Can a resolution professional trigger CIRP?

In a ‘unique application’ filed before a New Delhi bench of the NCLT, the resolution professional of a company undergoing corporate insolvency resolution process (CIRP) sought to trigger insolvency of its own debtor..Mandhana Industries Limited was admitted into CIRP in September 2017. The resolution professional of Mandhana Industries sought to trigger insolvency against Instyle Exports Private Limited, for default on payment relating to the supply of fabrics. The resolution professional of Madhana Industries thus filed an application with the NCLT under Section 9 as an operational creditor..Section 11 of the Insolvency and Bankruptcy Code (IBC), inter alia, expressly bars a ‘corporate debtor undergoing CIRP’ from making an application for initiating insolvency. Advocate appearing for the resolution professional, Pooja Mahajan of Chandhiok & Mahajan, however, made a convincing case as to why a company under CIRP can file an application with the NCLT as a creditor. Convincing enough for the NCLT to refer it to IBBI, but not convincing enough to get the case admitted..The case of the resolution professional was as follows:.1. That the term corporate debtor used in Section 11 refers to a corporate debtor whose resolution is being sought, and not in the context of a creditor who is making the application. The implication being that the term corporate debtor used in Section 11 only refers to a corporate debtor under Section 10 of the IBC, whereas the same entity may file an application as a creditor under Section 7 or Section 9 of the IBC. To buttress this argument, Mahajan presented several precedents where Section 11 came into play upon applications filed under Sections 7 and 9 for a company already under CIRP..2. That the NCLT must take a departure from the strict interpretation rule, much like the Supreme Court did in the Macquarie Bank case, keeping in mind the intention of the legislature, which was to prevent (a) misuse of IBC by debtors who have already availed the benefits of CIRP ; (b) misuse by corporate debtors and financial debtors who have violated the resolution plans made for the corporate debtor and; (c) multiple proceedings against the same debtor..3. Under Section 25 of the IBC, which enlists the duties of a resolution professional, the resolution professionals are expected to represent and act on behalf of the corporate debtor. To fortify her arguments, Mahajan also referred to some NCLT orders which have upheld the duty of the resolution professional to recover outstanding dues of the debtor..Advocate appearing on behalf of the corporate debtor, Nakul Mohta, however, argued in favour of the literal interpretation of Section 11 of the IBC. Judicial member Dr. Deepti Mukhesh, despite finding merit in the meat of the case, had to resort to literal interpretation and held that,.“it is observed that although there is clear debt and default in payment of debt which is due and payable under the Code, 2016 but due to literal interpretation of section 11 of the IBC, the Applicant herein is treated as Corporate Applicant as per the proviso to section 11 of the IBC……From the wordings of the IBC, it is not manifested whether the intent of the legislature was to debar the company who is undergoing CIRP, from enforcing its right to recover a legal debt which is indispensable for the survival and revival of the company.”.The NCLT also acknowledged the argument that the inability to recover this debt from the Instyle could lead to fatal consequences for Mandhana. Accordingly, the NCLT has sought clarity from the IBBI and also forwarded a copy of the order to them to “remove the anomaly and invigorate the Code suitably to overcome the hurdle forced in present scenario”.(Read the order)