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2025 (11) TMI 1559
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....ompany Law Tribunal, Kolkata Bench ("NCLT") against Solapur Tollways Pvt. Ltd. ("STPL/ Corporate Debtor") in an insolvency petition filed under Section 7 of the IBC by Union Bank of India, Respondent No.1 herein. Submissions on behalf of the Appellant 2. The Appellant, a suspended director of the Corporate Debtor, is aggrieved by the Impugned Admission Order passed in respect of the Corporate Debtor. Succinctly put, the instant case is one of contrived default, wherein despite monies being available, default has been claimed and foisted upon the Corporate Debtor by the NHAI and the lenders. The Corporate Debtor is a special purpose vehicle ("SPV") with its only asset being the concession agreement dated 29.03.2012 ("Concession Agreement"). The Concession Agreement already stands terminated by NHAI, in respect of which disputes are currently pending between the Corporate Debtor and the National Highway Authority of India. 3. As a background of the concession agreement, it is claimed that the NHAI invited proposals by way of its RFP dated 20.06.2011 for short listing of bidders for construction, operation and maintenance of a highway section from Solapur (KM 249+000)- Mahara....
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....0 SREI 50 Vijaya Bank 50 Syndicate Bank 28.42 Total 588.12 5. The NHAI, the Corporate Debtor and the Financial Creditor also executed a substitution agreement dated 04.09.2013 ("Substitution Agreement") under which the Financial Creditor could inter alia substitute the Corporate Debtor with a Nominated Entity in terms of the Substitution Agreement. As stated above, the collection of toll/ commercial operation of the Project was subject to issuance of a Completion Certificate (CC) or Provisional Completion Certificate (PCC) in terms of Article 15.1 of the Concession Agreement. It must be noted, however, that for the purpose of issuance of the PCC, the Corporate Debtor had to complete at least 75% of the Project Highway. The availability of funds, was therefore, crucial to the commercial operation of the Project, and the role of the lenders in duly discharging their obligation to disburse their respective commitment under the loan agreement was critical and imminent to the Corporate Debtor's ability to collect toll and sustainability of the project. 6. Appellant contends that with the termination of the Concession Agreement on 19.07.2024, the Corpora....
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.... the insolvency petition, the project had already been suspended by the NHAI and pursuant to such suspension, it was the NHAI which was in control of the Escrow Account. The Concession Agreement had already been terminated by the Corporate Debtor due to the NHAI's defaults and the Corporate Debtor was no longer a going concern and this was not a fit case for initiation of CIRP. The only thing left in the Corporate Debtor is a litigation (i) in relation to delays and defaults leading to increased EPC costs which claims are pending before an arbitral tribunal (ii) payment of termination costs in respect of which a notice invoking arbitration bas been issued and disputes are currently pending. In terms of the Concession Agreement (Article 36 read with Article 31 of the Concession Agreement), upon suspension, the NHAI assumed control of the escrow account and was under an obligation to defray expenses in terms of the waterfall mechanism, which included disbursing amounts towards debt servicing of lenders. 12. Prior to suspension, the Corporate Debtor was duly servicing the debts of the Respondent No.1 and the account was completely regularized. The debt became overdue only when ....
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....lation to claim that there is a default. The following provisions assume importance in the present discussion: A. Concession Agreement: i. Withdrawals from escrow account- waterfall mechanism- monthly proportionate provision of Debt Service due in an Accounting Year [Clause 31.3 (g)] ii. Withdrawals upon termination- Amounts standing to the credit of the Escrow Account shall, upon termination, be appropriated in the following manner: "...(b) 90% of Debt Due excluding Subordinate Debt" [Clause 31.4] iii. During period of suspension, NHAI shall collect all fee and revenues and deposit the same in the Escrow Account. The NHAI shall make withdrawals from the Escrow Account for meeting the costs incurred by it for remedying and rectifying the cause of suspension and thereafter defraying expenses in terms of 31.3. [Clause 36.2.1] iv. Upon termination on account of Concessionaire Default during the Operation Period, the NHAI shall pay to the Concessionaire, by way of Termination Payment, an amount equal to 90% of the Debt Due less Insurance Cover. [Clause 37.3.1] v. Upon termination due to NHAI default, the NHAI shall....
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.... vii. NHAI and the Corporate Debtor both agree that without prejudice to their rights and remedies, the Lender's Representative is entitled to receive from the corporate debtor, the Debt Due upon Termination of the Concession Agreement. For realization of the Debt Due, the Lenders' Representative shall be entitled to make its claim from the Escrow Account in terms of the Concession Agreement and Escrow Agreement. [Clause 5.3] 13. Appellant contends that from above reading it is clear that the Concession Agreement, the Loan Agreement and the Substitution Agreement, constitute one consolidated transaction. The Concession Agreement contains stipulations that secure the interest of the lenders by providing for termination payments both where termination is on account of NHAI default or the Corporate Debtor's default. The object behind providing for Termination Payments is precisely for the purpose of securing the interest of the lenders de hors any dispute between the NHAI and the Corporate Debtor. Reliance is placed on Jetpur Somnath Tollways Limited v. National Highway Authority of India- 2017 SCC Online Del HC 9453- Paragraphs 64 to 66. 14. Additionally, both the Loan A....
