Tribunal overturns Adjudicating Authority's decision on default date and unjust enrichment

The Tribunal allowed the Appeal, set aside the Adjudicating Authority's order, and dismissed the Section 7 Application filed by the Financial Creditor. It held that there was no default by the Corporate Debtor on 01.08.2019, and the Bank's failure to refund the proportionate facility fee was deemed unjust enrichment.

---

---

Issues Involved:
1. Validity of the default date claimed by the Financial Creditor.
2. Entitlement to the refund or adjustment of the facility fee.
3. Admissibility of the Section 7 Application under the Insolvency and Bankruptcy Code, 2016.

Issue-wise Detailed Analysis:

1. Validity of the Default Date Claimed by the Financial Creditor:
The Appellant contested the default date of 01.08.2019 claimed by the Financial Creditor, arguing there was no default on that date. The loan was split into two tranches: Rs. 750 crores and Rs. 950 crores, with a facility fee of Rs. 100 crores charged on the entire loan of Rs. 1700 crores. The Appellant claimed that the interest was paid up to June 2019, and if the proportionate facility fee for the canceled Rs. 950 crores tranche had been refunded or adjusted, there would have been no default on 01.08.2019. The Financial Creditor argued that the entire facility fee was non-refundable and charged on the disbursement of the first tranche. The Tribunal concluded that the Bank's omission in not refunding the proportionate facility fee resulted in no default on 01.08.2019.

2. Entitlement to the Refund or Adjustment of the Facility Fee:
The Appellant argued that after the cancellation of the second tranche of Rs. 950 crores, the Bank should have refunded the proportionate facility fee of Rs. 55.88 crores. The Bank's internal documents, including an Office Memorandum dated 23.09.2019, acknowledged the original understanding that the facility fee was for the entire loan of Rs. 1700 crores and recommended a partial refund of Rs. 10 crores, which was executed on 24.09.2019 and 25.09.2019. The Tribunal found that the Bank was obliged to refund the proportionate facility fee, and its failure to do so was unjust enrichment.

3. Admissibility of the Section 7 Application under the Insolvency and Bankruptcy Code, 2016:
The Tribunal emphasized that for initiating proceedings under Section 7, the Financial Creditor must prove that a default has occurred. The Adjudicating Authority failed to consider whether there was a default on 01.08.2019, the basis for the Section 7 Application. The Tribunal held that the Bank's actions, including withholding the proportionate facility fee, engineered the default and could not be used to push the Corporate Debtor into insolvency. The Tribunal concluded that there was no default on 01.08.2019 and dismissed the Section 7 Application.

Conclusion:
The Tribunal allowed the Appeal, set aside the order of the Adjudicating Authority, and dismissed the Section 7 Application filed by the Financial Creditor. The Tribunal held that there was no default on the part of the Corporate Debtor on 01.08.2019, and the Bank's actions in withholding the proportionate facility fee were unjust.

---