2024 (7) TMI 624 - AT - Insolvency and Bankruptcy

NCLAT revives Section 7 insolvency petition wrongly rejected due to pending DRT proceedings under Section 19

State Bank of India Versus Abhijeet Ferrotech Limited

State Bank of India Versus Abhijeet Ferrotech Limited - TMI Issues Involved:1. Whether the proceedings under Section 7 of the Insolvency and Bankruptcy Code (IBC) are barred in view of the order passed by DRT-II, Kolkata in T.A. No.179 of 2020 dated 17.06.2022.2. Whether the Adjudicating Authority erred in applying Section 10 of the Code of Civil Procedure (CPC) to stay the Section 7 application.3. Whether the findings of the Debt Recovery Tribunal (DRT) on default can preclude the Section 7 proceedings under the IBC.4. Whether the One Time Settlement (OTS) proposal by the Corporate Debtor affects the Section 7 application.5. The applicability of the principle of res judicata and issue estoppel in the context of Section 7 proceedings under the IBC.Detailed Analysis:1. Whether the proceedings under Section 7 of the Insolvency and Bankruptcy Code (IBC) are barred in view of the order passed by DRT-II, Kolkata in T.A. No.179 of 2020 dated 17.06.2022:The National Company Law Appellate Tribunal (NCLAT) held that the proceedings under Section 7 of the IBC are not barred by the order passed by DRT-II, Kolkata. The IBC is a subsequent legislation with an overriding effect as per Section 238 of the IBC. The proceedings under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (1993 Act) are for the recovery of dues, whereas Section 7 of the IBC is for insolvency resolution of the Corporate Debtor. Both proceedings cover entirely different fields, and the rejection of proceedings under Section 19 by DRT cannot operate as a bar for an application under Section 7.2. Whether the Adjudicating Authority erred in applying Section 10 of the Code of Civil Procedure (CPC) to stay the Section 7 application:The NCLAT found that the Adjudicating Authority erred in applying Section 10 of the CPC to stay the Section 7 application. Section 238 of the IBC gives overriding effect to the proceedings under the IBC, notwithstanding anything inconsistent in any other law. The statute under the IBC never contemplated that proceedings under the IBC should await the outcome of any previously instituted proceeding under any other statute. Thus, the Section 7 application should proceed despite the pendency of proceedings under Section 19 of the 1993 Act.3. Whether the findings of the Debt Recovery Tribunal (DRT) on default can preclude the Section 7 proceedings under the IBC:The NCLAT held that the findings of the DRT on default cannot preclude the Section 7 proceedings under the IBC. The determination of default in DRT proceedings can have relevance for the purposes of Section 19 application but cannot be a reason to hold the proceedings under Section 7 barred. The Section 7 application is an independent proceeding, and the findings of the DRT do not operate as issue estoppel in the context of Section 7 proceedings.4. Whether the One Time Settlement (OTS) proposal by the Corporate Debtor affects the Section 7 application:The NCLAT noted that the Corporate Debtor had submitted an OTS proposal acknowledging the outstanding amount and proposing to make the payment. This acknowledgment of debt and default by the Corporate Debtor in the OTS proposal was not considered by the Adjudicating Authority. The OTS proposal clearly acknowledged the debt and default, and the Section 7 application was filed within the limitation period.5. The applicability of the principle of res judicata and issue estoppel in the context of Section 7 proceedings under the IBC:The NCLAT held that the principle of res judicata and issue estoppel do not apply to Section 7 proceedings under the IBC. The proceedings under the 1993 Act and the IBC are entirely different with different purposes and objects. The judgment of the Hon'ble Supreme Court in Hope Plantations Ltd. does not render any assistance to the Respondent in this context. The Section 7 application is an independent proceeding and is not barred by any findings or orders in the DRT proceedings.Conclusion:The NCLAT concluded that the order of the Adjudicating Authority dated 21.03.2023 is unsustainable. The appeal was allowed, and the order dated 21.03.2023 was set aside. The Company Petition - TP (IBC) No.02/CB/2022 is revived before the Adjudicating Authority to be considered afresh in accordance with the law.