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....tor's conduct that the proceedings have been filed for purpose other than the resolution of insolvency. Apart from the fact that it did not service the Financial Creditor's debts contrary to the terms of the Concession Agreement, the NHAI also illegally failed to disburse Termination Payments in terms of the Concession Agreement. While contemporaneous correspondence establishes that the Financial Creditor's own understanding was that the NHAI was liable to service debts during the period of suspension, the Financial Creditor proceeded to file the insolvency petition against the Corporate Debtor soon after in February 2024. It is also important to note that the Concession Agreement has been terminated by the Corporate Debtor vide its termination notice dated 19.07.2024. The Concession Agreement contemplates the payment of amounts defined as Termination Payments irrespective of whether the termination of the CA is for Corporate Debtor's default or the NHAI's default. 18. The Concession Agreement is a terminable contract and in terms of Section 14 of the Specific Relief Act, 1963, cannot be restored. Assuming without admitting that the Termination Notice is inoperative and inapplic....
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.... v. Union of India- 2019 4 SCC 17- Paragraph 87- Information utility records are only prima facie evidence of default which is rebuttable by the CD. b. IL&FS Financial Services v. Adhunik Meghalaya Steel Private Limited 2025 SCC Online SC 1567- Paragraph 33-Entries in balance sheets have to be relied upon on a case to case basis - It would depend on the facts of each case whether an entry in the balance sheet qua any particular creditor is unequivocal or has been entered into with caveats. And the Appellant claims that above also violate section 7(5) which necessarily envisages an analysis and satisfaction of the NCLT regarding the occurrence of a default. 23. The NHAI's case on the termination of the Concession Agreement not having been effected due to lack of acceptance by the NHAI cannot be countenanced. In its reply, the NHAI has contended that the Corporate Debtor's termination letter dated 19.07.2024 ("Termination Letter") terminating the Concession Agreement has not been accepted by the NHAI and therefore the Concession Agreement cannot be treated as terminated. On the same ground, NHAI contends that the Corporate Debtor is not entitled to any Termination Paym....
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....n Payments. It must be mentioned that in terms of clause 37.3 of the Concession Agreement, the value of termination payment in the event of NHAI default is INR 1355 Crores and in the event of Corporate Debtor default is INR 823 crores. Because of the untenable stance of the NHAI that the termination of the Concession Agreement has not been accepted, the Resolution Professional has not taken any steps to recover or secure the termination payments. The Appellant in fact addressed an email dated 03.04.2025 to the Committee of Creditors of the Corporate Debtor sharing a report prepared by an independent consultant showing a detailed analysis of the quantum of termination payments in different scenarios. Thus, the stand that the Concession Agreement did not stand terminated since it was not accepted by the NHAI has no basis in the Concession Agreement and is being imposed by the NHAI simply in a bid to deprive the Corporate Debtor of Termination Payment which are due to it, and to keep the insolvency proceedings on against the Corporate Debtor. 24. The NHAI has wrongly contended that the Corporate Debtor was not entitled to deferment of premium or extension of time. In its Reply, the....
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....tled to deferment of premium. It was due to NHAI's defaults which plagued the project that the Corporate Debtor was constrained to arrange for additional funds. 26. The NHAI has wrongly contended that the Escrow Account did not have adequate funds and that it could not have serviced the debts of the Corporate Debtor. The NHAI has contended that in terms of clause 36.2.1 of the Concession Agreement, it had the right to make withdrawals from the Escrow Account "for meeting the costs incurred by it for remedying and rectifying the cause of suspension" and only thereafter for defraying the expenses in terms of Clause 31.3 of the Concession Agreement. NHAI submits that while work worth more than INR 100 Crores remained pending, it could not be said that there was not enough money available for servicing debts in the Escrow Account. The aforesaid reasoning is fallacious on several counts. At the outset, the Appellant submits that the aforesaid is an artificial problem which is the NHAI's own creation. Appellant claims that the lenders have informed the NHAI that INR 171 crores remained available for the project (INR 101 crores of additional funds having been arranged by the promoters ....
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....he dispute at hand that this Appellate Tribunal was pleased to order on 13.01.2025 that the NHAI be impleaded as a Respondent. The Appellant has challenged the initiation of CIRP on the ground that there was no "default" in terms of Section 3(12) of the IBC, and the same is attributable to external factors including acts/omissions of NHAI. While NHAI is not a financial creditor, its conduct is central to determining the existence of default. NHAI's actions, including illegally suspending the Corporate Debtor's rights under the Concession Agreement and illegally extending the period of suspension far beyond the maximum stipulated time under the Concession Agreement had the effect of wrongly imposing the present insolvency proceedings upon the Corporate Debtor. 30. The allegation regarding the delay in financial close in 180 days being attributable to the Corporate Debtor are absolutely false to the knowledge of the NHAI. As set out in the Appeal, it was in fact the NHAI that failed to provide unencumbered land and RoW, a precondition for Appointed Date declaration. This delay in handing over RoW and requisite clearances rendered Financial Close unachievable within the stipulated ....
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....s not attributable to the Corporate Debtor, but primarily due to factors beyond its control, including delays, all of which fall within the domain and responsibility of NHAI or relevant government authorities. The NHAI has also omitted to mention that despite illegally extending the suspension period and taking over control of the project, the NHAI has failed to complete the project itself and in a span of 18 months (from the date of suspension to the date of termination), had managed to achieve only 5-6% progress. This is when the Concession Agreement envisages the entire construction to take place within a period of 30 months. In fact, the Project still remains incomplete. 34. The selectively summarised meeting proceedings and funding issues between the Corporate Debtor and lenders, are partial and omit the crucial context that explains the financial distress and inability to proceed with balance works. The NHAI has omitted that the lenders had expressed confidence in the Corporate Debtor's ability to complete the project and had even informed the NHAI regarding the availability of additional funds arranged by the promoters and the lenders which could be utilised to complete t....
