NCLAT: Shareholder/Director Of Financial Creditor Must Be Authorised By Board Resolution To File Application u/S 7 IBC

NCLAT: Shareholder/Director Of Financial Creditor Must Be Authorised By Board Resolution To File Application u/S 7 IBC

The Respondent submitted that the appeal was not maintainable as it was filed by the Shareholder of the Financial Creditor Company and that such person did not come within the definition of aggrieved person u/S 61 of the IBC

The National Company Law Appellate Tribunal (NCLAT) upheld the order of the National of Company Law Tribunal (NCLT) dismissing the application u/S 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) on the ground that no board resolution authorizing the Shareholder/Director of the Financial Creditor was filed along with the application.

The Bench of the National Company Law Appellate Tribunal at New Delhi, comprising Justice Jarat Kumar Jain, Dr Ashok Kumar Mishra and Dr Alok Srivastava heard the matter titled M Sai Eswara Swamy v Siti Vision Digital Media Pvt Ltd.

The factual background was that the Appellant was the director and 50 per cent shareholder of the Financial Creditor and due to a deadlock between the other shareholders in the Financial Creditor Company, the Appellant was not able to get himself authorised through a board resolution to file an application u/S 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the Respondent – Corporate Debtor. The National Company Law Tribunal had dismissed the application u/S 7 of the IBC by the Appellant on the ground that no board resolution authorizing the Appellant was filed along with the application.

Therefore, the Appellant had challenged the order of the National Company Law Tribunal by submitting that the Shareholder/Director of the Company could initiate action on behalf of the Company if the same was in the interest of the Company and the Board was not pursuing the same. The Appellant further submitted that such a board resolution was not required when the Respondent – Corporate Debtor in his balance sheet had acknowledged the debt.

The Respondent – Corporate Debtor, on the other hand, submitted a notification dated 27 February 2019 of the Central Government (Ministry of Corporate Affairs) which notified that a person duly authorized by the Board of Directors of a Company was competent to file Petition u/S 7 of the IBC on behalf of the Financial Creditor. The Respondent further submitted that the appeal was not maintainable as it was filed by the Shareholder of the Financial Creditor Company and that such person did not come within the definition of aggrieved person u/S 61 of the IBC.

The bench after considering the submissions of the parties found the specific notification by the Central Government to be more reliable which stated that on behalf of the Financial Creditor a guardian, an executor or administrator of an estate of a financial creditor, a trustee and a person duly authorized by the board of directors of a company could file an application for initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. Therefore, the doctrine of derivative action could not be applied in a Petition u/S 7 of the IBC in such a situation.

The Appellate Tribunal, therefore, dismissed the appeal by upholding the order of the National Company Law Tribunal dismissing the application u/S 7 of the IBC on the ground that no board resolution authorizing the Appellant was filed along with the application.