2024 (2) TMI 677 - AT - Insolvency and Bankruptcy

Section 7 application upheld for Rs. 12.38 crore debt default exceeding threshold, Resolution Plan approved with additional payment

NCLAT upheld the admission of Section 7 application by the Adjudicating Authority, confirming existence of debt and default totaling Rs. 12.38 crores ... Admissibility of section 7 application - CIRP - existence of debt and default or not - whether the Adjudicating authority was right in admitting the application under Section 7 of the Code of the Respondent No. 1 or the application should have been rejected on the ground that there was no debt and default by the Corporate Debtor? - HELD THAT:- After declaring the account of the Corporate Debtor as NPA, by allowing the sanction or renewing ‘Holding on Operation’ with various cut-back portions of the Respondent No. 1 could not treated on part of any debt and default. It is opined that permission by the Respondent No. 1 such ‘Holding on Operations’ are being conducted as normal baking practices and does not give any right to the Corporate Debtor in denying the repayment of debt and default on such account have to be factored into consideration by the Adjudicating Authority. It is found from the Impugned Order that the Adjudicating Authority has gone into these aspects and thereafter correctly came to the conclusion of debt and default. The total outstanding principals amount was Rs. 8.77 Crores and outstanding interest component were Rs. 3.61 Crores thus the total outstanding dues payable by the Corporate Debtor to the Respondent No. 1 was Rs. 12.38 Crores, which is more than the threshold limit of Rs. 1 Crore as provided in the Code for accepting the application filed under Section 7 of the Code - the Corporate Debtor has indeed acknowledged and confirmed the loans credit facilities availed by it from the Respondent No. 1. There are no error in the Impugned Order - appeal dismissed. Approval of the Resolution Plan which was favourably considered by the CoC and approved by the Adjudicating Authority - payment of Rs. 1 Crore over and above the admitted claims of the Respondent No. 2 which allegedly was done at the cost of the Shareholders of the Corporate Debtor i.e., Promoters - HELD THAT:- It is up to the Resolution Applicant who tries to revive the Corporate Debtor as per his own scheme and provide the amount in the Resolution Plan which should be sufficient to meet the CIRP costs, the payment to the Financial Creditors, Operational Creditors, Statutory dues, workmen dues employees dues and payment towards dues of the other creditors to the extent possible. Such Resolution Plan is submitted for consideration of the CoC which applies its commercial wisdom and send the same through the Resolution Professional for approval of the Adjudicating Authority. The Resolution Plan has fairly distributed the amount and taken care of almost all Stakeholders strictly in accordance with the provisions of the Code - the Adjudicating Authority has carefully analysed various facts and laws while approving the Resolution Plan of the Respondent No. 3 including the aspect of payment of Rs. 1 Crore over and above the admitted claims for the Respondent No. 2. There are no error in the Impugned Order. The appeal is devoid of any merit, therefore, it deserves to the dismissed. Issues Involved:1. Admission of application under Section 7 of the Insolvency and Bankruptcy Code (IBC).2. Challenge of approval of the Resolution Plan.Summary:Issue 1: Admission of application under Section 7 of the Insolvency and Bankruptcy Code (IBC):The appeal was filed under Section 61 of the Insolvency & Bankruptcy Code, 2016, challenging the order dated 03.08.2021 by the National Company Law Tribunal, Mumbai Bench, which initiated the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The appellant, a member of the suspended board of directors, argued that there was no default at the time of filing the application under Section 7 of the Code, as the Corporate Debtor was making payments regularly, and the account never exceeded the sanctioned credit limits. The appellant also cited RBI Prudential Norms and claimed that the Corporate Debtor was not in default. The respondent countered these claims, stating that the Corporate Debtor failed to repay dues, leading to the account being declared as NPA on 30.04.2018. The respondent also initiated proceedings under the SARFAESI Act, 2002, and eventually filed an application under Section 7 of the Code to protect its financial interest. The tribunal noted that the Corporate Debtor had indeed defaulted, and the outstanding dues were more than the threshold limit of Rs. 1 Crore. The tribunal found no error in the impugned order and dismissed the appeal.Issue 2: Challenge of approval of the Resolution Plan:The appellant challenged the approval of the Resolution Plan by the Adjudicating Authority. The appellant argued that the additional payment of Rs. 1 Crore to the respondent (Union Bank of India) was not in conformity with the provisions of the Code. The respondent countered, stating that the payment was towards accrued interest from the CIRP commencement date till realization of dues, which is permissible. The tribunal noted that the Resolution Plan was approved by the CoC with 100% voting rights and was in compliance with the provisions of the Code. The tribunal emphasized the limited scope of judicial review over the commercial wisdom of the CoC, as established by the Supreme Court. The tribunal found that the Resolution Plan fairly distributed the amount among stakeholders and adhered to the Code's provisions. Consequently, the tribunal dismissed the appeal, finding no error in the impugned order.Conclusion:Both appeals were found to be devoid of merit and were dismissed. The tribunal upheld the decisions of the Adjudicating Authority, affirming the initiation of CIRP and the approval of the Resolution Plan.