressed the material fact that the winding up petition has not only been filed and admitted, but liquidation order has also been passed against the corporate applicant/corporate debtor liquidator has been directed to expedite liquidation proceedings expeditiously. The corporate applicant suppressed this material fact, knowing it to be material, and filed the petition under section 10 and in contravention of Rule 10 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. 

The defence of the applicant that the fact of liquidation order was not material as the statutory Form 6 did not ask for such information was rejected by the Tribunal.

It found that the applicant's conduct amounted to offence under Section 77(a) of IBC, which deals with filing application with suppression of material facts and directed Registrar of Companies Mumbai to lodge prosecution.

The application was rejected with costs of Rs.10 lakhs, which was directed to be deposited in the Prime Minister's Relief Fund.

Read Order