February 17, 2018

Insolvency proceedings can be started against a company even if the winding up petition against it is pending in a high court, the principal bench of the National Company Law Tribunal said on Friday.

Pronouncing an order to this effect in the case of Union Bank of India vs Era Infra Engineering, the three-member bench, led by tribunal’s president justice MM Kumar, listed the matter on March 28 for hearing on the merits of triggering insolvency proceedings against the company under Section 7 of the Insolvency and Bankruptcy Code (IBC).

“There is no bar on the NCLT to trigger an insolvency resolution process on an application filed under sections 7, 9 and 10 if a winding up petition is pending, unless an official liquidator has been appointed and a winding up order is passed,” the bench said in its order.

Union Bank had in June last year filed an insolvency petition against Era Infra, which owes the public sector lender `681 crore in term loans and $11 million in ECBs.

The maintainability of the insolvency petition has been the primary issue before the tribunal, since around 18 winding up petitions have been filed against the company in the Delhi High Court, but neither official liquidator has been appointed nor any winding up order has been passed.

Union Bank has all along been arguing that IBC is a consolidating law related to insolvency of corporate entities which provides for resolution of the corporate debtor before ordering liquidation. The jurisdiction of the tribunal under Section 7 of the code is independent of the jurisdiction of the Company Court under 433(e) of the Companies Act, 1956.

Era Infra is among the 12 companies referred to NCLT benches after the Reserve Bank of India had asked banks to refer them to the NCLT. The RBI, had on June 13, 2017, had asked banks to refer a dozen troubled companies – with a combined debt of close to `2.4 lakh crore – to the NCLT, following several failed attempts at loan recovery. Resolution process in other 11 such defaulting firms, including Essar Steel and Bhushan Steel, have already been started.

[The Financial Express]