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.... Debtor would be able to complete the project and the lenders would be in a position to disburse the balance debt for completion of the project. In its response to the said letter, the NHAI addressed a letter dated 14.11.2022 in which it asked the lenders to utilize the available amount of INR 171 crores without insisting on EOT and deferment of premium despite the lenders categorically informing the NHAI that the lenders would not disburse funds in the absence of EOT and deferment of premium. 39. The letter dated 02.12.2022 addressed by the lenders to the NHAI in fact strengthens the Appellant's case that the Corporate Debtor was pushed into insolvency despite having sunk in significant additional funds and remaining committed to the completion of the project. The purported default in the instant case is a consequence of the NHAI and the lenders not acting in the interest of the project. 40. It is reiterated that NHAI cannot simply reject the Termination Notice. The Concession Agreement was a terminable contract and there was nothing in the Concession Agreement which contemplated termination only upon acceptance of such termination by the NHAI, and such an interpretation is ....
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.... the Corporate Debtor and its lenders. The record shows that the lenders' disbursement was contingent on NHAI's cooperation, particularly on time extension without penalties and deferment of premium. The NHAI cannot seek to distance itself from the responsibility of having induced the default of the Corporate Debtor by claiming that it was acting strictly within the four corners of the Concession Agreement and omitting to mention that the Corporate Debtor was in fact entitled to both extension of time (as even recommended by the Independent Engineer) and deferment of premium by virtue of inclusion of its name in the list of stressed assets entitled to premium reduction. 44. The NHAI has sought to distance itself from its obligation to defray expenses in terms of the waterfall mechanism in clause 31.3 of the Concession Agreement that after accounting for remedying and rectifying the cause of suspension, there were no funds remaining for servicing the debts of the Corporate Debtor. The falsity of this submission can be ascertained from the fact that while the NHAI has used the pretext of pending work to claim insufficient funds for servicing the CD's debts, but even after being in....
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....bject and purpose of IBC will be defeated if it is adopted in instances such as these when the default is a creation of complicity between the NHAI and the lenders. 48. Thus, the appeal is maintainable as it challenges the threshold test under Section 7 of the IBC-specifically, whether any financial default existed in the legally recognized sense. Although NHAI was not a party to the loan agreements, it played a central role in frustrating the project's revenue structure by failing to disburse amounts earmarked for debt servicing during the suspension period, when it had control over the Escrow Account. The contention that NHAI was merely a third party to the bank-Corporate Debtor contracts is untenable in light of the escrow mechanism and the concession framework, both of which conferred upon NHAI oversight and rights directly affecting project cash flows. Submissions on behalf of the Respondent No.1 - Union Bank of India 49. The Admission Order deserves to be upheld as the present case is a clear case of existence of "debt" and "default" on part of the Corporate Debtor thus warranting admission of the Corporate Debtor under CIRP. NCLT has correctly observed in Para 45 of....
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.... Tribunal's order in IDBI Bank Limited vs. Abhijeet Integrated Steel Limited, 2023 SCC OnLine NCLAT 1182, whereby this Hon'ble Tribunal had categorically observed that ".... when a Corporate Debtor is unable to pay its debt, which becomes payable, it is a warning signal for Corporate Debtor and when an Application is filed by a Financial Creditor to initiate CIRP under Section 7 and there are ample material that Corporate Debtor is unable to pay its debt and has committed default, the Adjudicating Authority is not required to go into the reasons of default and ignore the real status of the Corporate Debtor and close its eyes to the fact that the Corporate' (Paras 16-24)." 52. R1-UBI contends that the NCLT has rightly admitted the Corporate Debtor under CIRP after examining that the debt became due and payable by the Corporate Debtor and the Corporate Debtor has committed a default in terms of the Loan Agreement. It contends that 'the moment a debt becomes due and the adjudicating authority is satisfied that default has occurred, a Section 7 application must be admitted' (Innoventive Industries Ltd. v. ICICI Bank and Anr, (2018) 1 SCC 407 at Paras 27, 38 and 30,....
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....te' and 'Interest Period', the Corporate Debtor was under an obligation to pay interest to all the lenders at applicable interest rates of their respective loans monthly from the date of the initial disbursement. However, it is an admitted fact that the Corporate Debtor was in a continuous default in terms of the Loan Agreement and had failed to service the interest falling due since 31.07.2019 and accordingly UBI had issued the letters dated 19.08.2019 and 25.09.2019 to the Corporate Debtor requesting the Corporate Debtor to regularise the accounts. Since the Corporate Debtor was consistently failing to regularise its account, the lenders restructured the Loan Agreement several times and the date of repayment of first instalment of the principal amount was extended till 30.09.2020. 57. UBI recalled the Facility vide its letter dated 04.02.2023 in exercise of its rights in terms of Clause 9.2 'Consequences of Events of Default' of the Loan Agreement as per which 'Rupee Lender shall have the right to terminate its commitment and accelerate the obligations of the Borrower and in exercise of such rights, the Rupee Lender may, without prejudice to any rights that it may have, take o....
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.... In this regard, it is submitted that it is well settled that 'the in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred' (Para 30 of Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SCC 407). 62. It is also well settled that 'when the record of Information Utility shows debt in default, the Adjudicating Authority or Appellate Authority are not required to further examine the record maintained by the Information Utility, especially when the record is deemed authenticated and no dispute or refutation has been done by the corporate debtor earlier' (Para 16 of Vipul Himatlal Shah v. Teco Industries, 2022 SCC OnLine NCLAT 209). ".... 16. In the light of the detailed discussion as above, it is clear that in case the record of Information Utility shows that there is a debt which is in default, the Adjudicating Authority or the Appellate Authority are not required to further examine the record maintained by the Information Utility, moreso when the record of the In....
