The NCLAT held that recovery proceedings initiated before the Debts Recovery Tribunal (DRT) did not bar a financial creditor from filing an application under Section 7 of the Insolvency and Bankruptcy Code (IBC).
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and technical Members Mr. Barun Mitra and Mr. Arun Baroka, reviewed an appeal and held that the Adjudicating Authority rightly admitted the Section 7 Application under the Insolvency and Bankruptcy Code (IBC) due to clear debt and default. The Tribunal also noted that the initiation of proceedings by the Central Bank of India before the DRT did not preclude the Section 7 application, which is a special remedy under the IBC. The appeal was dismissed, as no grounds were found to interfere with the order. However, it was observed that a One-Time Settlement (OTS) proposal, if accepted, could lead to the withdrawal of proceedings under Section 12A.
The Appeal was filed by the Suspended Director of M/s Kaur Sain Spinners Ltd., challenging the order dated 14.05.2024 passed by the Adjudicating Authority in admitting the Section 7 Application filed by Punjab National Bank (PNB) (successor of Oriental Bank of Commerce) for the initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Appellant also sought to challenge the order disposing of the Section 7 Application filed by the Central Bank of India as infructuous.
The background of the case involved the Corporate Debtor's loan being extended by a consortium of banks, including the Oriental Bank of Commerce and the Central Bank of India. The accounts of the Corporate Debtor were declared Non-Performing Assets (NPA) by both banks in 2017. Central Bank of India filed a recovery suit before the Debts Recovery Tribunal (DRT), while Section 7 Applications for the initiation of CIRP were filed by both the Oriental Bank of Commerce and the Central Bank of India. Despite various recovery efforts, including auction proceedings, the assets of the Corporate Debtor remained unsold. The NCLT admitted the Section 7 Application filed by Punjab National Bank, and the Insolvency Resolution Professional was appointed.
The Appellant contested the admission of the Section 7 Application, arguing that the lead bank, Oriental Bank of Commerce, had previously taken steps to restructure the debt, and that Central Bank of India lacked jurisdiction to file the Section 7 Application. However, the Adjudicating Authority found that the application met the requirements of debt and default under the Insolvency and Bankruptcy Code (IBC) and thus rightly admitted it.
The Appellant also pointed to the recovery of Rs. 136 crores and the cancellation of the auction process, but the submission was disputed by the Central Bank of India, which clarified that the amount recovered was Rs. 37.60 crores and the auction had been cancelled. Furthermore, the Punjab and Haryana High Court, in its judgment, observed that the Writ Petitions filed by the Corporate Debtor and Central Bank of India had become infructuous due to the initiation of CIRP.
The NCLAT upheld the decision of the Adjudicating Authority, dismissing the appeal. It also noted that if the One-Time Settlement (OTS) proposal submitted by the Appellant was accepted by the financial creditors, the creditors could file an application under Section 12-A for withdrawal of the CIRP. However, in the absence of such an application, the Insolvency Resolution Process would continue as per the law. The appeal was dismissed without costs.
Ms. Eshna Kumar and Ms. Jasleen Singh Sandha, Advocates represented the Appellant.
Ms. Yaehartha Gupta and Mr. Mayuresh, Advocates appeared for PNB/ Respondent No. 2.
Mr. Rajesh Rattan, and Mr. Anuj Jain, Advocates appeared for Respondent No. 3.
Mr. Anant Gautam and Mr. Dinesh Sharma, Advocates appeared for the Indian Bank.
Subscribers can access the Case, including Case Analysis, Ratio Decidendi, Headnotes, Briefs, Case Research, Cited Case Laws, Case Law Cross-references, and the latest updates on Statutes, Notifications, Circulars, Guidelines, Press Releases and more.
Click on the Citation/Link to access these resources