IBC | Case Law Alert | Stay on winding-up order of the High Court will not deter rejection of Section 10 application: NCLAT

The National Company Law Appellate Tribunal (“NCLAT”), in the matter of Ameya Laboratories Limited v/s Kotak Mahindra Bank Ltd. & Ors., vide its order dated January 12, 2018 (available here), has held that the corporate insolvency resolution process under Section 10 of the Insolvency and Bankruptcy Code, 2016 (“Code”) cannot be initiated where a winding-up order was already passed against a corporate applicant company, even though a stay order has been passed against the winding-up order.

Factual Matrix:

1. The Hon’ble High Court of Andhra Pradesh (“APHC”) had passed an order for winding-up (“Winding-up Order”) against Ameya Laboratories Limited (“Corporate Applicant”) under Sections 433 & 434 of the Companies Act, 1956. The Winding-up Order was stayed by the Division Bench of the APHC, in view of the pendency of the matter in relation to the Corporate Applicant before the Board for Industrial and Financial Reconstruction.
2. Pending the stay order, an application was filed by the Corporate Applicant before the National Company Law Tribunal, Bench at Hyderabad (“Hyderabad NCLT”), under section 10 of the Code.
3. The Hyderabad NCLT vide an order dated August 21, 2017 (available here) had rejected the application made under Section 10 of the Code by the Corporate Applicant on different grounds including pendency of a winding-up proceedings.
4. An appeal was thus preferred by the Corporate Applicant before the NCLAT, challenging the impugned order of the Hyderabad NCLT contending that the Hyderabad NCLT had wrongly come to conclusion that the Corporate Applicant was undergoing liquidation as there was a stay on the Winding-up Order.
5. The respondents argued and challenged the appeal on the ground that Section 11(d) of the Code bars a corporate applicant, in respect of whom order of liquidation has already been made, from making any petition under Section 10 of the Code.
6. Section 11(d) of the Code states as follows:“..The following persons shall not be entitled to make an application to initiate corporate insolvency resolution process under this Chapter, namely:—… (d) a corporate debtor in respect of whom a liquidation order has been made…”

Findings of the NCLAT:

1. In light of the factual matrix, the NCLAT observed that the winding-up proceeding had already been initiated against the Corporate Applicant even though an interim order had been passed by the APHC.
2. The NCLAT while dismissing the appeal, held that winding-up proceeding had already been passed by the APHC against the Corporate Applicant, which was still pending and therefore, the application under Section 10 of the Code was not maintainable in view of the bar imposed under Section 11(d) of the Code.

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