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.... lenders not disbursing their commitment are contractual disputes which have no bearing on the Corporate Debtor's obligations to the Respondent No. 1 under the Loan Agreement between the Corporate Debtor and the Respondent No. 1. The Respondent No. 1 had in its capacity as a lender, has not committed any breach of contract i.e. the Common Loan Agreement and had disbursed the loans according to the terms of the Common Loan Agreement. The existence of 'debt' and 'default' has been established in the present case. 66. Further, the Appellant's contention that after the NHAI took over the Project with effect from 12.01.2023, NHAI was responsible for servicing the debts of the Corporate Debtor and NHAI allegedly induced the default is misleading and baseless. It is reiterated that UBI and the lenders are not a party to the Concession Agreement neither is NHAI is party to the Loan Agreement. Therefore, the sole obligation to discharge the debt of the lenders including UBI was of the Corporate Debtor, and it was the Corporate Debtor's responsibility to arrange for funds to make the payment to the Respondent No. 1. The reliance placed by the Corporate Debtor on Clause 36.2.1 of the Conce....
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....lted.' 69. In view of our foregoing discussions, the Adjudicating Authority in the impugned order after considering all relevant facts on the record, including the Statement of Accounts and the materials placed by both the parties, has returned finding that date of default is 15.11.2022 and has also upheld the loan recall notice dated 15.02.2023 and other circumstances, under which the CDs need resolution has also been considered by the Adjudicating Authority, as noted above. 70. Therefore, it is reiterated that it is settled principle of law that if the debt is due and payable and the Corporate Debtor has defaulted in repayment, the NCLT is not required to examine the reason for the occurrence of the said default. 71. It is also well settled that the objective of the code which is a beneficial legislation was enacted for facilitating banks to move towards early resolution of problem assets as an effective legal framework for timely resolution of insolvency and bankruptcy will support the development of credit markets, encourage entrepreneurship, improve ease of doing business, and facilitate more investments leading to higher economic growth and development (Swiss Ribbons....
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....e, the Authority shall undertake Termination under and in accordance with the provisions of Article 37 of the Concession Agreement" 77. In this regard, reliance is placed on this Hon'ble Appellate Tribunal's recent judgment in Vikram Bhawanishankar Sharma Member of the Suspended Board of Directors of Supreme Manor Wada Bhiwandi Infrastructure Pvt. Ltd., v. Union Bank of India & Anr., Comp App. (AT) (Ins) No. 794 of 2023, whereby in a similar case, it was held that the: 'Appellant's contention that the termination of the Concession Agreement by the Government of Maharashtra has resulted in shifting of liability upon the Government of Maharashtra, the same cannot be made the basis for dismissing the application because the liability was enjoined upon the corporate debtor to make the payment to the financial creditor' (Para 30). 78. Assuming without admitting that the termination is given effect to, the quantum of the termination payment and when such payment will be received by the corporate Debtor is a mere contingency which cannot come in way of admission of the Corporate Debtor. Pertinently, the NHAI has a standard formula for calculating 'termination payment....
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....ank and the NHAI nor is there any clause of any agreement to say that NHAI becomes liable to pay the Bank/R1. The NHAI is concerned with construction of highway for which the tender was awarded and the relevant agreement is the Concession Agreement dated 29.02.2012 between NHAI and the CD. The agreement between Bank and the CD is the loan agreement to which the NHAI is not a party even though loan is granted for funding of the project. 84. The Appellant has argued that there is a 'Substitution Agreement', which is a tripartite agreement between the CD, NHAI and R1. While the same is in fact a tripartite agreement, there is no obligation on any party to make payments under this Substitution Agreement. The Substitution Agreement is an option provided to the lenders of the CD to substitute the CD with a Nominated Entity in case of 'Event of Financial Default' (Clause 3.2) by the CD. Payment obligations do not arise under the Substitution Agreement. 85. On the issue of Termination, NHAI -R3 contends that Appellant has submitted that it issued termination notice on 19.07.2024. However, this notice was issued without following due procedure prescribed in Clause 37.2 of the Concessi....
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.... NHAI has the right to make withdrawals from the Escrow account for meeting the costs incurred by it for remedying and rectifying the cause of suspension and thereafter for defraying the expenses mentioned in clause 31.3 (priority of payment). NHAI wrote letter dated 14.11.2022 that it needed more money than available for costs of the project. Therefore, no payments o R1 or banks could be made during suspension. 90. In fact, so as to help the Appellant, NHAI had requested the Banks to disburse further funds and defer repayment obligation of the CD but the Bank replied that they cannot waive or suspend debt servicing obligations of the Company (Para (b) of letter dated 01.12.2022. 91. On the issue of Default NHAI -R3 contends that CD was in default with its banks from December 2019 (letter dated 17.09.2022, second para. This is prior to the suspension by NHAI and hence it is not correct to say that NHAI caused default by the CD. Admittedly this default was not with NHAI but as far as NHAI is concerned, the said letter shows default was by CD with its bankers prior to suspension. 92. In fact, the suspension was due to the CD not carrying out its obligations under the concess....
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....e Loan Agreement. • 22.11.2019: Further amendment shifting SCOD to 12.10.2019 and first repayment instalment to 31.07.2020. • 31.12.2019: STPL's account with IIFCL declared Non- Performing Asset (NPA). • 07.07.2020: Lenders' meeting noting STPL's persistent overdue interest. • 23.03.2021: SCOD further shifted to 28.11.2019; first principal repayment instalment shifted to 30.09.2020. • 14.09.2021: NHAI issued notice suspending the Concessionaire under Clause 36.1 of the Concession Agreement, citing defaults by STPL. • 31.12.2021: NHAI issued another suspension notice under Clause 36.1. • 17.09.2022: Financial Creditor (FC) wrote to NHAI supporting project completion if extended and granting premium deferment. • 12.01.2023: Suspension of Concession took effect; NHAI took over the project for completion and also took control of escrow account; suspension continued till 09.10.2023 after extension. • 04.02.2023: UBI sent default cum recall notice demanding Rs. 186.10 crore principal and Rs. 2.10 crore interest as on 31.03.2023. • 06.04.2023: STPL responded de....
