Tribunal Upholds Admittance of Bankruptcy Application, Emphasizes Creditor Committee Discretion

The Tribunal upheld the Adjudicating Authority's decision to admit the Section 7 Application under the Insolvency and Bankruptcy Code, 2016 filed by the Indian Bank against the Corporate Debtor for defaulting on a compromise proposal. The rejection of the One Time Settlement (OTS) proposal by the Bank was deemed justified, emphasizing the CoC's discretion in insolvency resolution processes. The Tribunal directed the Appellant to submit a new Section 12A application with a higher offer for CoC consideration, aiming to balance the interests of all parties involved in the proceedings.

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Issues Involved:
1. Admission of Section 7 Application under the Insolvency and Bankruptcy Code, 2016.
2. Rejection of One Time Settlement (OTS) proposal by the Financial Creditor.
3. Rights and obligations under Section 12A of the Insolvency and Bankruptcy Code, 2016.
4. Role and discretion of the Committee of Creditors (CoC) in the insolvency resolution process.

Issue-wise Detailed Analysis:

1. Admission of Section 7 Application under the Insolvency and Bankruptcy Code, 2016:
The appeal was filed against the order dated 24.12.2021 by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench, which admitted the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) filed by the Indian Bank (Respondent No.1). The Corporate Debtor, a hospitality business entity, had defaulted on a compromise proposal accepted by the Bank for Rs.260 Crores. Despite partial payment of Rs.156 Crores, the balance Rs.102 Crores remained unpaid, leading to the filing and subsequent admission of the Section 7 Application by the Bank.

2. Rejection of One Time Settlement (OTS) proposal by the Financial Creditor:
The Corporate Debtor made several OTS proposals to the Bank, including an offer of Rs.81 Crores, which was rejected by the Bank on 06.12.2021. The Appellant contended that the Bank's refusal to accept the OTS proposal, which matched the amount offered to Asset Reconstruction Companies (ARCs), was unjustified. The Bank argued that the offer to ARCs involved 100% cash payment and was part of a combined offer for other NPAs, and thus, the Appellant could not claim settlement on the same terms. The Bank maintained that no borrower has the right to demand OTS acceptance, and the grounds raised in the appeal could not be the subject matter under the IBC.

3. Rights and obligations under Section 12A of the Insolvency and Bankruptcy Code, 2016:
The Appellant had also approached the Interim Resolution Professional (IRP) for submitting an application under Section 12A to withdraw the insolvency proceedings, which was not accepted by the CoC. The Tribunal emphasized that the primary objective of the IBC is to revive the Corporate Debtor and facilitate its rehabilitation. The Tribunal cited the Supreme Court's judgment in "ES Krishnamurthy & Ors. vs. M/s. Bharath Hi Tech Builders Pvt. Ltd." to support the encouragement of settlements under the IBC.

4. Role and discretion of the Committee of Creditors (CoC) in the insolvency resolution process:
The Tribunal acknowledged the CoC's discretion in accepting or rejecting proposals under Section 12A, which requires a 90% voting share for approval. The Tribunal directed the Appellant to submit a fresh application under Section 12A with an offer exceeding Rs.81 Crores for consideration by the CoC. The CoC was instructed to consider factors such as the Bank's earlier proposal for NPA sale and the potential realization of dues through the insolvency resolution process or liquidation.

Conclusion:
The Tribunal disposed of the appeal with specific directions for the Appellant to file a fresh Section 12A application and for the CoC to consider the proposal within two months, without interfering with the Adjudicating Authority's order admitting the Section 7 Application. The CoC was advised to consider the factors mentioned in the judgment while taking a decision on the Section 12A application.

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