NCLAT upholds CIRP admission under Section 7 despite debtor's restructuring proposals and Rs 50 crore payment

NCLAT dismissed appeal challenging NCLT's admission of CIRP application under Section 7. Corporate debtor failed to comply with pre-implementation conditions in restructuring proposals dated 21.02.2020 and 29.09.2020, causing approvals to cease. Default dates of 31.03.2018 and 31.03.2021 fell outside Section 10A exclusion period (25.03.2020 to 24.03.2021). Payment of Rs. 50 crores did not automatically extend restructuring approvals. Despite corporate debtor's claims of financial viability with Rs. 308 crores EBITDA, continuous failures to meet payment obligations under original loan agreement and restructuring proposals supported CIRP initiation.

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Issues:
1. Existence and binding nature of restructuring proposals dated 21.02.2020 and 29.09.2020.
2. Mandatory nature of pre-implementation conditions and their impact on restructuring approvals.
3. Coverage of the default period under Section 10A of the Insolvency & Bankruptcy Code, 2016.
4. Impact of payments made by the Corporate Debtor on restructuring approvals.
5. Financial viability of the Corporate Debtor and its impact on the Section 7 application.

Summary:

Issue 1: Existence and Binding Nature of Restructuring Proposals
The Tribunal examined the restructuring proposals dated 21.02.2020 and 29.09.2020. It was noted that these were merely proposals subject to pre-implementation conditions, which were not fulfilled by the Corporate Debtor. Consequently, these proposals did not fructify into binding agreements, and the original common loan agreement dated 19.06.2013 remained valid.

Issue 2: Pre-Implementation Conditions
The Tribunal emphasized that pre-implementation conditions are akin to conditions precedent, which must be met before a restructuring proposal becomes effective. The Corporate Debtor's failure to meet these conditions resulted in the non-execution of the restructuring approvals.

Issue 3: Coverage Under Section 10A
Section 10A of the Code excludes defaults occurring between 25.03.2020 and 24.03.2021 from CIRP initiation. The Tribunal noted that the default dates provided by the Respondent No. 2 (31.03.2018 and 30.06.2018) and the Adjudicating Authority (31.03.2021) were outside the Section 10A period, thus making the Section 7 application valid.

Issue 4: Impact of Payments on Restructuring Approvals
The Tribunal rejected the Appellant's argument that payments made by the Corporate Debtor resulted in the automatic extension of restructuring approvals. It was held that unilateral conditions imposed by the Corporate Debtor while making payments could not bind the Respondent No. 2 and PFC.

Issue 5: Financial Viability
The Tribunal found that despite the Corporate Debtor's claims of financial viability, the continuous failure to meet payment obligations under the original loan agreement and restructuring approvals justified the initiation of CIRP. The outstanding dues amounted to Rs. 3103.31 Crores, far exceeding the amounts claimed to be viable by the Corporate Debtor.

Conclusion:
The Tribunal dismissed the appeal, finding no error in the Adjudicating Authority's order to initiate CIRP against the Corporate Debtor. The appeal was deemed devoid of substance, and the impugned order was upheld.

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