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.... that he had received 27 EOI's from the prospective resolution applicants (PRAs) and finally twenty-four were shortlisted. Later on, Resolution plans have been received from only three PRA's. RP also brings to our notice that the appellant is misleading this tribunal as Hon'ble High Court of Delhi in OMP(I)(COMM) 361/2014 has held that the termination of the concession agreement with NHAI will be adjudicated by the learned arbitrator when appointed. By stating that the termination of the concession agreement with NHAI has attained the finality, the appellant is misleading the tribunal. 98. RP also brings to our notice that the basic grievance of the appellant is that the CD through RP is not proceeding on the termination payout claims and therefore has hampered recovery of the CD. RP brings to our notice that the same position was taken by the CD in the Section 7 proceedings before the adjudicating authority. RP claims that it has taken appropriate advice and reviewed the existing pleadings and also held a meeting with NHAI, wherein NHAI has told him that there has been no termination of the Concessionaire Agreement as in terms of the concession agreement, the CD was required to....
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....he Concession Agreement and the Common Loan Agreement dated 03.08.2013. NHAI suspended STPL's rights under the Concession Agreement effective 12.01.2023 and took control of the escrow account from which debts were serviced. Under Articles 36.2.1 and 31.3.1 of the Concession Agreement, NHAI was obliged to defray expenses including debt servicing during suspension, which it failed to do, leading to the insolvency petition. Prior to suspension, the Corporate Debtor was timely servicing debts, and default occurred only after NHAI assumed control, despite sufficient money in the escrow account. NHAI should have serviced the debt, which it did not. Appellant also contends that it is a case of manufactured default and malicious initiation and claims the default was manufactured and foisted by the complicity of NHAI and the lenders. Furthermore, the insolvency petition is allegedly a malicious misuse of the IBC intended not for debt resolution but to push the Corporate Debtor into insolvency unlawfully. The Concession Agreement, Loan Agreement, and Substitution Agreement constitute one consolidated transaction and must be read together. The Loan Agreement cannot be considered in isolat....
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....ing admission only when default is established) of the IBC mandate thorough scrutiny of default existence. Thus, the insolvency petition was erroneously admitted without proper consideration of contractual safeguards, the role of NHAI, and absence of genuine default, warranting dismissal of the insolvency proceedings against Solapur Tollways Projects Limited. 102. Strongly rebutting the contentions of the Appellant-Union Bank of India Respondent 1 and FC contends that the appeal filed by the suspended director deserves to be dismissed. This case has clear existence of "debt" and "default" on the part of the Corporate Debtor, warranting CIRP initiation. The NCLT correctly observed in paragraph 45 of the admission order that once the adjudicating authority is satisfied that a debt is due and payable and default has occurred, the petition under Section 7 must be admitted, without probing into disputes between parties. This conclusion is supported by several documents including the information utility's record of default (NeSL), statement of accounts, and balance sheets of STPL. FC-UBI also relies on judgments of the Hon'ble Supreme Court including Innoventive Industries Ltd. v.....
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.... Default, lenders' representative can require the authority to terminate the concession. Hence, termination notice sent by STPL lacks effect as it came after a default notice. Even if termination were effective, the quantum and receipt of termination payment are contingent and cannot delay insolvency admission. UBI, as a public sector bank, cannot await arbitration conclusion to recover public money. UBI is not a party to these arbitration proceedings. UBI strongly rejects the appellant's baseless and malafide allegations of malicious initiation of CIRP. Proof of fraud or malicious intent (Section 65 IBC) is required, which the appellant has not demonstrated. UBI's conduct as a public sector bank managing public funds should not be impugned without evidence. UBI prays for dismissal of the appeal and claims that the Admission Order is valid and correct as the case shows a clear existence of "debt" and "default" by STPL warranting admission under Section 7, citing Hon'ble Supreme Court precedents including Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SCC 407 and ES Krishnamurthy v. Bharath Hi Tech Builders (2022) 3 SCC 161. The contention of the appellant that default was contr....
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....ndent-UBI-FC also brings to our attention that the Corporate Debtor's attempt to interject arbitration proceedings to delay insolvency is not legally tenable. Section 7 proceedings are summary and cannot be stayed pending arbitration (citing Century Aluminium Co. Ltd. v. Religare Finvest Ltd. and Indus Biotech Pvt. Ltd. v. Kotak India Venture). The Adjudicating Authority and Tribunal are not courts of equity but must strictly follow the IBC provisions. The appeal is filed with mala fide intention to derail CIRP lacks merit and should be dismissed with costs. NHAI contends that the issues relevant in a petition under Section 7 of the IBC are only debt and default. The appellant's argument that the cause of default is alleged non- payment by NHAI is irrelevant, as the concept of "cause of default" is not a consideration in IBC proceedings. All disputes between NHAI and STPL, including contract performance and payments, are pending in arbitration and do not affect the validity of the insolvency petition. 103. NHAI, which has signed the concession agreement, and emphasizes that there is no privity of contract between the bank (Union Bank of India) and NHAI. The Concession Agreem....
