By Lovisha Aggarwal | January 04, 2019
Case Name: Yash Technologies (P) Ltd. v. Base Corpn. Ltd. (dated 03-01-2019)
If existence of dispute was raised prior to the filing of petition under Section 433(e) and Section 434 (1) of the Companies Act, 1956, the application under Section 9 of the ‘I&B Code’ is not maintainable.
Corporate Debtor: M/S Base Corporation
In 2015, M/S Base Corporation raised objections with regard to non-completion of the project within time and completion of the same in haste with defects.
M/s. Yash Technologies filed a petition before Karnataka HC for winding up of M/S Base Corporation on the ground of inability to pay its debts.
[ under Section 433(e), Section 434 (1) and Section 439 of the Companies Act, 1956 ]
This petition was transferred before National Company Law Tribunal, Bengaluru
[ pursuant to Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016 ]
M/s. Yash Technologies treated the petition as an Application for initiation of corporate insolvency resolution process by operational creditor
[ under Section 9 of the Insolvency and Bankruptcy Code, 2016 ]
NCLT, Bengaluru dismissed the application on the ground of pre-existing dispute
[ Section 8 (2)(a) of the Insolvency and Bankruptcy Code, 2016 ]
M/s. Yash Technologies filed an appeal before NCLAT, Delhi against that order.
In the Appeal, M/S Yash Technologies claimed that that the M/S Base Corporation had issued competition certificate and appreciation certificate while the record shows that M/S Base Corporation had shown dissatisfaction with regard to work of the project much prior to the filing of the petition before the Karnataka HC.
Thus, NCLAT, Delhi held that: since existence of dispute was raised prior to the filing of petition under Section 433(e) and Section 434 (1) of the Companies Act, 1956, the application under Section 9 of the ‘I&B Code’ was not maintainable.
RELEVANT LEGAL PROVISIONS
The Companies Act, 1956:
Circumstances in which company may be wound up by Court. A company may be wound up by the Court,-
(e) if the company is unable to pay its debts
A company shall be deemed to be unable to pay its debts-
(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor;
(b) if execution or other process issued on a decree or order of any Court in favour of a creditor of the company is returned unsatisfied in whole or in part; or
(c) if it is proved to the satisfaction of the Court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the Court shall take into account the contingent and prospective liabilities of the company.
Provisions as to applications for winding up.
Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016
Transfer of pending proceedings of Winding up on the ground of inability to pay debts.-
(1) All petitions relating to winding up of a company under clause (e) of section 433 of the Act on the ground of inability to pay its debts pending before a High Court, and, where the petition has not been served on the respondent under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal established under sub-section (4) of section 419 of the Companies Act, 2013 exercising territorial jurisdiction to be dealt with in accordance with Part ll of the Code:
The Insolvency And Bankruptcy Code, 2016
Insolvency resolution by operational creditor. – (1) An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed. (2) The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor – (a) existence of a dispute, 1 [if any, or] record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute;
Application for initiation of corporate insolvency resolution process by operational creditor. – (1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.
Read the complete Order here