Consortium lending and Section 7 insolvency: unilateral action without lead bank notice can defeat maintainability.

A financial creditor in a banking consortium cannot unilaterally invoke Section 7 of the Insolvency and Bankruptcy Code where the lending arrangement is governed by an inter se agreement requiring coordinated action and prior notice to the lead bank. The NCLT examined the Third Supplemental Inter Se Agreement and found that no stipulated prior notice to the lead bank was produced, while the creditor had independently withdrawn the credit facility and initiated insolvency proceedings. Section 7 was read in the context of the consortium's contractual obligations, and non-compliance with that agreed procedure was treated as fatal to maintainability. The application was therefore not maintainable and liable to be dismissed.

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Issues: Whether a financial creditor, being one member of a banking consortium governed by an inter se agreement, could unilaterally file an application under Section 7 of the Insolvency and Bankruptcy Code without informing or obtaining the consent of the lead bank and other consortium members, and whether such unilateral action affected the maintainability of the application.

Analysis: The application was examined against the terms of the Third Supplemental Inter Se Agreement governing the consortium lending arrangement. The agreement required the lead bank to be informed before initiation of proceedings and contemplated coordinated action by the consortium members. The Financial Creditor did not produce the stipulated prior notice to the lead bank and had proceeded independently in withdrawing the credit facility and initiating insolvency proceedings. The language of Section 7, including the expression "either by itself or jointly with other financial creditors", was read in the context of a consortium arrangement where the banks had acted collectively and were bound by their inter se obligations. The omission to act in accordance with the agreed consortium procedure was treated as a breach of contract and as fatal to maintainability.

Conclusion: The application under Section 7 was not maintainable and was liable to be dismissed because the Financial Creditor acted unilaterally in breach of the consortium arrangement.

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