2023 (5) TMI 1083 - AT - Insolvency and Bankruptcy

Territorial Jurisdiction for consideration of section 7 application - territorial jurisdiction of the NCLT, Mumbai to consider the application - can lender can take proceedings relating to a dispute in any other courts, apart from courts in England, with jurisdiction to the extent allowed by law and the lender bank is also allowed to take concurrent proceedings in any number of jurisdictions? - HELD THAT - A plain reading of the provision relating to jurisdiction makes it abundantly clear that clause 35.1 in the Loan Facility Agreement dated 17.11.2011 is for the benefit of the lender Punjab National Bank (International) Limited, and wherein clause 35.1(c) stipulates that the lender shall not be prevented from taking proceedings relating to a dispute in any other Courts than the courts of England and also that the lender is empowered to taking concurrent proceedings in any number of jurisdictions. Further, by clause 35.2, the borrower-corporate debtor has irrevocably and generally consented in respect of any proceeding anywhere and has also waived immunity on grounds of sovereignty or otherwise - on the issue of jurisdiction it is unambiguously clear that Punjab National Bank (International) Limited as financial creditor is fully entitled and authorised to take action in respect of section 7 application against the corporate debtor under the IBC before the NCLT, Mumbai which shall be the Adjudicating Authority to adjudicate the section 7 application. The corporate debtor has not denied the issue or receipt of demand notice but has only claimed that it was unable to due repayment amount because of the severe financial and commercial stress experienced by the corporate debtor as a result of the Covid-19 pandemic - It is thus clear that the repayment of instalments of loan amounts due and payable to the corporate debtor on account of the two loan facility agreements are financial debts which are in default of repayment and the dates of the recall notice and filing of section 7 application make it clear that the application was filed within limitation. The Adjudicating Authority has not committed any error in the Impugned Order, and hence it does not require any interference - Appeal dismissed.

Summary

Issues Involved:
1. Jurisdiction of NCLT, Mumbai to adjudicate the Section 7 application.
2. Validity of the recall notice and the timeline for filing the Section 7 application.
3. Admission of debt and default by the corporate debtor.
4. Appropriateness of initiating CIRP against a solvent company affected by Covid-19.

Summary:

Issue 1: Jurisdiction of NCLT, Mumbai
The Loan Facility Agreements stipulated that the agreements would be governed by English law and that the courts of England would have jurisdiction. However, Clause 35.1(c) allowed the lender to take proceedings in any other courts with jurisdiction. Sub-section (1) of Section 60 of the IBC provides that the NCLT, Mumbai has territorial jurisdiction over the corporate debtor's registered office located in Mumbai. Therefore, Punjab National Bank (International) Limited is fully entitled to take action under Section 7 of the IBC before the NCLT, Mumbai.

Issue 2: Validity of the Recall Notice and Timeline
The financial creditor sent a recall notice on 04.05.2021 demanding repayment of the outstanding loan amount. The Section 7 application was filed on 02.02.2022, within one year of the demand notice. The corporate debtor did not deny the receipt of the demand notice but claimed inability to repay due to financial stress caused by the Covid-19 pandemic.

Issue 3: Admission of Debt and Default
The corporate debtor admitted its liability regarding the loan amounts due and payable and did not dispute the debt or default in repayment. The impugned order noted that the corporate debtor acknowledged its inability to repay due to the pandemic but intended to repay once the business situation improved.

Issue 4: Appropriateness of Initiating CIRP
The corporate debtor argued that it was not insolvent but faced temporary financial stress due to the pandemic and sought more time for repayment. It also mentioned a loan restructuring plan extending repayment till 30.06.2028. However, the financial creditor argued that the corporate debtor defaulted even under the restructured plan and admitted to the debt and default.

Conclusion:
The NCLT, Mumbai has jurisdiction to adjudicate the Section 7 application. The recall notice and subsequent filing of the Section 7 application were within the limitation period. The corporate debtor admitted the debt and default. The appeal was dismissed, and the initiation of CIRP was upheld. No order as to costs was made.