Decided on 25 July 2022 | Rajasthan High Court
In Vishnu Oil Mill Pvt. Ltd. vs Union of India, the High Court of Rajasthan (“the Court“) observed that the provision in question i.e., Section 7 of the Insolvency and Bankruptcy Code (“IBC“) as amended by Gazette Notification released on 05.06.2020, allows for no other interpretation other than that the application for triggering a Corporate Insolvency Resolution Process (“CIRP“) can be initiated either from an individual financial creditor (“FC“) or a group of joint FCs with the financial limit of INR 1 crore stipulated under Section 7 and as amended by Gazette Notification dated 24.03.2020.
In this case, Vishnu Oil Mill Private Limited (“VOMPL“) approached the Court with the intent of questioning the validity of Section 7 of the IBC as well as an order passed by the National Company Law Tribunal, Jaipur Bench (“NCLT“) on 22.12.2021 against the VOMPL initiating CIRP.
CONTENTIONS OF THE PARTIES
The clear intent of the legislature when the decision was taken to raise the threshold of default to INR 1 crore was that a joint application could still be possible except for cases involving individual financial creditors, towards whom the individual liability should not fall below this threshold.
II. Union of India:
There was no ambiguity in the provision and that either individual FCs or joint FCs could initiate the process to trigger the CIRP with a minimum financial limit of INR 1 crore.
The Court observed that IBC and amendment was formulated to provide a means of efficacious redressal to the smaller FCs and to allow them to avail speedy remedy under the IBC rather than being relegated to other onerous proceedings for securing their money. The Court interprets IBC in literal sense that a group of FCs can unite to touch the threshold of INR 1 crore stipulated under Section 7 to initiate a CIRP under the IBC.
The Court found that Section 7 as amended, allows for the application triggering a Corporate Insolvency Resolution Process (“CIRP“) to be initiated either from an individual financial creditor (“FC“) or a group of joint FCs with the financial limit of INR 1 crore stipulated under Section 7 and that the arguments presented by VOMPL regarding the clear intent of the legislature to be without merit