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....that STPL was in default with its banks from December 2019, as confirmed by a letter dated 17.09.2022. This default predates NHAI's suspension and was not caused by NHAI. The suspension was due to STPL's failure to carry out its obligations under the Concession Agreement, as evidenced by poor project progress. NHAI contends that no money is due from NHAI to the lenders of STPL, and NHAI is not responsible for the default by STPL. All issues between NHAI and STPL are pending in arbitration. NHAI prays that the appeal be decided in accordance with the IBC and applicable law. Issues for Consideration: 105. We have heard all sides and also perused materials placed on record. The main issues for our consideration are: o Whether a "debt" and "default" exist within the meaning of the IBC so as to warrant admission of the petition. o Whether the appellant's allegation of contrived default due to NHAI's control of escrow is sustainable. o Impact of the termination of the concession agreement on STPL's insolvency liability. o Whether the adjudicating authority erred in admitting the petition without investigating disputes between parties. 106. All....
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....ement of the said Ordinance, failing which the application shall be deemed to be withdrawn before its admission. Explanation.-For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) XXX (3) The financial creditor shall, along with the application furnish- (a) record of the default recorded with the information utility or such other record or evidence of default as may be specified; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. (4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3). Provided that if the Adjudicating Authority has not ascertained the existence of default and passed an order under sub-section (5) wit....
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....ment to the extent of novated commitment of Rs. 100 cr. to Oriental Bank of Commerce ("OBC") and Rs. 128.42 cr. to SREI. 03.06.2015 In accordance with Clause 5.7 of the Loan Agreement (Disbursement), UBI made a disbursement of INR 174,00,28,128 in favour of the Corporate Debtor in 43 instalments as evident from the statement of accounts of the Corporate Debtor. 19.10.2015 Third Amendment and Novation Agreement to the Loan Agreement was entered into wherein SREI released and discharged itself from the rights and obligations under the Loan Agreement to the extent of novated commitment of Rs. 50 cr. to Vijaya Bank. 15.02.2016 Fourth Amendment and Novation Agreement to the Loan Agreement was entered. Subsequent to the novation of the debt, the commitment for the various lenders stood as follows: S. No Name of the Lender Commitment 1. Union Bank of India INR 200 Cr. 2. India Infrastructure Finance Company Limited INR 160 Cr. 3. Punjab National Bank (erstwhile Oriental Bank of Commerce) INR 100 Cr. 4. SIFL INR 50 Cr. 5. Bank of Baroda (erstwhile Vijaya Bank) INR 50 Cr. 6. Canara Bank (erstwhile Syndicate Bank) ....
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....oan Agreement, was entered into whereby the SCOD was again shifted to 28.11.2019, and the date of repayment of first instalment of principal was further shifted to 30.09.2020, at the request of the Corporate Debtor. 14.09.2021 NHAI issued the notice of suspension of the Concessionaire under Clause 36.1 of the Concession Agreement, suspending the Concessionaire's rights under the Concession Agreement on account of several defaults committed by the Corporate Debtor. Appellant claims that in an application under Section 9 of the Arbitration and Conciliation Act, 1996, Hon'ble High Court of Delhi stayed suspension notice. 31.12.2021 NHAI issued another notice of suspension to the Concessionaire under Clause 36.1 of the Concession Agreement. 17.09.2022 A letter was written by FC to NHAI that CD remained capable of completing the project to the NHAI granting extension of time and deferment of premium to the CD. 12.01.2023 Due to the legal proceedings initiated by the Concessionaire before the Hon'ble High Court and Arbitration Tribunal, a stay was operating on the suspension of the Concession Agreement till 11.11.2022. NHAI' suspension under the Concession Agreeme....
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....ultimately did not materialize. 20.06.2023 Corporate Debtor's response to the Financial Creditor's notice dated 10.05.2023 stating that the project could not be completed because of the breaches committed by NHAI and the lenders. 10.10.2023 Pursuant to the Notice of Financial Default dated 10.05.2023, NHAI suspended the Concessionaire's rights under the Concession Agreement in terms of Clause 3.2.3 of the Substitution Agreement. Note: Accordingly, the Concessionaire's rights were suspended for a period of 270 days i.e. till 06.07.2024. 29.10.2023 The account of the Corporate Debtor was declared as NPA by UBI due to the Corporate Debtor's failure to make the payment towards interest for a consecutive period of 3 months. 01.02.2024 UBI filed the Section 7 Petition before the Ld. NCLT for a default of INR 184,23,86,839.03 towards 'Principal' and INR 11,31,78,183.42 towards 'Interest'. 109. We may also note that the financial creditor had tried to argue the case of the CD while writing a recommendation letter on 17.09.2022 to NHAI that CD remained capable of completing the project to the NHAI granting extension of time and deferment of premium to the CD. B....
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....ting authority has limited discretion and must admit the petition. The Hon'ble Supreme Court in the Innoventive Judgment had held as follows: "28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the Explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor - it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the a....
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....has occurred or if a default has not occurred. Based upon its decision, the adjudicating authority must then either admit or reject an application, respectively. These are the only two courses of action which are open to the adjudicating authority in accordance with Section 7(5). The adjudicating authority cannot compel a party to the proceedings before to settle a dispute " [emphasis supplied] 114. The Hon'ble Supreme Court in Suresh Kumar Reddy (supra) judgment has further held that the adjudicating authority has hardly any discretion to refuse admission once satisfied of default. It will be instructive to extract relevant portion as below: "... 10. The view taken in Innoventive Industries has been followed by this Court in E.S. Krishnamurthy. Paras 32 to 34 of the said decision read thus : (E.S. Krishnamurthy case, SCC pp. 177-79) "32. In Innoventive Industries, paras 28 and 30, a two-Judge Bench of this Court has explained the ambit of Section 7 IBC, and held that the adjudicating authority only has to determine whether a "default" has occurred i.e. whether the "debt" (which may still be disputed) was due and remained unpaid. If the adjudicating authorit....
