2022 (11) TMI 700 - AT - Insolvency and Bankruptcy

Financial Creditor permitted to intervene in insolvency case under IBC Section 9.

The Tribunal allowed the Appeals, permitting the Financial Creditor to intervene in insolvency proceedings initiated by the Operational Creditor under ... Seeking permission to Applicant to intervene in the present Company Petition - seeking direction to the Operational Creditor to supply to copies of the pleadings to the Applicant - Appellant’s case in the application was that the Appellant has 99.19% exposure in the debt of the Corporate Debtor and any order of admission will have impact on the Applicant/Appellant - HELD THAT:- From the facts which have been brought on the record, it is clear that Appellant are Financial Creditor who had exposure to extent of 99.19% debt owed by the Corporate Debtor. Learned counsel for the Respondent is right in his submission that in Section 9 proceedings Financial Creditor has right to intervene only after Section 9 application is admitted, then they can file claim and be part of the CoC. After stating the facts, especially the fact that Appellant has exposure of 99.19% to the debt of the Corporate Debtor and further it initiated proceedings under SARFAESI Act, 2002 and has taken possession of the assets of the Corporate Debtor, in the application it is stated that it is entitled to have knowledge of the affairs of the Corporate Debtor including proceedings initiated by or against the Corporate Debtor. In the circumstances, it has prayed for intervention and in alternative has prayed for Applicant’s counsel be permitted to advance its submissions at the time of final hearing. The fact that the Corporate Debtor had filed an application seeking direction to the Operational Creditor to bring materials on record regarding insurance claim and its disbursement itself indicate that in the Section 9 application filed by the Operational Creditor no details regarding claim lodged before the Insurance Company and disbursement have been brought on record - From the facts of the present case, especially the document brought on record by the Appellant i.e. ‘Claim Discharge and Subrogation Form’ dated 04.12.2017, the Appellants be permitted to intervene in the proceedings initiated under Section 9 by the Operational Creditor. Appeal allowed. Issues Involved:1. Right of a Financial Creditor to intervene in insolvency proceedings initiated by an Operational Creditor under Section 9 of the Insolvency and Bankruptcy Code (IBC).2. Impact of insurance claim settlement on the entitlement of an Operational Creditor to pursue insolvency proceedings.3. Adjudicating Authority's discretion to allow intervention based on exceptional circumstances.Detailed Analysis:Issue 1: Right of a Financial Creditor to Intervene in Insolvency Proceedings Initiated by an Operational CreditorThe primary issue revolves around whether a Financial Creditor, having a significant exposure to the debt of the Corporate Debtor, can intervene in insolvency proceedings initiated by an Operational Creditor under Section 9 of the IBC. The Appellant, holding 99.19% of the Corporate Debtor's debt, sought to intervene in the insolvency proceedings initiated by the Operational Creditor, arguing that any order of admission would impact its recovery efforts and legal processes under the SARFAESI Act, 2002.The Operational Creditor opposed the intervention, asserting that the Financial Creditor has no legal basis to intervene before the admission of the Section 9 application. The Tribunal noted that ordinarily, a Financial Creditor cannot intervene in Section 9 proceedings before admission, as established in the case of 'L&T Infrastructure Finance Company Ltd. vs. Gwalior Bypass Project Ltd.' However, the Tribunal also acknowledged that intervention might be permissible in exceptional circumstances, as recognized in 'Beacon Trusteeship Ltd. vs. Earthcon Infracon Pvt. Ltd. & Anr.'Issue 2: Impact of Insurance Claim Settlement on the Entitlement of an Operational Creditor to Pursue Insolvency ProceedingsThe Appellant presented a document titled 'Form of Acceptance Claim Discharge & Subrogation Form,' indicating that the Operational Creditor had received an insurance claim settlement for the goods supplied, thereby discharging the Insurance Company from liability. The Tribunal highlighted that this document is a relevant material to be examined by the Adjudicating Authority to determine whether the Operational Creditor can still prosecute the Section 9 application after receiving the insurance claim.The Tribunal emphasized that the Operational Creditor's entitlement to pursue the insolvency proceedings needs to be scrutinized in light of the insurance settlement and subrogation. This scrutiny is necessary to ensure that the insolvency proceedings are not initiated based on a claim that has already been settled by the insurance.Issue 3: Adjudicating Authority's Discretion to Allow Intervention Based on Exceptional CircumstancesThe Tribunal acknowledged that the Adjudicating Authority has the discretion to allow intervention by a Financial Creditor in exceptional circumstances. In this case, the exceptional circumstances included the Appellant's significant exposure to the Corporate Debtor's debt and the insurance settlement received by the Operational Creditor. The Tribunal concluded that these factors warranted the Appellant's intervention to ensure a fair and comprehensive adjudication of the insolvency proceedings.The Tribunal allowed the Appeals, setting aside the orders dated 06.09.2022, and permitted the Appellant to intervene in the insolvency proceedings initiated under Section 9 by the Operational Creditor. The Tribunal clarified that this decision was based on the specific facts and circumstances of the case and should not be interpreted as a general declaration of law regarding the right of Financial Creditors to intervene in Section 9 proceedings.Conclusion:The Tribunal's judgment underscores the principle that while Financial Creditors generally cannot intervene in Section 9 proceedings before admission, exceptional circumstances, such as significant exposure to debt and insurance settlements, may justify such intervention. The judgment ensures that all relevant facts are considered for a fair adjudication of insolvency proceedings.