2020 (2) TMI 287 - Tri - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - whether the petitioner can maintain the present petition under section 9 of I B Code as the Petitioner is undergoing CIRP? - HELD THAT - Section 11 of I B Code deals with the persons not entitled to make application. The persons shown in clauses (a) to (d) of section 11 of I B Code shall not be entitled to make an application to initiate corporate insolvency resolution process under this Chapter. We are looking into section 11(a) of I B Code which provides that a corporate debtor undergoing CIRP is not entitled to make an application to initiate CIRP - It is an undisputed fact that the Petitioner herein is undergoing CIRP. Insolvency resolution process can be started against a corporate debtor. Such a corporate debtor cannot initiate CIRP by virtue of section 11(a) of I B Code. Section 25 of I B Code provides duties of the Resolution Professional. Sub-clause (1) of section 25 of I B Code provides duties of the Resolution Professional to preserve and protect the assets of the corporate debtor including the continued business operations of the corporate debtor. Sub-clause (a) of section 25 of I B Code provides that Resolution Professional to take custody and control of all the assets of the corporate debtor. Sub-section 2(b) of section 25 of I B Code provides that the Resolution Professional to represent and act on behalf of the corporate debtor with third parties. Bar under section 11 of I B Code applies to Resolution Professional also but the Resolution Professional can exercise powers conferred on him under sub-clauses 2(a) and (b) of section 25 of I B Code. The petitioner which is undergoing corporate insolvency resolution process cannot maintain the present petition under section 9 of the I B Code as there is bar under section 11 of the I B Code - Petition dismissed.

Summary

Issues:
1. Maintainability of the petition under Section 9 of the Insolvency & Bankruptcy Code, 2016 by an operational creditor undergoing Corporate Insolvency Resolution Process (CIRP).

Analysis:
The case involved an Operational Creditor petitioning against a Corporate Debtor for defaulting on a significant amount. The Operational Creditor sought initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor under Section 9 of the Insolvency & Bankruptcy Code, 2016. The Operational Creditor provided evidence of the debt, including invoices and acknowledgment by the Corporate Debtor. Despite the absence of the Corporate Debtor in contesting the petition, a critical issue arose regarding the maintainability of the petition under Section 9 due to the Operational Creditor undergoing CIRP in another case.

The Tribunal deliberated on the application's maintainability under Section 9 in light of the prohibition outlined in Section 11 of the I&B Code. Section 11 restricts certain entities, including a corporate debtor undergoing CIRP, from initiating the CIRP process. The Operational Creditor contended that as an operational creditor, it could still initiate CIRP against the Corporate Debtor, even while undergoing CIRP itself. However, the Tribunal disagreed, emphasizing that the bar under Section 11 applies to any capacity in which the petitioner, undergoing CIRP, seeks to initiate CIRP against another entity. The Resolution Professional representing the petitioner was also deemed unable to maintain the petition under Section 9 due to the statutory restriction.

Additionally, the Tribunal referenced legal precedents to support its decision, citing cases where entities undergoing insolvency resolution were barred from initiating insolvency processes. Notably, the Tribunal highlighted that the Resolution Professional's powers under Section 25 of the I&B Code were subject to the limitations imposed by Section 11. Ultimately, considering the statutory restrictions and judicial interpretations, the Tribunal rejected the petition, concluding that the Operational Creditor, undergoing CIRP, could not maintain the petition under Section 9 due to the prohibition in Section 11 of the I&B Code.

This detailed analysis of the judgment from the National Company Law Tribunal, Hyderabad, provides a comprehensive overview of the issues surrounding the maintainability of the petition under Section 9 of the Insolvency & Bankruptcy Code, 2016, by an operational creditor undergoing Corporate Insolvency Resolution Process.