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....e debtor within 7 days of admission or rejection of such application, as the case may be. * * * 30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is "due" i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise.' 33. In the present case, the adjudicating authority noted that it had listed the petition for admission on diverse dates and had adjourned it, inter alia, to allow the parties to explore the possibility of a settlement. Evidently, no settlement was arrived at by all the original petitioners who had instituted the proceedings. The adjudicating authority noticed that joint consent terms dated 12-2-2020 had been filed b....
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....res- * * * (12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not [paid] by the debtor or the corporate debtor, as the case may be;" Thus, even the non-payment of a part of debt when it becomes due and payable will amount to default on the part of a corporate debtor. In such a case, an order of admission under Section 7 IBC must follow. If NCLT finds that there is a debt, but it has not become due and payable, the application under Section 7 can be rejected. Otherwise, there is no ground available to reject the application. 14. Thus, it was clarified by the order in review that the decision in Vidarbha Industries was in the setting of facts of the case before this Court. Hence, the decision in Vidarbha Industries cannot be read and understood as taking a view which is contrary to the view taken in Innoventive Industries and E.S. Krishnamurthy. The view taken in Innoventive Industries still holds good." 115. Thus, we find that in Suresh Reddy (supra) it was held that once NCLT is satisfied that the default has occurred, there is hardly a discretion left wit....
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....the reasons of default, is clearly contrary to the whole Scheme of the IBC". [emphasis supplied] 117. Further, it is pertinent to look at the Supreme Court judgment of Swiss Ribbons v. Union of India, W.P. (Civil) No. 99 of 2018, which held that the objective of the code which is a beneficial legislation enacted for facilitating banks to move towards early resolution of problem assets as an effective legal framework for timely resolution of insolvency and bankruptcy which will support the development of credit markets, encourage entrepreneurship, improve ease of doing business and facilitate more investments leading to higher economic growth and development. 118. We thus find that not only the Code but the above judgments support the case of the financial creditor and thus the claim of the appellant that the Adjudicating Authority should have gone into the causation of default cannot be accepted. The adjudicating authority cannot enter into the contractual context and so called "induced default", which falls outside the domain of the insolvency proceedings and needs to be settled between the Appellant and the NHAI at an appropriate forum. Adjudicating authority has to only....
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.... exceeds the claim of the creditors and for that reason the appellant-CD-STPL should not be put into insolvency. The Corporate Debtor has contended that on account of expiry of suspension period, termination in terms of Clause 37.3 "Termination Payment" is attracted. Additionally, the Corporate Debtor had further contended that it has sent the Termination Notice dated July 18, 2024 wherein the Corporate Debtor has sought to terminate the Concession Agreement and has demanded a Termination Payment to the tune of INR. 1445.60 Crores from NHAI in terms of Article 37.3.2 of the Concession Agreement. We find that the rebuttal the arguments of the Union Bank of India to be convincing that a Financial creditor cannot await indefinitely for arbitration award and termination payment as they are not a party on those proceedings and as that contract was between the corporate debtor and NHAI. It is their bilateral dispute and a financial creditor cannot wait indefinitely and has all rights to proceed for insolvency proceedings. 122. Another related argument has been made that after suspension and termination of the concession agreement, NHAI who was in control of the escrow account and suff....
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....eement (Clause 36.2.1 and Clause 31.3) permit NHAI to apply funds towards critical project expenses during suspension, superseding debt payments. Further, the suspension and delay were caused by STPL's breaches, necessitating NHAI intervention and project takeover. The financial default predated NHAI's suspension, and STPL's failure to repay lenders is independent. 126. Appellant has placed its reliance on Jetpur Somnath Tollways Limited vs. National Highway Authority of India (SB) 2017 SCC Online Del HC 9453, wherein while considering a case where the terms of the concession agreement regarding termination payments were identical, the Hon'ble Delhi High Court inter alia held that: "64. This, to my mind, has been stipulated because, under clause 37.4 of the Concession Agreement, upon Termination for any reason whatsoever, NHAI is deemed to have taken possession and control of the Project Highway forthwith and NHAI upon its election succeeds to the interests of Jetpur under such of the project Agreements as NHAI may in its discretion deem appropriate. 65. The sequiter of the above stipulation is that NHAI which has no financial liability for the execution of the....
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....en NHAI and Jetpur. Clearly, NHAI has faulted in making deductions from the Termination Payment." [emphasis supplied] 128. Appellant's case doesn't get any support from the above judgement as we are not discussing the rights of NHAI but the rights of FC-UBI which are in any case protected as per the loan agreement. The matter relating to termination payments relate to CD qua NHAI. The Financial Creditor's cannot be limited by just termination payments, even though they appear to protect the interest of the lenders. FC cannot be bound to follow a particular course of action to protect their interest. If they follow the legal route of insolvency resolution of the CD through Section 7 proceedings, they cannot be forced by someone else to follow the route of recovery through termination payments - which may or may not materialize and in which case they are not a direct party. It cannot be, therefore, surmised that since FC did not pursue termination payments, considering that quantum for NHAI default would be INR 1393.62 crores and in the event of Corporate Debtor default would be INR 823.79 crores, which is much more than the amount in default due to the Financial Creditor, ther....
