2025 (1) TMI 951 - AT - IBC

Challenge to order admitting Section 7 Application - power of Central Bank to file Section 7 Application as it was only lead Bank who as per inter-se Agreement can take steps for enforcement of the securities - HELD THAT - Section 7 Application which was filed by the Oriental Bank of Commerce was filed in the year 2020 claiming default of Rs.246, 30, 21, 036/- in which Section 7 Application a reply was filed and after hearing the parties the Adjudicating Authority after finding debt and default has admitted Section 7 Application. The proceeding for auction which was initiated in pursuance of Decree passed by DRT on 02.03.2020 on the Application filed by Central Bank of India where assets were auctioned on 05.11.2021 for an amount of Rs.37.60 crores has now stand cancelled on 24.04.2023. The Writ Petition which was filed by Central Bank of India being Writ Petition No.22367 of 2021 and Writ Petition No.11117 of 2022 filed by the CD were both heard and decided on 24.05.2024 by the Punjab and Haryana High Court. The High Court CENTRAL BANK OF INDIA AND M/S KAUR SAIN SPINNERS LTD. VERSUS UNION OF INDIA AND OTHERS 2024 (6) TMI 714 - PUNJAB AND HARYANA HIGH COURT has noted the order PUNJAB NATIONAL BANK (SUCCESSOR OF ORIENTAL BANK OF COMMERCE) THROUGH MR. ASHISH VERMA CHIEF MANAGER OVERSEAS BRANCH INDUSTRIAL AREA-A LUDHIANA VERSUS M/S. KAUR SAIN SPINNERS LTD. 2024 (5) TMI 1507 - NATIONAL COMPANY LAW TRIBUNAL CHANDIGARH by which Section 7 Application was admitted. The High Court has held in the judgment that by virtue of order of admission under Section 7 of IBC both the Writ Petitions have become infructuous. The Writ Petition was decided by the Punjab and Haryana High Court on 24.05.2024. The submission made on behalf of the CD before the Adjudicating Authority to defer the hearing of Section 7 Application has become infructuous. The Adjudicating Authority having found the debt and default there are no error admitting Section 7 Application. The submission of the Appellant that under inter-se Agreement it was only the lead Bank who could have taken steps is also without any substance since lead Bank i.e. Oriental Bank of Commerce has also filed Section 7 Application which has been admitted by the impugned order. The submission of the Appellant that Section 7 Application was filed for recovery of dues and was not maintainable also cannot be accepted. It is well settled law that the fact that Financial Creditor has initiated proceedings before the DRT does not preclude them to take remedy under Section 7 which is a special remedy provided under the IBC. To the submission of the Appellant that OTS proposal if accepted by Financial Creditors there can be no impediment in filing Section 12-A Application before the NCLT for withdrawal of the proceedings through IRP by giving Form-FA in accordance with law no exception can be taken. Conclusion - No grounds have been made out by the Appellant to interfere with the impugned order admitting Section 7 Application by the Adjudicating Authority. However in event the OTS proposal as submitted by the Appellant is accepted by Financial Creditors it shall be open for the Financial Creditors to file Application under Section 12-A read with Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016 within two weeks from today. Appeal dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the Section 7 Application filed by Punjab National Bank (PNB) for initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor (CD) was valid and maintainable.
Whether the Central Bank of India had the jurisdiction to file a Section 7 Application given the inter-se agreement among the consortium of banks.
Whether the proceedings under Section 7 were a mere recovery measure and if they were maintainable alongside proceedings before the Debt Recovery Tribunal (DRT).
Whether the auction proceedings and subsequent cancellation affected the CIRP initiation.
Whether the One-Time Settlement (OTS) proposal by the Appellant should influence the continuation of the CIRP.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and Maintainability of Section 7 Application by PNB

Legal Framework and Precedents: Section 7 of the Insolvency and Bankruptcy Code (IBC) allows a financial creditor to initiate CIRP upon default.
Court's Interpretation and Reasoning: The court found that PNB, as a successor of Oriental Bank of Commerce, filed the Section 7 Application due to the CD's default on its dues, which amounted to Rs.246,30,21,036/-.
Key Evidence and Findings: The CD's account was declared as NPA on 31.08.2017, and default was evident.
Application of Law to Facts: The court applied Section 7 of the IBC and found that the application was rightly admitted due to the established debt and default.
Treatment of Competing Arguments: The appellant's argument that the application was a recovery measure was rejected, emphasizing that IBC provides a special remedy.
Conclusions: The court upheld the admission of the Section 7 Application by PNB.

Issue 2: Jurisdiction of Central Bank of India to File Section 7 Application

Legal Framework and Precedents: Inter-se agreements among banks can influence who may take enforcement actions.
Court's Interpretation and Reasoning: The court dismissed the argument that only the lead bank could file the application, noting that both banks had initiated proceedings.
Key Evidence and Findings: Both banks had declared the account as NPA and filed applications under Section 7.
Application of Law to Facts: The court found no breach of the inter-se agreement as both banks took action.
Treatment of Competing Arguments: The appellant's jurisdictional challenge was rejected as both banks acted within their rights.
Conclusions: The court found no jurisdictional issue with the Central Bank's actions.

Issue 3: Section 7 Proceedings as a Recovery Measure

Legal Framework and Precedents: Section 7 proceedings are distinct from recovery proceedings and aim at resolution.
Court's Interpretation and Reasoning: The court emphasized that IBC proceedings are not merely for recovery but for insolvency resolution.
Key Evidence and Findings: The existence of debt and default justified the initiation of CIRP.
Application of Law to Facts: The court found that the Section 7 Application was not a recovery measure.
Treatment of Competing Arguments: The appellant's claim was dismissed, reinforcing the distinct purpose of IBC proceedings.
Conclusions: The court upheld the maintainability of the Section 7 Application.

Issue 4: Impact of Auction Proceedings and Cancellation

Legal Framework and Precedents: Auction proceedings are separate from insolvency proceedings.
Court's Interpretation and Reasoning: The court noted that the auction was cancelled, and the High Court deemed related writ petitions infructuous.
Key Evidence and Findings: The auction was cancelled, and no funds were recovered.
Application of Law to Facts: The cancellation did not affect the CIRP initiation.
Treatment of Competing Arguments: The appellant's reliance on auction proceedings was found irrelevant to the CIRP.
Conclusions: The court concluded that auction proceedings did not impact the CIRP.

Issue 5: Influence of OTS Proposal on CIRP

Legal Framework and Precedents: Section 12-A of the IBC allows withdrawal of proceedings if agreed by 90% of the creditors.
Court's Interpretation and Reasoning: The court allowed for the possibility of withdrawal if the OTS proposal was accepted.
Key Evidence and Findings: The appellant submitted an OTS proposal to the creditors.
Application of Law to Facts: The court provided a timeframe for creditors to consider the OTS proposal.
Treatment of Competing Arguments: The court balanced the appellant's proposal with the creditors' rights to decide.
Conclusions: The court allowed for potential withdrawal under Section 12-A if the proposal was accepted.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes: "The petitioner shall be at liberty to apprise the Tribunals about the estimated market value of the property and and/or other initiatives, as may be deemed appropriate, for the revival of the industry."
Core Principles Established: Section 7 proceedings are distinct from recovery measures and focus on insolvency resolution. The existence of debt and default justifies CIRP initiation.
Final Determinations on Each Issue: The court upheld the admission of the Section 7 Application by PNB, dismissed jurisdictional challenges, and allowed for potential withdrawal under Section 12-A if the OTS proposal was accepted.

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