2017 (8) TMI 1488 - AT - Insolvency and Bankruptcy

Initiation of corporate insolvency resolution process by financial creditor - right of any Financial Institution to file application under Section 7 of the I&B Code - Held that - Rules of natural justice was followed before admitting the applications. Apart from the Inter-se Agreement between different banks is not binding in nature, the Corporate Debtors not being signatories cannot derive advantage of such Inter-se Agreement. This apart, the financial creditors having right to file application under Section 7 of the I&B Code, individually or jointly on behalf of other financial creditors as quoted below, the Inter-se Agreement between the financial creditors cannot override the said provision, nor can take away the right of any Financial Institution to file application under Section 7 of the I&B Code. For the reasons aforesaid, while we reject the submission made on behalf of the appellants, in absence of any merit, dismiss both the appeals.

Summary

Issues:
- Violation of rules of natural justice in passing orders without notice to the Appellants/Corporate Debtors.
- Interpretation of Inter-se Agreement between financial creditors and lead bank.
- Binding nature of Inter-se Agreement on non-signatory Corporate Debtors.

Analysis:
1. The appeals challenged orders passed by the Adjudicating Authority under the Insolvency & Bankruptcy Code, 2016, admitting applications for insolvency resolution against the Corporate Debtors. The Appellants contended that the orders violated natural justice as no notice was given to them. However, the Respondent provided evidence that notices were sent to the Appellants, and the rules of natural justice were followed before admitting the applications.

2. The Appellants argued that the financial creditor had waived its rights in favor of the lead bank through an Inter-se Agreement. The Agreement recognized the lead bank and second lead bank, outlining their roles and decision-making authority. The Tribunal held that such agreements do not bind non-signatory Corporate Debtors, and the financial creditors' right to file for insolvency under Section 7 of the I&B Code cannot be overridden by the Inter-se Agreement.

3. The Tribunal emphasized that the financial creditors, either individually or jointly, have the right to initiate insolvency proceedings under the I&B Code. The Inter-se Agreement between financial creditors does not negate this right. Therefore, the Tribunal rejected the submission made by the Appellants and dismissed both appeals for lack of merit. No costs were awarded in the circumstances of the case.