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....om its default for repayment of the debt. 21. We do not find any infirmity in the findings returned by the Adjudicating Authority that the financial creditor succeeded in proving the debt and default and the ingredients under Section 7 are fulfilled. In view of the facts brought on the record, it is clearly proved that there is a debt and default which has been acknowledged from time to time by the corporate debtor. Corporate debtor has failed to honour its repayment obligations as per financial document. Adjudicating Authority after considering all submissions of the parties have rightly returned the finding of debt and default." [Emphasis Supplied] 131. Further, this Appellate Tribunal in Deepak Raheja and Another vs. Omkara Assets Reconstruction Pvt. Ltd. and Another, 2025 SCC OnLine NCLAT 1287 whereby an argument was made that the amount in the Retention Account was enough to repay the debt of the lenders was rejected, this Hon'ble Tribunal held as follows ".... 21. The learned Counsel for the Appellant has also taken exception to the findings of the Adjudicating Authority that with regard to DSRA, the Adjudicating Authority has held that even t....
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....d] 132. Respondent-UBI-FC is also supported by another judgement of this Tribunal in Vikram Bhawanishankar Sharma Member of the Suspended Board of Directors of Supreme Manor Wada Bhiwandi Infrastructure Pvt. Ltd., v. Union Bank of India & Anr., Comp App. (AT) (Ins) No. 794 of 2023, whereby in a similar case, it was held that the arguments of the Appellant were rejected that the termination of the Concession Agreement by the Government of Maharashtra has resulted in shifting of liability upon the Government of Maharashtra, and it was held that the same cannot be made the basis for dismissing the application because the liability was enjoined upon the corporate debtor to make the payment to the financial creditor, which is noted hereinbelow: ".... 30. The argument of the Appellant that the termination of the CA (Concession Agreement) by the GoM (Government of Maharashtra), the same cannot be made the basis for dismissing the application because the liability was enjoined upon the CD to make the payment to the FC". 133. We also note that as per the Common Loan Agreement, the rights and obligations of the lenders are several and UBI's arguments are convincing th....
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....he Hon'ble Supreme Court vide its order dated July 29, 2022 passed in Civil Appeal Nos. 4109-4110/2022 titled Vineet Khosla vs. M/S Edelweiss Asset Reconstruction Company Ltd and Ors. has categorically observed that the Adjudicating Authority while examining an application under Section 7 of the Code '...is not required to consider if or not resolution for a given Comраnу would be possible or not and whether or not it would be possible to keep it a going concern as the Corporate Debtor is trying to claim' (Para 16). 138. We also while exercising our power under the Code we are not courts of equity and must strictly adhere to the provisions of Code, as settled by Hon'ble Supreme Court in K Sashidhar v. India Overseas Bank (2019) 12 SCC 150, wherein it was held that: "58. Indubitably, the inquiry in such an appeal would be limited to the power exercisable by the resolution professional under Section 30(2) of the I&B Code or, at best, by the adjudicating authority (NCLT) under Section 31(2) read with Section 31(1) of the I&B Code. No other inquiry would be permissible. Further, the jurisdiction bestowed upon the appellate authority (NCLAT)....
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....upled with the fact that such evidence, as has been conceded by the learned Attorney General, is only prima facie evidence of default, which is rebuttable by the corporate debtor, makes it clear that the challenge based on this ground must also fail." [Emphasis Supplied] 141. Rebutting above arguments, we were informed by the Respondent Bank-UBI that 'the in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred' (Para 30 of Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SCC 407). However, this case has better evidence, as in this case we note that it is just not the information utility records, but many other records of STPL which are noted as below: (i) The default has been acknowledged and identified in the Report of the Information Utility, National E-Governance Services Limited which has been authenticated by the corporate Debtor. (ii) The Balance Sheet and Auditor's Report for Financial Year 2022-2023 of the Corporate Debtor evidenced existence of fi....
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....less. Therefore, all such documentary proofs of default and cannot be wished away and above contentions of the Appellants are rejected. In the above backdrop, we don't find any infirmity in the conclusions of the AA on bases the records of the information utility and the financial statements of the CD, when apart from these documents so much evidence is on record. 145. The Appellant's contention that its only asset will be the receivables subject to the arbitration petition filed by the Corporate Debtor against NHAI seeking termination payment has been dealt by the Adjudicating Authority in the below paras: "53. We would refer to the judgment rendered by the Hon'ble NCLAT in Century Aluminium Company Ltd. v. Religare Finvest Ltd. reported in (2024) ibclaw.in 698 NCLAT, wherein the Hon'ble NCLAT relied on the judgment of Hon'ble Apex Court in Indus Biotech Pvt. Ltd. Vs. Kotak India Venture (Offshore) Fund, (Earlier known as Kotak India Venture Limited) & Ors. reported in (2021) 6 SCC 436, and held that: "13. .... 14. From the law laid down by the Hon'ble Supreme Court, it is clear that if an Application under Section 8 of the Arbitration....
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....'default' The dispute sought to be relied upon by the Corporate Debtor is inter-se the Corporate Debtor and the NHAI and it would not have any impact on the Section 7 Petition filed by the Respondent No. 1 in exercise of its statutory right. Further assuming that the termination is given effect to, the quantum of the termination payment and when such payment will be received by the corporate Debtor is a mere contingency which cannot come in way of admission of the present petition. Even assuming that certain amount is payable by the NHAI to the Corporate Debtor, the exact quantum of such amount cannot possibly be ascertained at this stage. 147. We also note that there is no basis of Appellant's contention that the present case is a case of malicious initiation of CIRP by the Respondent No. 1 is malafide and without any merit. 'Fraud' and 'malicious intent' are the essential ingredients for invoking Section 65^1 of the Code which are missing in this case, without an iota of proof. We reject such arguments qua the FC- UBI and NHAI. 148. In the above backdrop, we find that the Adjudicating Authority has correctly observed in Para 45 as follows: "45. the position....