CIRP plea filed u/s 7 of IBC can’t be mediated u/s 442 of the Companies Act, 2013
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- Last Updated on 7 March, 2023
Case Details: White Stock Ltd. v. Prajay Holdings (P.) Ltd. - [2023] 147 taxmann.com 329 (NCLAT-Chennai)
Judiciary and Counsel Details
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- M. Venugopal, Judicial Member & Naresh Salecha, Technical Member
- P.H. Arvindh Pandian, Sr. Adv. for the Appellant.
- Dr K. Ravichandran, PCS & Ms S. Manjula Devi, Adv. for the Respondent.
Facts of the Case
In the instant case, the appellant (the financial creditor) had entered into an investment agreement with the corporate debtor. According to the agreement, the appellant was entitled to receive coupon payments at 11% p.a. during the development period. In case, outstanding principal amounts were not repaid, they were to be converted into shares based on a conversion price at the end of the development period.
However, the appellant didn’t receive any return on investment in any form and alleged mismanagement and malaise by the corporate debtor. The appellant filed a company petition u/s 241 of the Companies Act, 2013 and thereafter filed an application u/s 7 of IBC against the corporate debtor.
The Adjudicating Authority (NCLT) referred both the application and company petition for mediation to the ‘International Arbitration & Mediation Centre’, in Hyderabad, (IAMCH) under section 442 of the Companies Act.
It was noted that the audited financial statements of the corporate debtor acknowledged liability of the amount payable. Further, the financial arrangement made between the financial creditor and the corporate debtor clearly fell under the definition of debt and default. Therefore, the financial creditor had a right to move an application u/s 7 of the IBC.
NCLAT Held
The NCLAT observed that there was a debt of more than Rs. 1 crore, which was admittedly not paid resulting in default and thereby meeting the requirement of section 7 of IBC.
The NCLAT, further observed that instead of accepting or rejecting the application after establishing the fact that the debt was due, remained unpaid and default took place, NCLT preferred to refer an application u/s 7 to IAMCH for mediation, which was not in conformity with the law. Therefore, the impugned order of NCLT was to be set aside.
The NCLAT held that the petition filed u/s 241 of the Companies Act was entirely for a different purpose, which entitled aggrieved parties due to oppression and mismanagement to file an application. The application filed u/s 7 was purely regarding the initiation of CIRP for the default of debt of more than Rs. 1 crore by the corporate debtor.
The NCLAT, further held that the petition made u/s 241 of the Companies Act could not be equated with an application filed u/s 7 of the IBC and the NCLT was required to treat these petitions on a separate footing.
Therefore, NCLT erred in tagging the application filed u/s 7 with the petition filed under section 241 and referring both applications for mediation to IAMCH. The rejection of the act of NCLT to refer the said application filed u/s 7 for mediation was beyond the jurisdiction.
List of Cases Reviewed
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- White Stock Holdings Ltd. v. Prajay Holdings (P.) Ltd. [2023] 147 taxmann.com 328 (NCLT – Hyd.) (para 36) reversed [See Annex].
- Vidarbha Industries Power Ltd. v. Axis Bank Ltd. [2022] 140 taxmann.com 252/173 SCL 355 (SC)/2022 SCC Online SC 841 (para 33) distinguished.
List of Cases Referred to
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- E.S. Krishnamurthy v. Bharath Hi-Tech Builders (P.) Ltd. [2021] 133 taxmann.com 159[2022] 169 SCL 644 (SC)/[2022] 3 SCC 161 (para 15)
- Innoventive Industries Ltd. v. ICICI Bank Ltd. [2017] 84 taxmann.com 320/143 SCL 625 (SC)/[2018] 1 SCC 407 (para 15)
- Pratap Technocrats (P.) Ltd. v. Monitoring Committee of Reliance Infratel Ltd. [2021] 129 taxmann.com 132/167 SCL 508 (SC)/[2021] 10 SCC 623 (para 17)
- Arun Kumar Jagatramaka v. Jindal Steel & Power Ltd. [2021] 125 taxmann.com 244/165 SCL 652 (SC)/[2021] 75 SCC 474 (para 17)
- Drip Capital Inc. v. Concord Creations (India) (P.) Ltd. [2021] 133 taxmann.com 344/[2021] 229 Comp. Cas. 638 (NCLAT – Chennai) (para 17)
- Sodexo India Services (P.) Ltd. v. Chemizol Additives (P.) Ltd. [2021] 128 taxmann.com 271/2021 SCC Online NCLAT 18 (para 19)
- Vidarbha Industries Power Ltd. v. Axis Bank Ltd. [2022] 140 taxmann.com 252/173 SCL 355 (SC)/2022 SCC Online SC 841 (para 21)
- Vijay Pal Garg v. Pooja Bahry [2020] 118 taxmann.com 173/161 SCL 106 (NCLAT) (para 24).
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