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NCLT IBC Inapplicable To Cooperative Society

By - Shreya Rajat Srivastava on March 31, 2022

Held In the Solapur District Central Co-Operative Bank Ltd v. Sangola Taluka Sahakari Sakhar Karkhana Ltd that NCLT IBC Inapplicable To Cooperative Society. It came up for consideration before the Hon’ble National Company Law Tribunal, Mumbai Bench as to whether a registered CoOperative Society would qualify as a “Corporate Person” under the provisions of the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as “Code)

NCLT IBC Inapplicable To Cooperative Society

In the present case, the Corporate Debtor, namely M/s. Sangola Taluka Sahakari Sakhar Karkhana Limited is a Cooperative Society registered under the Maharashtra State Co-Operative Society. The Financial Creditor, i.e. M/s. Solapur District Central Co-Operative Bank initiated CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016, against recovery of dues after defaulting on payments to be made by the Corporate Debtor and the Financial Creditor. 

It was contended by the Financial Creditor that the Corporate Debtor falls in the definition of the Corporate Person as envisaged under the Code. Relying upon the judgments of the Hon’ble Supreme Court in M/s. Adani Power (Mumdra) Ltd. v. Gujarat Electricity Regulatory Commission & Ors.[1] and CTO V. Binani Cement Limited[2] the Financial Creditor argued that the Code intended to include all legal entities in its ambit and that included registered cooperative societies as well except financial service providers. 

The Hon’ble Tribunal while taking into consideration the judgment of the Hon’ble NCLAT, in the matter of Asset Reconstruction Company (India) Ltd v. Mohammadiya Educational Society[3], whereby the same issue was put forth for consideration before the Hon’ble NCLAT as to whether the term “Corporate Person” in the Code would include societies registered under the Society Registration Act, 1860.  In the aforementioned judgment, it was held by the Hon’ble NCLAT that the provisions of Section 2 read with Section 3(7) of the Code, do not in any manner whatsoever qualify the registered societies under the Society Registration Act as a “Corporate Person” as envisaged under the Code and therefore, the Code would not apply in such scenarios.

It was also noted by the Hon’ble Tribunal that the Central Government had issued notifications in respect of initiation of the CIRP against the Corporate Debtors and the Personal Guarantor to Corporate Debtor, however, no such notification in respect of the CIRP proceedings against the Co-Operative Society has been issued till date. 

Because of the above judgment and the notifications issued by the Central Government, the Hon'ble Tribunal in the present case, being of the view that the Corporate Debtor who is Co-Operative Society does not come under the purview of the Code and therefore the CIRP cannot be initiated against the Corporate Debtor.  

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[1] Solapur District Central Co-Operative Bank Ltd v. Sangola Taluka Sahakari Sakhar Karkhana Ltd.

[2] (2014) 8 SCC 319

[3] Company Appeal (AT) Insolvency No. 495/2019

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