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Rinoy Innocent
Law Student | LL.B (Hons.) | NLSIU '25 | Aspires to Establish Extensive Practice in Various Fields of Law |
Why did the NCLAT set aside the insolvency proceedings against Dream 11?
Facts of the case: The decision was taken in an appeal filed by the suspended director of Sporta Technologies. The appellant had a leave and license agreement that enabled the appellant to occupy a certain premise. The owner company of the said premises underwent insolvency proceedings, and thereby the Resolution Professional issued notice to the appellant company raising an amount of ?7,62,08,246 as license fees for the period from 27.03.2020 to April 2021.
The IRP later filed a section 9 application.The application was admitted by the adjudicating authority, and the appellant had filed a reply. Another demand notice was sent by the IRP, where the date of default was mentioned as 01.05.2021.
Argument by the appellant: The adjudicating authority admitted the application despite it being barred under Section 10A. And the first notice amount of debt as ?7,61,08,246/- and debt fell due since March 2020.
The Adjudicating Authority was of the view that Company Petition is hit by Section 10A and not maintainable. Despite the above observation, the Adjudicating Authority proceeded to admit Section 9 application by the impugned order
Section 10A of the Code prohibited filing an application under Sections 7, 9 & 10 for any default arising on or after 25.03.2020 up to 24.03.2021.
Opposition argued : Section 9 sub-Section (1) empowers the Operational Creditor to file the application if payment is not received from service of Demand Notice within 10 days.
No plea of the Bar was taken at the proceedings before the adjudicating authority.
NCLAT reasoning: When there is a bar of initiation of an application, the mere fact that in the Reply filed of the Corporate Debtor no plea of the Bar was taken is in consequential. It is well settled that for any default which is committed by a Corporate Debtor subsequent to 10A period application under Section 9 is fully maintainable.
It is thus open for the Operational Creditor to file a fresh application under Section 9 for the default which is committed after the expiry of 10A period.
Are the timelines mentioned in Corporate Insolvency Resolution Process (CIRP) Regulations directory or mandatory? NCLAT clarifies.
The appellant workman was arrested and was behind bars from 03.09.2015 to 16.12.2016 and was later acquitted by the Sessions Court . The service of the Appellant was terminated by the Corporate Debtor on 19.04.2016. The Labour Court by the order dated 12.01.2023 reinstated the Appellant with back wages w.e.f. 16.04.2016 till actual reinstatement.
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The Corporate Debtor asked the Appellant to join with immediate effect, however, without back wages for which the Corporate Debtor contemplated approaching the High Court.
By this time, the corporate debtor was admitted into CIRP. The 90 day time limit expired on 21.05.2023, whereas the Appellant filed the claim with the Respondent on 05.07.2023 and the Respondent rejected the claims on the grounds of delay.
The Adjudicating Authority approved the Resolution Plan submitted by the successful resolution applicant.
The appellant was advised to file the claims before the Respondent. This was rejected by the Respondent on the ground of delay on 18.07.2023.
Issue: Whether the claims of the Appellant could have been considered by the Resolution Professional and the Adjudicating Authority despite being filed after 90 days i.e stipulated time ?
The Appellant submitted that list of Creditors was prepared by the Respondent on 13.07.2023, whereas the claims of the Appellant was rejected on the grounds of delay on 18.07.2023
The Corporate Debtor indicated to the appellant that they are approaching the High Court regarding back wage as indicated in their letter dated 07.02.2023 which was never challenged by the Corporate Debtor before any High Court.
Respondents argued on the basis of Supreme Court judgments in CoC of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors. [(2019) SCC Online SC 1478], Ghanshyam Mishra and Sons Private Limited vs. Edelweiss Asset Reconstruction Company Limited [(2021) 9 SCC 657] indicating strictness of the timelines.
NCLAT reasoning: The Regulation 13 of the CIRP Regulations, 2016 obligated the Resolution Professional to decide the claims within 7 days of the last date of receipt of such claims.
There was sufficient time available to the Respondent to consider the claims of the Appellant but the Respondent did not do so despite the Respondent not meeting the Regulation 13 of the CIRP Regulations, 2016 himself.
Thus at one side the Appellant did not meet the requirement of filing of claims within 90 days under Regulation 12 of the CIRP Regulations, 2016, on the other side the Respondent also did meet the requirement of verifying claims within 7 days of the last date of receipt of the claims as required by Regulation 13 of the CIRP Regulations, 2016.
It may also be worth considering that although the timeline as stipulated in the Code are sacrosanct and important and sometime critical for resolution of the Corporate Debtor in order to achieve the maximization of value of all the stakeholders, the timelines need to be considered as of directory nature and not as mandatory in nature.
The order of the adjudicating authority was set aside. And the issue was remanded back to the adjudicating authority.
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