NCLAT Upholds Decision on Section 7 Proceedings under IBC

Electrosteel Castings Limited Versus UV Asset Reconstruction Company Limited

Electrosteel Castings Limited Versus UV Asset Reconstruction Company Limited - TMI Issues Involved:
1. Whether the Section 7 Application under the Insolvency and Bankruptcy Code (IBC) should await the determination by the Debt Recovery Tribunal (DRT) regarding the existence of debt.
2. Validity of the Assignment Agreement executed in favor of the Respondent.
3. Whether the entire debt of Electrosteel Castings Limited (ESL) was discharged under the Resolution Plan.
4. The jurisdiction and authority of the Adjudicating Authority under the IBC versus the DRT under the SARFAESI Act.

Issue-wise Detailed Analysis:

1. Awaiting DRT Determination:
The Appellant argued that the Section 7 Application should be stayed until the DRT adjudicates the existence of debt, citing the Supreme Court's judgment dated 26th November 2021, which allowed the Appellant to file an Application under Section 17 of the SARFAESI Act. The Supreme Court's judgment did not expressly or impliedly interdict the Section 7 Application filed by the Respondent. The Adjudicating Authority correctly rejected the Appellant's IA No.139/2021, as the Supreme Court's judgment did not impact the Section 7 proceedings.

2. Validity of the Assignment Agreement:
The Appellant contended that the Assignment Agreement executed by SREI in favor of the Respondent was invalid due to the discharge of the entire debt of ESL through a combination of upfront cash payment and conversion into equity shares. The Appellant also argued that the Assignment Agreement should be declared null, void, and ab-initio. These issues were raised in the reply to the Section 7 Application and are yet to be adjudicated by the Adjudicating Authority.

3. Discharge of Entire Debt:
The Appellant claimed that the entire debt of ESL was discharged under the Resolution Plan, which included an upfront cash payment and conversion into fully paid-up equity shares. The Adjudicating Authority has not yet considered this submission, and the Appellant is at liberty to press all its contentions before the Adjudicating Authority when the Section 7 Application is heard.

4. Jurisdiction and Authority:
The Respondent argued that the Adjudicating Authority under the IBC has plenary jurisdiction to determine whether there is a financial debt and default, which overrides other laws in case of inconsistency, as provided under Section 238 of the IBC. The pendency of action under the SARFAESI Act does not obstruct the filing of an Application under Section 7 of the IBC. The Adjudicating Authority has the authority to proceed with the Section 7 Application despite the pending proceedings before the DRT.

Conclusion:
The National Company Law Appellate Tribunal (NCLAT) upheld the Adjudicating Authority's decision to reject IA No.139/2021 filed by the Appellant, agreeing that the Section 7 proceedings under the IBC should not be stayed pending the DRT's adjudication. The Appellant is free to raise all its contentions regarding the existence or non-existence of debt before the Adjudicating Authority. The Appeal was dismissed with no order as to costs.