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Synopsis

The National Company Law Tribunal in Mumbai has recently ruled that the Insolvency and Bankruptcy Code of 2016 does not include any provisions for reopening the Corporate Insolvency Resolution Process (CIRP) and the only way to reinstate the case is by filing a fresh petition for admission.

“We are of the view that the words “to reopen the Corporate Insolvency Resolution Proceedings in accordance with Law” only warrants restoration of company petition for fresh admission, because the code does not contain any provision for reopening of CIRP process once it is stood concluded at one point of time,” the bench held.

The NCLT bench in Mumbai presided over by Justice Kishore Vemulapalli and Technical Member Prabhat Kumar, was hearing a plea filed by a financial creditor. The plea sought to reinstate the Corporate Insolvency Resolution Process (CIRP), citing the liberty granted by the National Company Law Appellate Tribunal (NCLAT) to revive the CIRP against the corporate debtor (CD).

The NCLT bench in Mumbai had initially allowed an application filed by the financial creditor under section 7 of the code, seeking the initiation of the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor.

Following this, the financial creditor and the corporate debtor reached an agreement for settling the outstanding dues.

The NCLT allowed the settlement, based on the corporate debtor's commitment not to approach the NCLAT. However, an appeal was subsequently filed by one of the former directors of the corporate debtor with the NCLAT.

In light of the settlement that had been reached, the NCLAT disposed of the appeal and closed the CIRP against the corporate debtor while noting that, in the event of a default, the financial creditor would have the option to approach the adjudicating authority to reopen the CIRP, in accordance with the law.

The corporate debtor defaulted on the payment due to the dishonour of the cheques submitted to the bank.

In response, the financial creditor approached the NCLT, relying on the liberty granted by the NCLAT to reinstate the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor.

However, the bench was of the opinion that the use of the terms ‘in accordance with law’ by NCLAT would mean reopening the proceedings in accordance with the provisions of the code and not otherwise.

“This bench feels that if the words “to reopen the Corporate Insolvency Resolution Proceedings in accordance with Law” are interpreted to imply resumption of CIRP automatically on default, the Hon’ble NCLAT would have rather stayed the CIRP process for the period during which settlement amount was to be paid than to order the closure of CIRP. Further, the words “in accordance with the law” clearly suggest that the reopening of the proceedings has to be in accordance with the provisions of the code and not otherwise,” the order reads.

Case title: Amluckie Investment Company Limited vs Skill Infrastructure Ltd.