The NCLAT affirmed the admission of the CIRP against the corporate guarantor based on the Recovery Certificate issued by the DRT, despite ongoing appeals and disputes regarding the finality of the debt.
he National Company Law Appellate Tribunal (NCLAT), Principal Bench, consisting of Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, held that the initiation of the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code was valid based on an unpaid Recovery Certificate, even in the face of ongoing review petitions or challenges to the recovery process, as the Recovery Certificate provides a fresh cause of action for insolvency proceedings.
In the appeal filed by the Suspended Director of the corporate debtor, the NCLAT examined the validity of the order dated January 25, 2024, from the National Company Law Tribunal (NCLT), New Delhi Bench, admitting a Section 7 application filed by DBS Bank India Ltd., the Financial Creditor. The challenge centred on the admission of the Corporate Insolvency Resolution Process (CIRP) against M/s. Abhisar Impex Pvt. Ltd., the corporate guarantor, for a debt guaranteed to M/s. Vayam Technologies Ltd., which had defaulted on its financial obligations.
The case involved a series of legal proceedings related to the recovery of substantial debt, including the issuance of a Recovery Certificate by the Debt Recovery Tribunal (DRT) and subsequent appeals and reviews by the corporate debtor and principal borrower. Despite the corporate debtor's claims that the Recovery Certificate was not final due to ongoing review petitions, the NCLAT upheld the NCLT's decision, affirming that the debt and default had been adequately established.
The NCLAT noted that the corporate debtor's arguments, including the assertion that it had only one asset and that the insolvency resolution might not be fruitful, did not warrant interference with the NCLT's order. The court cited the Supreme Court's ruling in Dena Bank (Now Bank of Baroda) v. C. Shivakumar Reddy and Another, REEDLAW 2021 SC 08512 which supported the initiation of CIRP based on a Recovery Certificate as a valid cause of action. Consequently, the appeal was dismissed, and the CIRP against the corporate debtor was upheld.
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