Financial Creditor's Interim Relief Application Dismissed under Insolvency Code

The Tribunal dismissed the application filed by the Financial Creditor seeking interim relief before admission of the main petition under the Insolvency and Bankruptcy Code. The Tribunal held that the Financial Creditor is bound by the Inter-creditor Agreement and Trust and Retention Account Agreement, which prioritize payments to the Priority Lender. The requested relief was denied as it would contradict the terms of the agreements, leading to the conclusion that the Financial Creditor's application was not maintainable.

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Issues Involved:
1. Jurisdiction and maintainability of the application under Rule 11 of NCLT Rules, 2016.
2. Entitlement and priority of payments from the Trust and Retention Accounts.
3. Applicability and binding nature of the Inter-creditor Agreement and Trust and Retention Account Agreement.
4. Alleged suppression of facts by the Applicant.
5. Interim relief sought by the Applicant before admission of the main petition under Section 7 of the Insolvency and Bankruptcy Code, 2016.

Issue-wise Detailed Analysis:

1. Jurisdiction and Maintainability of the Application:
The application was filed under Rule 11 of the NCLT Rules, 2016 by the Financial Creditor (FC) seeking an interim order before the admission of the application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016. The FC relied on the decision of the Hon'ble NCLAT in NUI Pulp and Paper Industries Pvt Ltd vs. M/s. Roxcel Trading GMBH, which allows the Adjudicating Authority to pass interim orders to prevent abuse of the process of the Tribunal or to meet the ends of justice. However, Respondent No. 3 contended that the Tribunal lacks jurisdiction as the issues pertain to the rights and obligations inter-se between the lenders of the Corporate Debtor, not between the creditor and the Corporate Debtor.

2. Entitlement and Priority of Payments from the Trust and Retention Accounts:
The FC sought an order directing IDBI Trusteeship Services Limited (Security Trustee) to refrain from issuing instructions to IDBI Bank Limited to make any payments to creditors from the Trust and Retention Accounts. Respondent No. 3 argued that the Priority Lender has special priority rights conferred by various agreements, which entitle them to receive payments before any other creditors, including the Applicant. The FC's claim was that the money lying in the Trust and Retention Accounts belongs to the Corporate Debtor and should be distributed equally among all creditors in the event of a Corporate Insolvency Resolution Process (CIRP).

3. Applicability and Binding Nature of the Inter-creditor Agreement and Trust and Retention Account Agreement:
The Respondent No. 3 emphasized that the FC is bound by the terms of the Inter-creditor Agreement and Trust and Retention Account Agreement, which prioritize payments to the Priority Lender. Clauses 3.1(a), 3.1(b)(iii), and 3.1(b)(iv) of the Inter-creditor Agreement clearly state that all cash flows and payments by the borrower under the Finance Documents shall be payable to the Priority Lenders in priority over other creditors. The FC, being a signatory to these agreements, had explicitly agreed not to take any actions inconsistent with the terms of the agreements.

4. Alleged Suppression of Facts by the Applicant:
Respondent No. 3 alleged that the FC suppressed crucial facts and payment mechanics agreed between the lenders. It was contended that the FC's application suffers from defects of suppressio veri and suggestio falsi, and that the FC is attempting to renege on its obligations under the agreements by seeking relief contrary to the priority rights of the Priority Lender.

5. Interim Relief Sought by the Applicant:
The FC sought an interim order of status quo regarding the money lying in the Trust and Retention Account, expressing apprehension that the funds would be released to other creditors under the instructions of Respondent No. 3, adversely affecting the interests of the FC and other creditors. However, the Tribunal found that the FC, being a party to the Inter-creditor Agreement and Trust and Retention Account Agreement, is bound by their terms, which prioritize payments to the Priority Lender. The Tribunal concluded that the relief sought by the FC cannot be granted as it would contravene the terms of the agreements.

Conclusion:
The Tribunal dismissed the application, holding that the FC is bound by the terms of the Inter-creditor Agreement and Trust and Retention Account Agreement, which prioritize payments to the Priority Lender. The Tribunal found no grounds to grant the interim relief sought by the FC, as it would be inconsistent with the agreed terms and conditions.

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