Consortium Agreement not a bar for insolvency proceedings under I&B Code. Appeal dismissed.

The appeal against the order admitting the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 based on a Consortium Agreement was dismissed by the National Company Law Tribunal, Mumbai Bench. The Tribunal held that the Consortium Agreement between banks did not bind the Corporate Debtor, and a Bank declaring a debt as Non-Performing Asset could proceed with initiating insolvency proceedings under Section 7 of the I&B Code without needing permission from other banks involved in the agreement. Therefore, the dismissal of the application due to the Consortium Agreement was deemed unsustainable, and the appeal was dismissed without costs awarded.

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Issues:
Appeal against order admitting application under Section 7 of the Insolvency and Bankruptcy Code, 2016 based on Consortium Agreement.

Analysis:
The Appellant filed an Appeal against the order passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench, admitting the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 filed by Respondent No. 1 Allahabad Bank, leading to the initiation of Corporate Insolvency Resolution Process (CIRP).

The Appellant raised grievances regarding the Consortium Agreement involving Allahabad Bank and IDBI, stating that as per the agreement, if Allahabad Bank intended to take action, permission from IDBI Bank should have been obtained after giving a 15-day notice. The Appellant argued that Allahabad Bank should have given notice before filing the application under Section 7 of the I&B Code.

Respondent No. 2 contended that Allahabad Bank had declared the debt as Non-Performing Asset (NPA) on a specific date and filed the application under Section 7 of the I&B Code within the required timeline.

The Tribunal referred to the judgment in the matter of Oriental Bank of Commerce Vs. M/s Ruchi Global Limited, emphasizing that the Inter-se Agreement between the Banks did not involve the Corporate Debtor and that the Corporate Debtor could not benefit from the clauses in the agreement binding only the Banks. The Tribunal held that if there was a default by any member of the Consortium, it would be a matter for the other banks to address, and the Corporate Debtor could not raise grievances based on the agreement.

The Tribunal further cited the judgment in the matter of Asian Natural Resources (India) Ltd. & Anr. Vs. IDBI Bank Ltd., stating that the Inter-se Agreement between financial creditors could not override the right of any Financial Institution to file an application under Section 7 of the I&B Code. The Tribunal agreed with the observations made in previous judgments and concluded that the dismissal of the application under Section 7 due to the Consortium Agreement was not sustainable.

Ultimately, the Tribunal found no legal impediment for a Bank that had declared a debt as NPA to proceed with filing proceedings under Section 7 of the I&B Code, irrespective of any Consortium Agreement between Banks. Consequently, the Appeal was dismissed, and no costs were awarded.

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