Case Note & Summary
The appeal arises from an order of the National Company Law Tribunal (NCLT), Bengaluru Bench, dated 30.12.2019, which dismissed IA No.47/2019 in CP(IB) No.14/BB/2017, thereby dismissing the Section 7 application filed by the financial creditor (Edelweiss Asset Reconstruction Company Ltd.) against the corporate debtor (Mapletree Leather Goods Private Limited) as abated due to the death of one of the directors of the corporate debtor. The appellant, Mapletree Leather Goods Private Limited, challenged this order. The background is that the financial creditor had filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) for initiation of corporate insolvency resolution process (CIRP) against the corporate debtor. During the pendency of the application, one of the directors of the corporate debtor died. The NCLT, relying on the Code of Civil Procedure, 1908 (CPC), held that the proceedings abated as the legal representatives of the deceased director were not brought on record. The appellant contended that the IBC is a complete code and the provisions of CPC regarding abatement are not applicable. The NCLAT allowed the appeal, setting aside the NCLT order, and restored the Section 7 application. The NCLAT held that the death of a director does not abate the proceedings as the corporate debtor is a separate legal entity and the proceedings are in rem. The moratorium under Section 14 of the IBC continues, and the Resolution Professional can proceed without substitution of legal representatives. The matter was remanded back to the NCLT for fresh consideration.
Headnote
A) Insolvency and Bankruptcy Code - Section 7 Application - Abatement - Death of Director - The death of a director of the corporate debtor does not cause the abatement of a Section 7 application under the Insolvency and Bankruptcy Code, 2016, as the proceedings are in rem and the corporate debtor continues to exist. The Adjudicating Authority erred in dismissing the application as abated. (Paras 1-15) B) Insolvency and Bankruptcy Code - Moratorium - Section 14 - The moratorium under Section 14 of the IBC applies to the corporate debtor and its assets, and the death of a director does not affect the moratorium or the continuation of the insolvency proceedings. (Paras 10-12) C) Insolvency and Bankruptcy Code - Substitution of Legal Representatives - The provisions of the Code of Civil Procedure, 1908 regarding substitution of legal representatives are not applicable to proceedings under the IBC, as the IBC is a complete code in itself. The Resolution Professional can continue the proceedings without substitution. (Paras 13-15)
Issue of Consideration
Whether the death of a director of the corporate debtor results in abatement of the Section 7 application under the Insolvency and Bankruptcy Code, 2016, and whether the Adjudicating Authority can recall its order dismissing the application as abated.
Final Decision
The appeal is allowed. The impugned order dated 30.12.2019 is set aside. The Section 7 application is restored to the file of the NCLT for fresh consideration. The NCLT is directed to proceed with the application in accordance with law.
Law Points
- Insolvency and Bankruptcy Code
- 2016
- Section 7
- Section 14
- Section 60(5)
- abatement of proceedings
- death of director
- corporate debtor
- moratorium
- Resolution Professional
- substitution of legal representatives
