Adamji Investments' attempt to initiate CIRP against M Cons Media Marketing fails due to legal non-existence of debtor company.
In a significant ruling, the National Company Law Tribunal (NCLT) Mumbai Bench has dismissed an application filed by Adamji Investments Private Limited seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against M Cons Media Marketing Private Limited, a company that had been struck off the register of companies. The tribunal underscored that an application for CIRP cannot be maintained against a company that ceases to exist legally.
Adamji Investments Private Limited, the financial creditor, filed the application under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, claiming a default amount of Rs. 11.73 crore. However, the tribunal, comprising Member (Technical) Shri Sameer Kakar and Member (Judicial) Shri Nilesh Sharma, rejected the application on the grounds that the corporate debtor, M Cons Media Marketing Private Limited, ceased to exist following its striking off under Section 248 of the Companies Act, 2013.
The judgment highlighted that once a company is struck off and dissolved under Section 248(5) and 250 of the Companies Act, its certificate of incorporation is deemed canceled, and the entity no longer qualifies as a 'corporate person' under Section 3(7) of the IBC. This legal cessation of existence renders any CIRP application against such a company untenable.
The tribunal referred to the precedent set by the National Company Law Appellate Tribunal (NCLAT) in the Fedex Express Transportation case, affirming that CIRP can only be initiated against a living corporate debtor, which is a company incorporated under the Companies Act, 2013, or previous company law. The tribunal noted that the applicant failed to pursue restoration of the corporate debtor's name through Section 252 of the Companies Act, which could have been a potential recourse.
In addition, the tribunal addressed the issue of notice service, emphasizing that legal proceedings require effective service of notice, which cannot be accomplished on a non-existent entity. The tribunal cited the Supreme Court's judgment in the Maruti Suzuki case, which declared that issuing notice to a non-existent entity constitutes a substantive illegality, rendering proceedings void ab initio.
The judgment reflects the tribunal's adherence to legal principles ensuring that insolvency proceedings are conducted within the framework of existing corporate law. This decision serves as a reminder of the importance of ensuring the legal existence of a corporate debtor before initiating insolvency proceedings.
Bottom line:-
Application for initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016, against a struck-off company is not maintainable as the company ceases to exist legally under Section 248(5) and 250 of the Companies Act, 2013.
Statutory provision(s): Section 7 of Insolvency and Bankruptcy Code, 2016, Section 248, Section 250, Section 252 of Companies Act, 2013.
