9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (2) TMI 185 - AT - Insolvency and BankruptcyInitiation of CIRP - NCLT rejected the application - Financial Creditors - non-disbursement of part of financial assistance sanctioned by the Financial Creditors - contributory negligence on the part of Financial Creditors, which was beyond the scope of inquiry of Section 7 or not - HELD THAT - There is no denial to the sanction of financial facilities to the respective Corporate Debtors and restructuring of the debt on account of default committed by the Corporate Debtors. It is further on the record that the Corporate Debtors were unable to carry out its repayment obligation as per Restructuring Agreement. From the judgment of the Adjudicating Authority in State Bank of India s case, it is clear that Adjudicating Authority has based its decision of rejecting Section 7 Application on the ground that the default committed by the Corporate Debtor in restructuring its debt, there is contributory negligence by the State Bank of India as well as Punjab National Bank. The fact that certain portion of sanction amount of financial facilities could not be disbursed by the Financial Creditors can be ground for rejecting Section 7 Application has already been answered by the Hon ble Supreme Court in its judgment in Innoventive Industries Limited 2017 (9) TMI 58 - SUPREME COURT . In Innoventive Industries Limited, a Section 7 Application was filed by the Financial Creditors. Nineteen Banking entities had extended credit to the Innoventive Industries Ltd. In the above case also restructuring proposal given by the Corporate Debtor was approved in the meeting of Joint Lenders Forum. A Restructuring Agreement was entered into on 09.09.2014, under which funds were to be infused by the creditors and certain obligations were to be met by the debtors. Insolvency resolution process was set in motion by filing a Section 7 Application. In reply to Section 7 Application, Corporate Debtor took plea that under the Maharashtra Relief Undertakings (Special Provisions) Act, 1958, all liabilities of the Corporate Debtor except certain liabilities and remedies for enforcement thereof were temporarily suspended, hence the Application under Section 7 could not have been filed. The Corporate Debtor also filed a second application taking another plea that owing to non-release of funds under Master Restructuring Agreement, the Corporate Debtor was unable to pay back its debts as envisaged. It was pleaded that no default has been committed by the Corporate Debtor - The Hon ble Supreme Court in the above judgment has also held that it is of no matter that the debt is disputed so long as the debt is due and payable. The Clause (u) of the Restructuring Agreement entered between the parties is in the identical words as Clause 20(t), which was noticed by the Hon ble Supreme Court in Innoventive Industries Ltd. The Hon ble Supreme Court in Innoventive Industries Ltd. having held that The Obligation of the corporate debtor was, therefore, unconditional and did not depend upon infusing of funds by the creditors into the appellant company is a declaration of law in reference to an Application under Section 7. The view taken by the Adjudicating Authority in the impugned order dated 28.06.2022 is clearly not in consonance with the law declared by the Hon ble Supreme Court in Innoventive Industries Ltd. - This alone is sufficient to set aside the impugned order passed by the Adjudicating Authority. Under the Scheme of IBC, when a Corporate Debtor is unable to pay its debt, which becomes payable, it is a warning signal for Corporate Debtor and when an Application is filed by a Financial Creditor to initiate CIRP under Section 7 and there are ample material that Corporate Debtor is unable to pay its debt and has committed default, the Adjudicating Authority is not required to go into the reasons of default and ignore the real status of the Corporate Debtor and close its eyes to the fact that the Corporate Debtor needs insolvency resolution - There being sufficient material before the Adjudicating Authority that consistent defaults have been committed by the Corporate Debtor and it is unable to pay its debt, rejection of Section 7 Application on the ground that for default committed by the Corporate Debtor, the Financial Creditors have also to be blamed is closing the eyes to the Scheme of the insolvency resolution. The orders of Adjudicating Authority dated 28.06.2022 and 29.06.2022 are unsustainable and are set aside - Appeal allowed.
Issues Involved:
1. Rejection of Section 7 Applications filed by Financial Creditors. 2. Contributory negligence on the part of Financial Creditors. 3. Relevance of debt restructuring and non-disbursement of funds. 4. Impact of pending civil suits on Section 7 Applications. 5. Interpretation of 'debt' and 'default' under Insolvency and Bankruptcy Code (IBC). Detailed Analysis: 1. Rejection of Section 7 Applications filed by Financial Creditors: The appeals were filed by Financial Creditors challenging the orders of the National Company Law Tribunal (NCLT), Kolkata Bench, which rejected their Section 7 Applications under the Insolvency and Bankruptcy Code (IBC). The Section 7 Applications were filed by State Bank of India (SBI), Punjab National Bank (PNB), and IDBI Bank Ltd. against Corporate Debtors for defaulting on financial facilities. 2. Contributory Negligence on the Part of Financial Creditors: The Adjudicating Authority rejected the Section 7 Applications on the grounds that there was contributory negligence by the Financial Creditors due to non-disbursement of part of the sanctioned financial assistance. The Authority held that the default was partly due to the Financial Creditors' failure to disburse funds as per the agreements, which was beyond the scope of inquiry under Section 7. 3. Relevance of Debt Restructuring and Non-Disbursement of Funds: The Corporate Debtors had entered into Master Restructuring Agreements (MRAs) with the Financial Creditors. Despite the restructuring, the Corporate Debtors defaulted on their repayment obligations. The Financial Creditors argued that the non-disbursement of funds was due to the Corporate Debtors' failure to meet conditions precedent. The Adjudicating Authority's reliance on non-disbursement as a ground for rejection was challenged, citing the Supreme Court's judgment in Innoventive Industries Ltd. vs. ICICI Bank, which held that the obligation of the Corporate Debtor was unconditional and did not depend on the infusion of funds by creditors. 4. Impact of Pending Civil Suits on Section 7 Applications: The Corporate Debtors had filed civil suits against the Financial Creditors, claiming damages and seeking declarations that the classification of their accounts as Non-Performing Assets (NPAs) was illegal. The Adjudicating Authority considered the pending suits as relevant for determining the default. However, the Financial Creditors argued that the mere filing of suits could not be a ground for rejecting Section 7 Applications, as the suits were separate issues for adjudication by the High Court. 5. Interpretation of 'Debt' and 'Default' under IBC: The Supreme Court in Innoventive Industries Ltd. clarified that the Adjudicating Authority must admit a Section 7 Application if a default has occurred, regardless of disputes over the debt. The Financial Creditors contended that the 'debt' and 'default' were established, and the Adjudicating Authority erred in examining the reasons for default. The Supreme Court's stance that the cause of default is irrelevant in financial stress situations was emphasized. Conclusion: The Appellate Tribunal set aside the orders of the Adjudicating Authority dated 28.06.2022 and 29.06.2022, holding that the rejection of Section 7 Applications based on contributory negligence and pending suits was contrary to the IBC's scheme. The Tribunal directed the Adjudicating Authority to pass orders of admission and other consequential orders within 30 days.
|
