Thursday, 14 September 2017

Operational Creditor can invoke CIRP in priority over Corporate Debtor application

National Company Law Tribunal (hereinafter “NCLT”) allowed application of Operational Creditor u/s 9 of IBC, 2016 for CIRP, giving preference to hearing over application filed by Corporate Debtor itself u/s 10.  The order passed by Hon'ble J. Varadharajan NCLT Special Bench, New Delhi  in Re: Levcon Valves Pvt. Ltd. vs Energo Engineering Projects Limited sets precedent on several counts:
  • NCLT passed a common order in all the 4 applications admitting application filed by Levcon Valves Pvt. Ltd. (Operational Creditor).
  • Although the net result of any of the applications being admitted would have been the same i.e. invocation of CIRP, the key concerns raised by the operational creditors and the financial creditor (with reference to application of the Corporate Debtor) was on the appointment of the proposed Interim Resolution Professional ("IRP") suggested by the Corporate Debtor.  The applications filed by Operational Creditors was objected by the Corporate Debtor which sought to appoint its IRP. 
  • Under the IBC, 2016 three classes of persons can initiate CIRP against a company i.e. Financial Creditors, Operational Creditor and Corporate Debtor.   
  • Bankers Certificate under section 9(3)(c) of the IBC, 2016 held to be mandatory for admission of the application of the Operational Creditor.   NCLT bench relied on judgment passed by Hon'ble NCLAT in Smart Timing Steel Ltd. vs. National Steel and Agro Industries Ltd.
  • The Financial Institution maintaining account of the Creditor are required to provide certificate specific to the requirement of section 9(3) (c) of the IBC, 2016 based on legislative and judicial mandate.  In the circumstances Bank Manager has been held accountable and called for explanations for not providing the mandatory certificate even after specific directions from Hon’ble NCLT.
  • Where Operational Creditors petition has some shortcoming in details of the proposed IRP, the petition cannot be rejected merely on this ground as NCLT can seek recommendation of IBBI for appointment of IRP. 

  • NCLT admitting the Operational Creditor’s petition and declaring moratorium, recommended the case to IBBI to suggest IRP.   Proposal for IRP is mandatory where application is filed by Financial Creditor and Corporate Debtor.    

Counsel Pankaj Jain and Salman Razi of Veda Legal, Advocates & Solicitors appeared on behalf of Levcon Valves Pvt Ltd. a Kolkata based company.
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Views expressed are personal.