Innoventive Industries Vs Kumar Motors Pvt. Ltd.

Fact of the case:

The Appellant filed an application under Section 7 of the ‘Insolvency and Bankruptcy Code, 2016 (“I&B Code”) for initiation of ‘Corporate Insolvency Resolution Process’ against ‘Kumar Motors Private Limited’- (‘Corporate Debtor’) on the ground that the said Respondent defaulted for making repayment of Rs. 24,06,52,849.50/- along with interest. NCLT Mumbai Bench, rejected the application on the ground of pendency of a winding-up proceeding against the ‘Corporate Debtor’.

Question of law:

• Whether an application under Section 7 of the ‘I&B Code’ can be rejected on the ground of pendency of a winding-up?

Legal Position:

• The Central Government Framed Rules known as “The Companies (Transfer of Pending Proceedings) Rules, 2016”. Rule 5 relates to “Transfer of pending proceedings of Winding up on the ground of inability to pay debts which says All petitions relating to winding up of a company under clause (e) of Section 433 of the Act on the ground of inability to pay its debts pending before a High Court, and where the petition has not been served on the respondent under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal established under sub-section (4) of Section 419 of the Companies Act, 2013 exercising territorial jurisdiction to be dealt with in accordance with Part II of the Code.
• Third proviso in these substituted Rules stating that where a winding petition not transferred from High Court to the Tribunal under this Rule and remains in the High Court and where there is another petition under clause (e) of section 433 of the Act 1956 for winding up against the same Company pending as on 15th December 2016, such other petition shall not be transferred to NCLT, even if the petition has not been served on the Respondent.

NCLAT Decision:

• NCLAT Observed that Section 238 of the ‘I&B Code’ will not override the effect on the winding-up proceedings saved by the ‘I&B Code’.
• That if in a particular case order of winding up has already been passed by the Hon’ble High Court and is pending before the Hon’ble High Court, such winding up proceedings being saved by the ‘I&B Code’, Section 238 of the ‘I&B Code’ will not override the effect on such winding up proceedings. Dismiss the petition filed by Innovative.

(NCLAT order dated 09/02/2018)