S. 59 of IBC and Voluntary Liquidation under Companies Act

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The Hon’ble NCLAT has held that the jurisdiction exercised by the Adjudicating Authority is vested in it and cannot be termed improper. Despite being of the view that the claim initially left out by the Respondent No.1 was payable, the Liquidator proceeded to reject the same without any justifiable reason which cannot be supported.

S. 59 OF IBC APPLIES EVEN WHEN THE VOLUNTARY LIQUIDATION PROCEEDINGS ARE INITIATED UNDER COMPANIES ACT, 1956

Case Summary

Harrish Khurana – Appellant

Vs.

Engineers India Limited and Ors. – Respondent

Company Appeal (AT) (Insolvency) No. 58 of 2020

Decided On: 22.05.2020

By Hon’ble Judges/Coram:

Bansi Lal Bhat, J. (Member (J)), V.P. Singh and Shreesha Merla, Members (T)

1.      Issue for Consideration:

Where Voluntary Liquidation is initiated under the Companies Act, 1956, whether the provisions of Section 59 of the Insolvency and Bankruptcy Code, 2016 (“I&B Code”) be made applicable and in such case, whether the appeal under Section 42 of the ‘I&B Code’ is maintainable before the Adjudicating Authority (National Company Law Tribunal).

2.      Brief Facts of the Case:

·     The present application has been filed by the appellant before the Hon’ble NCLAT requesting to set aside the order which is passed by the Hon’ble NCLT, Delhi on 29th November, 2019.

·       The appellant is the liquidator of M/s TEIL Projects Limited which is undergoing Voluntary Liquidation Process under the Companies Act, 1956 and the Companies (Court) Rules, 1959.

·     The Respondent No. 1 filed a claim for an amount of Rs. 16, 29, 171/- which was rejected by the liquidator vide letter dated 14th May, 2019 on the ground that the same was not part of the declaration of solvency dated 13th June, 2016.

·        The Respondent No. 1 approached NCLT, Delhi invoking its jurisdiction under Section 42 of the I&B Code.

·        The Hon’ble NCLT, Delhi directed the liquidator to admit the claim and consequently set-aside the letter dated 14th May 2019 issued by the Liquidator, to the extent of rejection of claim.

·      Aggrieved by the order of the NCLT, Delhi, the liquidator preferred this appeal challenging the jurisdiction of NCLT, Delhi on the ground that such claim can be made only before Delhi High Court where the voluntary liquidation proceedings are pending and not before NCLT.

3.      Arguments

Appellant:

·       The claim of the respondent is not part of the Declaration of Solvency and hence there is no liability to pay them the claim amount of Rs. 16,29,171/-.

·      The application before the NCLT, Delhi is not maintainable as the voluntary liquidation process initiated by ‘M/s. TEIL Projects Limited’ is not governed by Section 59 of the ‘I&B Code’.

Respondent:

·    Section 2 of the ‘I&B Code’ clearly provides that the ‘I&B Code’ shall apply to any company incorporated under the Companies Act, 2013 or any previous company law, special Act, LLP Act and other specified corporate bodies as also individuals other than personal guarantors, in relation to their insolvency, liquidation, voluntary liquidation or bankruptcy, as the case may be.

·      As per Section 238 of the ‘I&B Code, the provisions of the ‘I&B Code’ override other laws. Thus, there being specific provision in the ‘I&B Code’ dealing with admission or rejection of claim by the Liquidator with mechanism provided for questioning the same in appeal before the Adjudicating Authority under Section 42 and such provision being made applicable to voluntary liquidation proceedings explicitly in terms of the provisions embodied in Section 59(6) of the ‘I&B Code’, issue raised with regard to maintainability of the appeal and jurisdiction of the Adjudicating Authority are without any substance.

4.      Case Analysis:

Even though the voluntary liquidation proceedings are initiated and are pending before the High Court, the provisions of Section 59 of the I&B Code shall become applicable and consequently the appeal filed before the Adjudicating Authority on admission/rejection of claims under Section 42 of the I&B Code is maintainable.

5.      Conclusion:

In the present case the Hon’ble NCLAT has held that the jurisdiction exercised by the Adjudicating Authority is vested in it and cannot be termed improper. Despite being of the view that the claim initially left out by the Respondent No.1 was payable, the Liquidator proceeded to reject the same without any justifiable reason which cannot be supported.

It was further held that the appeal filed under Section 42 before the Adjudicating Authority and the instant appeal before this Appellate Tribunal are maintainable.

Therefore, the Hon’ble NCLAT has dismissed the appeal on the above grounds holding that the appeal is devoid of any merits.

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