Co-operative bank may initiate insolvency proceedings where financial debt and default are admitted, despite parallel SARFAESI litigation.

A co-operative bank was treated as a financial creditor for section 7 proceedings under the Insolvency and Bankruptcy Code, and its Special Officer was held authorised to file the application because the Code draws no distinction between categories of banks or financial institutions. The pendency of writ proceedings relating to SARFAESI action did not affect maintainability. As the corporate debtor admitted receipt of the loan and default in repayment, the requirements of financial debt and default were satisfied, and the section 7 application was admitted. Moratorium and ancillary insolvency steps were directed, commencing the corporate insolvency resolution process.

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Issues: (i) Whether a co-operative bank, acting through a Special Officer, could maintain an application under section 7 of the Insolvency and Bankruptcy Code, 2016 for initiation of Corporate Insolvency Resolution Process against the corporate debtor. (ii) Whether the corporate debtor owed a financial debt and had committed default so as to justify admission of the section 7 application.

Issue (i): Whether a co-operative bank, acting through a Special Officer, could maintain an application under section 7 of the Insolvency and Bankruptcy Code, 2016 for initiation of Corporate Insolvency Resolution Process against the corporate debtor.

Analysis: The filing of the application under the Insolvency and Bankruptcy Code was held to be independent of the pending writ proceedings concerning action under the SARFAESI Act, 2002. The definition of financial creditor under section 5(7) of the Insolvency and Bankruptcy Code, 2016 was applied broadly, and the Code was treated as not drawing any distinction between nationalised banks, scheduled banks, co-operative banks, individuals, non-banking financial companies, or other institutions. The Special Officer was found to have been appointed to manage the affairs of the bank and to conduct its day-to-day business, which included initiating proceedings for recovery of defaulted financial debt.

Conclusion: The application was held maintainable, and the Special Officer was held authorised to file it.

Issue (ii): Whether the corporate debtor owed a financial debt and had committed default so as to justify admission of the section 7 application.

Analysis: The corporate debtor did not dispute receipt of the loan and the default in repayment. On the admitted facts, the requirements under section 7 of the Insolvency and Bankruptcy Code, 2016 were satisfied, namely the existence of a financial debt and occurrence of default. Once those ingredients were established, admission of the application followed, and moratorium and ancillary steps under the Code were directed.

Conclusion: The existence of financial debt and default was established, and the section 7 application was admitted.

Final Conclusion: The proceedings under the Insolvency and Bankruptcy Code, 2016 were allowed to commence against the corporate debtor, and the corporate insolvency resolution process was set in motion with moratorium and appointment of the resolution professional.

Ratio Decidendi: A co-operative bank falls within the ambit of financial creditor for section 7 proceedings under the Insolvency and Bankruptcy Code, 2016, and once financial debt and default are admitted, the application for commencement of corporate insolvency resolution process is liable to be admitted, irrespective of parallel or pending proceedings under other statutes.

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