NCLAT: An Application Under Section 12A Of The IBC Is Not Maintainable After Commencement Of Liquidation

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The National Company Law Appellate Tribunal, New Delhi on August 29, 2024 gave its decision in the case of Asha Chopra v. Hind Motors India Limited...

India Corporate/Commercial Law

The National Company Law Appellate Tribunal, New Delhi on August 29, 2024 gave its decision in the case of Asha Chopra v. Hind Motors India Limited whereby it inter alia held that during the liquidation period, an application under section 12A of the Insolvency and Bankruptcy Code, 2016 ('Code') is not permissible.

Brief Facts:

The Appellant claimed to be depositors of Hind Motors India Limited ('Corporate Debtor') and filed an application under section 12A of the Code before the Adjudicating Authority seeking a direction to the Liquidator to call for a meeting of the Committee of Creditors to consider the said application under 12A of the Code ('12A Application').

The Liquidator filed a reply to the 12A Application contending that the said Application is not maintainable and that a sale notice was already issued.

The Adjudicating Authority vide its order dated May 31, 2024 rejected the 12A Application holding that the Application is not maintainable under section 12A of the Code. The Adjudicating Authority also observed that the said Application is filed by the Appellant at the instance of the ex-Director of the Corporate Debtor who is himself barred under Section 29A of the Code.

Issues:

Whether the 12A Application can be filed after commencement of the liquidation process?
Whether it was obligatory for the liquidator to constitute the Stakeholders Consultation Committee when the liquidation of the Corporate Debtor commence on September 12, 2017?

Submissions on behalf of the Appellant:

The submissions made on behalf of the Appellant are summarized below:

In the matter of V Navneetha Krishnan v. Central Bank of India, Coimbatore, the Tribunal held that in view of section 12A even during the liquidation period, if any person, not barred under Section 29A, satisfies the demand of the Committee of Creditors, then such person may move before the Adjudicating Authority.
In the matter of Lokhandwala Kataria Construction Private Limited. v. Nisus Finance and Investment Managers LLP (2018) 15 SCC 589, the Hon'ble Supreme Court, to put a quietus to the matter, took the consent terms on record.

Observation:

The Tribunal observed that in the matter of V Navneetha Krishnan, the Tribunal did not take into consideration the statutory scheme which is delineated by section12A and section 33 of the Code. It further observed that the Liquidation Regulation which provides for compromise and arrangement was not placed before that bench. The Tribunal stated that they do not accept the observation made by the Tribunal that even during the liquidation period, any person can make an application under section 12A.

Regarding reliance placed by the Appellant on the Lokhandwala Kataria Construction Private Limited v. Nisus Finance and Investment Managers LLP case, the Tribunal stated that since section 12A was inserted with effect from June 6, 2018 viz. subsequent to this judgement, this judgement in no manner will help the Appellant in the facts of the present case.

The Tribunal also observed that when the scheme of the Code is looked into, the Stakeholders Consultation Committee is required to be constituted within 60 days from the liquidation commencement date, which is not a possibility in the facts of the present case.

Decision:

In view of the above observations, the Tribunal dismissed the Appeals and held that the Committee of Creditors ('CoC') exist till continuation of the Corporate Insolvency Resolution Process ('CIRP') and after the order for liquidation is passed, the CoC does not continue as to take a decision on withdrawal of applications under sections 7, 9 and 10 of the Code.

The Tribunal held that the statutory scheme of the Code clearly contemplates that withdrawal of an application is permissible only during CIRP and the liquidation regulations do not contemplate any withdrawal under section 12A of the Code.

The Tribunal also held that Regulation 31A of the IBBI (Liquidation Process) Regulations, 2016 was inserted by Notification dated April 8, 2022 with effect from April 20, 2022 and from the said statutory provision, it is clear that Regulation 31A did not require constitution of Stakeholders Consultation Committee with regard to the liquidation which commenced years ago.

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