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TMI Blog2023 (5) TMI 570X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in the case of Vidarbha Industries1 was in the setting of facts of the case before this Court. Hence, the decision in the case of Vidarbha Industries 1 cannot be read and understood as taking a view which is contrary to the view taken in the cases of Innoventive Industries 3 and E.S. Krishnamurthy 2 . The view taken in the case of Innoventive Industries 3 still holds good. A demand notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 dated 29th August 2018 was issued by the first respondent. As the Corporate Debtor did not honour the said notice, the original application for recovery has been filed by the first respondent before the Debt Recovery Tribunal at Hyderabad. Moreover, the Corporate Debtor acknowledged the debt on 5th May 2019 to the extent of Rs. 63,36,61,897.26. Moreover, the Balance Sheet as of 31.03.2019 of the Corporate Debtor reflects the said liability of the Corporate Debtor. It is true that as far as Bank Guarantees are concerned, the Executive Engineer of the Government of Telangana addressed letters to the Bank requesting the Bank to revalidate the Bank Guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the application filed by the respondent Bank and declared a moratorium for the purposes referred in Section 14 of the IB Code. The appellant claiming to be an aggrieved person preferred an appeal against the said Order before the National Company Law Appellate Tribunal (for short, NCLAT ). By the impugned judgment dated 5th August 2022, NCLAT has dismissed the appeal. 2. The first respondent, Canara Bank is the successor of Syndicate Bank, which made application under Section 7 of the IB Code to NCLT. Syndicate Bank was merged into the first respondent Canara Bank. A letter of sanction dated 2nd April 2016 was issued by Syndicate Bank by which credit facilities were sanctioned to the Corporate Debtor for one year valid up to 28th February 2017. A Secured Overdraft Facility of Rs. 12 crores was granted by the Syndicate Bank, apart from sanctioning the Bank Guarantee limit of Rs. 110 crores. Thus, the facilities granted by the Syndicate Bank to the Corporate Debtor were fund based (Overdraft Facility) and non fund based (Bank Guarantees). 3. In the application under Section 7 of the IB Code, the Syndicate Bank stated that as on 30th November 2019, the liability of the corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esting the Bank to extend the seven Bank Guarantees mentioned therein. He submitted that notwithstanding the requests made by the State Government, Syndicate Bank did not extend the Bank Guarantees. Thus, in a sense, the failure of the Bank to extend the Bank Guarantees forced the Corporate Debtor to commit default. He submitted that the Bank is responsible for triggering the default. The learned counsel invited our attention to the interim order dated 24th April 2020 passed by the learned Single Judge of the Telangana High Court by which the first respondent Bank was restrained from taking coercive steps pursuant to letters of invocation of Bank Guarantees including handing over of Demand Drafts to the State Government. He urged that in the teeth of this order, NCLT ought not to have admitted the application under Section 7. 7. Learned counsel appearing for the first respondent Bank firstly pointed out that the decision in the case of Vidarbha Industries 1 is in peculiar facts of that case, as is explained by the same Bench while disposing of the Review Petition. He submitted that the decision of this Court in the case of E.S. Krishnamurthy and others v. Bharath Hi Tecch Build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the corporate debtor is entitled to point out that a default has not occurred in the sense that the debt , which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under subsection (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. 29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in subsection (1), bring to the notice of the operation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manage or decide upon each and every claim of the individual homebuyers. The adjudicating authority also held that since the process of settlement was progressing in all seriousness , instead of examining all the individual claims, it would dispose of the petition by directing the respondent to settle all the remaining claims seriously within a definite timeframe. The petition was accordingly disposed of by directing the respondent to settle the remaining claims no later than within three months, and that if any of the remaining original petitioners were aggrieved by the settlement process, they would be at liberty to approach the adjudicating authority again in accordance with law. The adjudicating authority's decision was also upheld by the appellate authority, who supported its conclusions. 34. The adjudicating authority has clearly acted outside the terms of its jurisdiction under Section 7(5) IBC. The adjudicating authority is empowered only to verify whether a default has occurred or if a default has not occurred. Based upon its decision, the adjudicating authority must then either admit or reject an application, respectively. These are the only two courses of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to exercise its discretion under Section 7(5)(a) IBC to keep the admission of the application of the financial creditor in abeyance, unless there is good reason not to do so. The adjudicating authority may, for example, admit the application of the financial creditor, notwithstanding any award or decree, if the award/decretal amount is incapable of realisation. The example is only illustrative. 89. In this case, the adjudicating authority (NCLT) has simply brushed aside the case of the appellant that an amount of Rs 1730 crores was realisable by the appellant in terms of the order passed by APTEL in favour of the appellant, with the cursory observation that disputes if any between the appellant and the recipient of electricity or between the appellant and the Electricity Regulatory Commission were inconsequential. (emphasis added) 12. A Review Petition was filed by the Axis Bank Limited seeking a review of the decision of Vidarbha Industries 1 on the ground that the attention of the Court was not invited to the case of E.S. Krishnamurthy 2 . While disposing of Review Petition by Order dated 22nd September 2022, this Court held thus: The elucidation in par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate Government. In view of the said letter, on 9th January 2020, the Corporate Debtor addressed a letter to the Syndicate Bank mentioning that the issue relating to the pre-closure of the two contracts granted by the State Government was under the active consideration of the State Government. The letter mentions that if the Bank Guarantees were not extended, the same are likely to be encashed by the Government. Therefore, a request was made by the Corporate Debtor to the Bank to revalidate the Bank Guarantees. However, the first respondent by a letter dated 18th January 2021, specifically informed the Corporate Debtor that the competent authority has not considered the proposal of the Corporate Debtor for extending Bank Guarantees and Secured Overdraft Facilities. By the same letter, the first respondent called upon the Corporate Debtor to clear the outstanding immediately. Thus, there is no doubt that the Corporate Debtor committed a default within the meaning of Section 3(12) of the IB Code due to non-payment of the amounts due to the Bank. 17. There are a large number of Guarantees issued by the Bank. The interim order of the Telangana High Court does not relate to all Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X
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