CIRP plea filed u/s 7 of IBC can’t be mediated u/s 442 of the Companies Act, 2013

  • News|Blog|Insolvency and Bankruptcy Code|
  • 3 Min Read
  • By Taxmann
  • |
  • Last Updated on 7 March, 2023

Recent Posts

News, Blog, Account & Audit

Accounting Standard Board of ICAI Invites Comments on IASB’s Exposure Draft for Amendments to IAS 37

Blog, News, Company Law

SEBI Removes Requirement for No Objection Certificate for Release of 1% of Issue Amount Under ICDR Regulations

Latest from Taxmann

plea filed u/s 7 of IBC

Case Details: White Stock Ltd. v. Prajay Holdings (P.) Ltd. - [2023] 147 taxmann.com 329 (NCLAT-Chennai)

Judiciary and Counsel Details

    • 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

List of Cases Referred to

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

Leave a Reply

Your email address will not be published. Required fields are marked *

«
»

Everything on Tax and Corporate Laws of India

To subscribe to our weekly newsletter please log in/register on Taxmann.com

Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied