NCLAT Rules: IBC Proceedings Can Be Initiated Against Struck-Off Corporate Debtor

The Hon’ble National Company Law Appellate Tribunal (NCLAT), Principal Bench Delhi, has ruled that proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC) can be initiated against a Corporate Debtor even if it has been struck off. This significant ruling underscores the continuity of financial liabilities and the applicability of insolvency proceedings regardless of the company’s compliance status with the Companies Act.

Case Overview

The appeal, Protima Arora v. Maya Gupta & Ors., involved the approval of a Resolution Plan submitted by ACAIPL Investment and Financial Services Private Limited. The appellants challenged this approval, arguing the non-existence of the Corporate Debtor, thus questioning the jurisdiction and validity of the resolution process.

Contentions of the Parties

• Appellant’s Arguments: The appellants argued that since the Corporate Debtor was struck off and no longer existed, the entire exercise of approving the Resolution Plan was without jurisdiction. They also contended that there was no outstanding debt due from the Corporate Debtor.
• Respondent’s Arguments: The respondents countered that the NCLT had dismissed the appellant’s objection, which was never challenged. Therefore, the appellants could not now argue against the company’s existence. They also noted that the Registrar of Companies had restored the Corporate Debtor’s name, listing it as ‘active’ on the official website.

Tribunal’s Observations

The Tribunal, comprising Justice Ashok Bhushan (Chairperson), Barun Mitra, and Arun Baroka (Technical Members), made key observations:

• Existence at Time of Application: The company was very much in existence when the application under Section 7 of the IBC was filed. It was only subsequently struck off via a notice under Section 248(5).
• Impact of Striking Off: The Tribunal opined that striking off a company does not wash away its liabilities. The Corporate Debtor’s failure to comply with the Companies Act and non-filing of relevant financial documents does not negate its financial obligations.
• Continuity of Financial Liabilities: It was emphasized that the liability of the Corporate Debtor to discharge its financial debt continued. Hence, the ex-director’s claim that no debt was owed by the Corporate Debtor was unfounded.

Decision of the Tribunal

The Tribunal dismissed the appeal, reinforcing the notion that IBC proceedings can be initiated against a struck-off company to address its financial liabilities.

Legal Implications

This ruling clarifies that the status of a Corporate Debtor being struck off does not shield it from insolvency proceedings. Financial liabilities remain intact, and the IBC framework can be invoked to ensure creditors’ rights are protected.

Case Details

• Case Title: Protima Arora v. Maya Gupta & Ors. with other connected matters
• Case No.: Company Appeal (AT) (Insolvency) No.72 of 2024 with other connected matters
• Coram: Justice Ashok Bhushan (Chairperson), Barun Mitra, and Arun Baroka (Technical Members)
• Advocates for Appellants: Amar Dave, Sr. Advocate with Siddharth Chapalgaonkar, Sneha Botwe, Shwetal Shepal
• Advocate for Respondents: Kunal Godhwani

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