2025 (3) TMI 1144 - AT - IBC

Admission of Section 7 application - existence of debt and default or not - appellant has taken various opportunities and has prolonged the hearing of the appeal after obtaining an interim order due to which the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor could not proceed any further - HELD THAT - There is no dispute between the parties regarding financial facilities extended by the SBI. The amount disbursed by the SBI to the corporate debtor. The accounts were declared NPA by the financial creditor on 26.07.2017. Loan recall notice was issued by the SBI on 11.01.2019 and on behalf of the all the consortium lenders demanding a payment of amounts of Rs.2078.04 Crore. Section 7 application was filed by the SBI for a default of Rs.1049.72 Crore. Before the Adjudicating Authority itself the corporate debtor pleaded that corporate debtor has submitted one-time proposal before the lenders. Before this Tribunal the appellant pleaded that they have given OTS proposal to the financial creditors. In order dated 25.10.2024 it is noticed the submissions of the counsel for the SBI that SBI has not accepted the proposal. Even after 25.10.2024 appellant took time to bring settlement on record in which appellant miserably failed. The sequence of the event in the appeal as noted above clearly proves that debt and default is an admitted fact. From the facts brought on the record it is clear that corporate debtor is unable to clear its debt and it is fit case where insolvency resolution process against the corporate debtor be proceeded. Conclusion - The debt and default were established arbitration proceedings did not impact the insolvency process and the lack of an accepted OTS did not justify halting the proceedings. Appeal dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

1. Whether the debt and default by the corporate debtor were established, warranting the admission of the Section 7 application filed by the State Bank of India (SBI).

2. Whether the ongoing arbitration proceedings against the National Highways Authority of India (NHAI) and the potential outcomes of those proceedings should impact the decision to admit the Section 7 application.

3. Whether the corporate debtor's efforts to propose a One-Time Settlement (OTS) with the lenders should affect the insolvency proceedings under the Insolvency and Bankruptcy Code (IBC).

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Establishment of Debt and Default

Relevant legal framework and precedents: The admission of a Section 7 application under the IBC requires the establishment of debt and default. The Tribunal referred to the precedent set by the Supreme Court in the case of 'M. Suresh Kumar Reddy' Vs. 'Canara Bank & Ors.', which emphasized that upon proving debt and default, the Adjudicating Authority is obliged to admit the application.

Court's interpretation and reasoning: The Tribunal noted that there was no dispute regarding the financial facilities extended by SBI and the classification of the loan account as a Non-Performing Asset (NPA) on 26.07.2017. The Tribunal observed that both the debt and default were admitted facts, as acknowledged by the corporate debtor during the proceedings.

Key evidence and findings: The Tribunal highlighted the SBI's loan recall notice demanding payment and the subsequent filing of the Section 7 application for a default amounting to Rs. 1049.72 Crore. The corporate debtor's acknowledgment of the debt and default further supported the Tribunal's findings.

Application of law to facts: The Tribunal applied the legal requirement of establishing debt and default to the facts presented, concluding that these elements were sufficiently proven, thus justifying the admission of the Section 7 application.

Treatment of competing arguments: The appellant's argument that the debt could be settled through funds obtained from arbitration proceedings was considered but ultimately dismissed, as the debt and default were already established.

Conclusions: The Tribunal concluded that the debt and default were proven, and thus, the Section 7 application was rightly admitted by the Adjudicating Authority.

Issue 2: Impact of Arbitration Proceedings

Relevant legal framework and precedents: The Tribunal considered the case of Vidarbha Industries Power Limited vs Axis Bank Limited, which was clarified in M. Suresh Kumar Reddy vs Canara Bank & Ors., indicating that pending arbitration proceedings do not preclude the admission of a Section 7 application if debt and default are established.

Court's interpretation and reasoning: The Tribunal reasoned that the potential outcome of the arbitration proceedings against NHAI was speculative and did not affect the established debt and default.

Key evidence and findings: The corporate debtor's invocation of arbitration against NHAI and the potential recovery from such proceedings were noted but deemed insufficient to alter the insolvency proceedings.

Application of law to facts: The Tribunal applied the clarified legal position from the Supreme Court that speculative outcomes of arbitration do not impact the admission of a Section 7 application.

Treatment of competing arguments: The argument that arbitration proceeds could settle the debt was considered but found unpersuasive in light of established debt and default.

Conclusions: The Tribunal concluded that the arbitration proceedings did not impact the admission of the Section 7 application.

Issue 3: One-Time Settlement (OTS) Proposals

Relevant legal framework and precedents: The Tribunal considered the corporate debtor's multiple OTS proposals and the legal framework allowing for settlements under Section 12A of the IBC.

Court's interpretation and reasoning: The Tribunal observed that despite multiple OTS proposals, no settlement had been reached, and the corporate debtor failed to clear its debts.

Key evidence and findings: The Tribunal noted the rejection of OTS proposals by the lenders and the lack of any finalized settlement, reinforcing the continuation of insolvency proceedings.

Application of law to facts: The Tribunal applied the IBC provisions, emphasizing that without an accepted settlement, the insolvency process must proceed.

Treatment of competing arguments: The argument for considering OTS proposals was acknowledged but dismissed due to the absence of an accepted settlement.

Conclusions: The Tribunal concluded that the lack of a finalized OTS did not warrant halting the insolvency proceedings.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The sequence of the event in the appeal as noted above clearly proves that debt and default is an admitted fact. From the facts brought on the record, it is clear that corporate debtor is unable to clear its debt and it is fit case where insolvency resolution process against the corporate debtor be proceeded."

Core principles established: The Tribunal reinforced the principle that proven debt and default necessitate the admission of a Section 7 application, irrespective of speculative arbitration outcomes or unaccepted settlement proposals.

Final determinations on each issue: The Tribunal determined that the debt and default were established, arbitration proceedings did not impact the insolvency process, and the lack of an accepted OTS did not justify halting the proceedings. The appeal was dismissed, and the insolvency process was directed to proceed.