national company law appellate tribunal

National Company Law Appellate Tribunal: In a case where the appellant challenged the order passed by Adjudicating Authority claiming to be a Financial Creditor despite their claim being rejected during the liquidation proceedings, a 3-member bench comprising of Justice Ashok Bhushan, Chairperson, Barun Mitra (Technical Member) and Arun Baroka (Technical Member), held that the proceeding which undertook in the liquidation proceeding cannot be ignored nor can be washed out only on the ground that appellant’s name was reflected in the balance sheet of the Corporate Debtor.

Factual Matrix

In the instant matter, the appellant preferred an appeal against an order dated 30-08-2023 issued by the Adjudicating Authority, New Delhi by which the appellant’s claim to be a Financial Creditor as their name was included in the balance sheet of the Corporate Debtor during the liquidation proceedings was rejected by the Adjudicating Authority. Subsequently, appellant’s appeal under Section 42 of the Insolvency and Bankruptcy Code (IBC) was also rejected on grounds of limitation.

A scheme under Regulation 2B of the IBBI (Liquidation Process) Regulations, 2016 was submitted during the proceedings, and this scheme received approval from SIDBI, the 100% Financial Creditor. However, no payment was proposed for the appellant in this scheme. The appellant challenged the scheme’s approval, contending that they were also a Financial Creditor whose consent was required for scheme approval. The Adjudicating Authority rejected the Appellant’s application, primarily relying on the previous rejection of the appellant’s claim during the liquidation proceedings.

Moot Point

Whether the appellant, whose claim was rejected during the liquidation proceedings and whose consent was not obtained for a scheme, can assert their status as a Financial Creditor and challenge the scheme’s approval?

NCLAT’s Decision

The NCLAT observed that the appellant’s claim as a Financial Creditor had been rejected both by the Liquidator and the Adjudicating Authority during the liquidation proceedings. The Court opined that rejection of the appellant’s claim during the liquidation proceedings led to the conclusion that the claim could not be accepted in the liquidation proceedings, and the appellant was not entitled to any claim in the waterfall mechanism.

The NCLAT observed that the scheme submitted during the liquidation proceedings, the payment to the appellant was indicated as ‘nil,’ and it was approved by SIDBI, which the Liquidator considered a 100% Financial Creditor. The NCLAT held that since the appellant’s claim had already been rejected during the liquidation proceedings, therefore the appellant cannot assert that they are a Financial Creditor whose consent was required for scheme approval.

The appellant’s argument that their claim was reflected in the balance sheet of the Corporate Debtor was not sufficient to override the previous rejection of their claim in the liquidation proceedings.

The NCLAT held that the Adjudicating Authority’s decision to reject the appellant’s application was consistent with the facts and the applicable legal framework. The NCLAT found no merit in the appeal and consequently dismissed it.

[Ethenic Agencies (P) Ltd. v. K.G. Somani, 2023 SCC OnLine NCLAT 716, order dated 04-10-2023]


Advocates who appeared in this case :

Mr. Sudhir Makkar, Sr. Advocate with Ms. Anushka Sarkar, Ms. Veera Mathai, Counsel for the Appellants

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