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2019 (6) TMI 1563 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor committed default in paying financial debt - existence of debt and dispute or not - HELD THAT - It is clear that once it is shown that matter was referred to RBI and the proceeding is filed as per instructions of the RBI then it has to be seen whether such instructions were issued by RBI in compliance with section 35AA of Banking Regulation Act, 1949. Whether initiation of this proceeding against the Corporate Debtor is independent or it was as the RBI instructions contented in letter dated 28.08.2017? - HELD THAT - This proceeding Under Section 7 of the Insolvency and Bankruptcy Code, is filed against Corporate Debtor by SBI, is not filed independently but it is filed as per instructions of the RBI as contemplated Under Section 35AA of the Banking Regulation Act, 1949. The SBI has initiated this proceeding under Insolvency and Bankruptcy Code, against the Corporate Debtor on the basis of RBI directions dated 28.08.2017. Circular date 28.08.2017 is also on record at Page 142. RBI has directed State Bank of India to initiate proceeding under Insolvency and Bankruptcy Code, against some of the defaulters including the Corporate Debtor - It appears from evidence on record that this proceeding is initiated by the State Bank of India against the Corporate Debtor as per instructions of the RBI. Hence, this proceeding Under Section 7 of IBC appears to be not maintainable. Petition dismissed.
Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016. 2. Compliance with Reserve Bank of India (RBI) guidelines. 3. Applicability of the Supreme Court judgment in the case of Dharni Sugar & Chemicals Limited. 4. Validity of the proceeding under Section 35AA of the Banking Regulation Act, 1949. Issue-wise Detailed Analysis: 1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016: The State Bank of India (SBI) filed an application under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor for defaulting on a financial debt exceeding ?900 Crore. The Corporate Debtor did not file an affidavit-in-reply but challenged the proceeding in the Orissa High Court, arguing that the initiation was without following RBI instructions as per the press release dated 13.06.2017. 2. Compliance with Reserve Bank of India (RBI) guidelines: The Corporate Debtor contended that the SBI initiated the CIRP without adhering to RBI's instructions, which mandated finalizing a resolution plan within six months before proceeding under the IBC. The Orissa High Court dismissed the Writ Petition, noting that SBI had made sufficient efforts to resolve the matter through joint lenders' meetings but failed to find a viable resolution plan, thus justifying the initiation of insolvency proceedings. 3. Applicability of the Supreme Court judgment in the case of Dharni Sugar & Chemicals Limited: After the dismissal of the Writ Petition, the Corporate Debtor referenced the Supreme Court's decision in Dharni Sugar & Chemicals Limited, which set aside RBI's Circular dated 12.02.2018 and all proceedings initiated under the IBC based on that Circular. The Corporate Debtor argued that the SBI's proceeding was in contravention of Section 35AA of the Banking Regulation Act, 1949, and thus not maintainable. 4. Validity of the proceeding under Section 35AA of the Banking Regulation Act, 1949: The SBI countered that the application was filed independently and not based on the RBI Circular dated 12.02.2018, which was issued after the initiation of the proceedings on 21.12.2017. The SBI maintained that the debt and default were admitted by the Corporate Debtor, making the application for CIRP maintainable. The Tribunal examined the factual controversy regarding whether the proceeding was initiated independently by SBI or as per RBI's instructions. The Tribunal referred to the Supreme Court's interpretation of Sections 35A, 35AA, and 35AB of the Banking Regulation Act, 1949, which clarified that the RBI's power to issue directions for initiating insolvency proceedings under the IBC requires authorization from the Central Government. The Tribunal found that the SBI had initiated the proceeding based on RBI's instructions, as evidenced by the minutes of the joint lenders' meetings and the bank's counter affidavit in the Writ Petition, which indicated compliance with RBI's directions. The Tribunal concluded that the proceeding under Section 7 of the IBC was not maintainable as it was initiated based on RBI's instructions without the necessary authorization from the Central Government, as required by Section 35AA of the Banking Regulation Act, 1949. Conclusion: The Tribunal allowed the application filed by the Corporate Debtor under Section 60(5) of the IBC, challenging the proceeding under Section 7 of the IBC, and dismissed the CIRP initiated by SBI.
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