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August 24, 2024
RETAINING THE PRIORITY OF IBC APPLICATIONS FOR THE PRE-2021 AMENDMENT
In Jaldhara Propertities and trading Pvt. Ltd vs Sudal Industries ltd. & Anr. The 2021 Amendment Act has resulted in an important decision addressing the priority of insolvency applications under the Insolvency and Bankruptcy Code (IBC) by the Principal Bench of the National Company Law Appellate Tribunal (NCLAT), located in New Delhi. The court decided that the new changes to Section 11A have no bearing on the priority of applications submitted under Sections 7, 9, or 10 of the IBC prior to the 2021 Amendment Act.
BACKGROUND
The appellant appealed against two rulings made by Mumbai NCLT in this matter. In its first appeal, defendant, which was a corporate debtor, prayed for commencement of Pre-Packaged Insolvency Resolution Process (PPIRP) under section 54C of IBC. “The second appeal cited Section 54K (15) and Regulation 49(1) IBBI(PPIRP), Regulations,2021 challenging acceptance by NCLT of base resolution plan submitted by Resolution professional”.
ISSUE
- Whether the NCLT erred in prioritizing the PPIRP application under Section 54(C) over an earlier Section 7 insolvency application filed by the appellant.
2. The applicability of Section 11 A (4) of the IBC in determining the priority of applications filed before the 2021 Amendment Act.
RATIONALE
The interpretation and application of Section 11A of the IBC, with specific reference to its sub- sections pertaining to order of priority of applications under Sections 54(C), 7, 9 or 10, was the focus of NCLAT. It noted that Section 11A (4) expressly if applications which were pending under Section 7 or section 9 or section 10 before the enactment of the Amendment Act in year 2021.
BENCH OBSERVED AS FOLLOWS
- The appellant had filed its application under section 7 on December 9 2020, before April 4, 2021 and when this amendment took effect.
- On September 4, 2022 the respondent lodged its petition for a Winding up Order under section 54 (C) post the commencement of amendment.
Therefore, in the case at hand, according to NCLAT, it was wrong implementation by NCLT regarding priority requirements imposed by Section 54(C). Being already started when amendments on Section 11 started being operationalized it was not expected to affect their priority as regards an application made in terms of Section seven.
ANALYSIS
The NCLAT reversed the order issued by the NCLT invoking initiation of PPIRP under section 54(C) and upheld priority of insolvency applications brought before the 2021 Amendment Act in relation to Sections 7, 9 or 10. This pronouncement underscores the significance of compliance with legislative intent as well as duration for which statutory amendments remain applicable to bankruptcy proceedings.
This ruling is a must-have for insolvency law practitioners and experts because it stresses that any changes to insolvency laws should consider established procedure wherein petitions were filed even prior to enactment.
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