NCLAT held that a Section 7 application must be decided before a delayed Section 54C filing but upheld the PPIRP resolution as a fait accompli.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Member Mr. Barun Mitra, reviewed three appeals on February 10, 2025, and held that under Section 11A of the IBC, a Section 7 application must be decided before a Section 54C application if the latter is filed beyond the prescribed 14-day period. However, since the Corporate Debtor had already undergone resolution through the PPIRP with creditor approval and payments executed, reopening the Section 7 application was deemed futile, and the resolution under Section 54C was upheld.
The Financial Creditor filed three appeals challenging separate orders passed by the National Company Law Tribunal (NCLT), Jaipur Bench. The first appeal, Company Appeal (AT) (Ins.) No. 888 of 2023, was filed against the order dated 19.04.2023 in CP No. (IB)-28/7/JPR/2022, wherein the NCLT disposed of the Bank of Baroda’s Section 7 Application, citing the admission of a Pre-Packaged Insolvency Resolution Process (PPIRP) against the Corporate Debtor (CD) and granting the bank liberty to file a claim before the Interim Resolution Professional (IRP). The second appeal, Company Appeal (AT) (Ins.) No. 890 of 2023, was filed against the order dated 19.04.2023 in CP No. (IBPP)-01/54C/JPR/2022, by which the NCLT admitted the Corporate Debtor’s application under Section 54C for the initiation of PPIRP. The third appeal, Company Appeal (AT) (Ins.) No. 1492 of 2023, challenged the order dated 22.08.2023 in IA No. 451/JPR/2023 in CP No. (IBPP)-01/54C/JPR/2022, wherein the NCLT approved the Resolution Plan under the PPIRP.
The CD had availed financial facilities from a consortium of lenders, including the State Bank of India (SBI), IDBI Bank, and the Bank of Baroda. Due to a default in repayment, its accounts were classified as Non-Performing Assets (NPA) in 2017. The CD proposed a One-Time Settlement (OTS) in 2020, reiterating its proposal in February 2022 for ₹30 crores, pending consideration by all three banks. On 21.07.2020, the CD was registered as an MSME. SBI and IDBI Bank consented to the ₹30 crores OTS proposal on 29.03.2022 and 13.04.2022, respectively, while the Bank of Baroda neither accepted nor rejected it. Instead, it filed a Section 7 Application under the Insolvency and Bankruptcy Code, 2016 (IBC), on 18.04.2022, seeking the initiation of the Corporate Insolvency Resolution Process (CIRP). Meanwhile, the CD’s Board of Directors resolved to file a PPIRP application, issuing a declaration on 07.05.2022. On 10.06.2022, a Special Resolution was passed by shareholders, and on 21.07.2022, a consortium meeting was held. SBI and IDBI Bank, holding 79.12% voting share, approved the PPIRP proposal, whereas the Bank of Baroda, with a 26.09% vote share, dissented. The CD filed an application under Section 54C on 25.07.2022.
On 19.04.2023, the NCLT admitted the Section 54C Application and appointed the Resolution Professional (RP), directing further steps regarding PPIRP. On the same date, the Section 7 Application by the Bank of Baroda was disposed of, advising the bank to file a claim before the IRP. The RP presented a Base Resolution Plan to the Committee of Creditors (CoC), which was approved with a 73.91% vote share. Under the approved plan, SBI and the Bank of Baroda were to receive 30.02% of their outstanding dues. The RP subsequently filed IA No. 451/JPR/2023 for approval of the Resolution Plan, which the NCLT approved on 22.08.2023. The Bank of Baroda challenged this approval in Company Appeal (AT) (Ins.) No. 1492 of 2023, contending that its Section 7 Application, filed before the Section 54C Application, should have been heard and decided first as per Section 11A of the IBC. It further argued that the Resolution Plan failed to distinguish between dissenting and assenting creditors, violating Section 30(2) of the IBC.
The CD countered that it had proposed a settlement to all lenders and that the Bank of Baroda, despite being aware, unilaterally filed the Section 7 Application. The CD asserted that all statutory requirements for PPIRP had been fulfilled and that delays in filing the Section 54C Application resulted from compliance with legal prerequisites. The NCLAT examined the eligibility of the CD as an MSME and noted that MSME classification was determined through an automated process using tax records. The tribunal relied on precedents in Amit Gupta v. Yogesh Gupta and Ramesh Shah v. Central Bank of India and Others, REEDLAW 2024 NCLAT Del 02586, affirming that the Adjudicating Authority lacked jurisdiction to review, modify, or revoke MSME registrations.
The appellant relied on the Insolvency Law Committee Report (July 2021) regarding the priority mechanism for disposing of simultaneously pending PPIRP and CIRP applications. The Committee had recommended that if a PPIRP application was filed more than 14 days after a CIRP application, the latter should be decided first. Since the Bank of Baroda had filed its Section 7 Application on 18.04.2022, and the Section 54C Application was filed on 25.07.2022, the appellant argued that Section 11A(3) mandated the Adjudicating Authority to first dispose of the Section 7 application. However, the respondent contended that the 14-day period under Section 54C(3) was a directory, not mandatory and that the statutory requirements under Sections 54A and 54B needed compliance before a Section 54C Application could be filed.
The NCLAT examined the statutory framework and noted that Section 11A provided specific timelines and priorities for disposing of applications under Sections 7, 9, 10, and 54C. It held that where a Section 54C application was filed beyond the 14-day period following a Section 7 application, the latter must be decided first. The Tribunal relied on the Supreme Court’s judgment in Vidarbha Industries Power Limited v. Axis Bank Limited, REEDLAW 2022 SC 07529, emphasizing the literal interpretation of statutes. Accordingly, the NCLAT concluded that the Adjudicating Authority erred in considering the Section 54C application before disposing of the Section 7 application.
Rejecting the argument that compliance with Sections 54A and 54B should extend the 14-day limit under Section 11A, the NCLAT held that no statutory provision allowed such an exclusion. However, since the CD had already undergone resolution under PPIRP, and financial creditors had received payments under an approved plan, the Tribunal found no reason to set aside the order admitting the Section 54C application. The resolution plan had been implemented, and reopening the Section 7 application would serve no useful purpose. Consequently, the Tribunal upheld the resolution under Section 54C.
Mr. Ashish Verma, Mr. Saksham Thareja, Mr. Kartik B. and Mr. Nikhil Thakur, Advocates represented the Appellant.
Mr. Krishnendu Datta Sr. Advocate with Mr.Prakul Khurana, Mr. Yash Tandon and Mr. Ankit Sareen, Advocates appeared for Respondent No. 1.
Mr. Abhijeet Sinha, Sr. Advocate with Ms. Suruchi Kasliwal Multani and Mr. Naresh Batra, Advocates appeared for Respondent No. 2.
Ms. Suruchi Kasliwal Multan and Mr. Naresh Batra, Advocates appeared for Respondent No. 3.
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
REEDLAQW 2025 NCLAT Del 02516
Comments