TaxTMI 
TaxTMI 
2026 (2) TMI 970
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....porate Debtor".] under Section 62, Insolvency and Bankruptcy Code, 2016 ["IBC/The Code".], challenging order dated 25.01.2024 by National Company Law Appellate Tribunal, Principal Bench, New Delhi ["NCLAT".]. By the impugned order, NCLAT has upheld order dated 02.01.2024 by National Company Law Tribunal, Kolkata Bench ["NCLT/Adjudicating Authority".], whereby the NCLT admitted an application filed under Section 7, IBC ["Section 7 application".] by REC Ltd. ["2nd Respondent/Financial Creditor".] and initiated the corporate insolvency resolution process ["CIRP".] against the Corporate Debtor. FACTS GIVING RISE TO THE APPEAL 2. A common loan agreement dated 19.06.2013 was entered into between the Corporate Debtor and 2nd Respondent to avail a term loan of Rs. 1859 crore for setting up of a thermal power plant at Haldia, West Bengal. Due to cost overruns, on 30.10.2015, the Corporate Debtor availed an additional term loan facility of Rs. 446.97 crore. Subsequently, the Corporate Debtor entered into a power purchase agreement ["PPA".] with the West Bengal State Electricity Distribution Company Ltd. ["WBSEDCL".] 3. On 30.06.2018, 2nd Respondent classified the accounts of Corpora....
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....nt to such directions of the Division Bench, the request to revive the restructuring proposal was rejected as the Corporate Debtor had repeatedly failed to satisfy key pre-implementation conditions, including creation of a DSRA, maintenance of priority debt of Rs. 83 crore, and demonstration of Corporate Debtor's power plant successfully running at installed capacity continuously for 72 hours. 9. Thereafter, the Corporate Debtor took out IA No. 1020/2022 inter alia for a declaration that the restructuring proposals dated 29.09.2020 and 14.01.2021 [On 14.01.2021, the 2nd restructuring proposal was approved by Power Finance Corporation Ltd., which is another financial creditor of the Corporate Debtor.] were valid and binding inter se parties and dismissal of the Section 7 application. During the pendency of the said IA, Corporate Debtor claimed various sums had been accepted by 2nd Respondent in repayment of the debt which was to be liquidated by 2042 as per the 2nd restructuring proposal. The Corporate Debtor also filed IA No. 828/2023, inter alia praying that the date of default as per restructuring agreement dated 21.02.2020 squarely fell in the period covered under Section 10A....
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.... and furnish a bank guarantee of Rs. 100 crore, and the Appellant deposited Rs. 25 crore with the Registry of this Court. By order dated 23.09.2025, the stay was continued and the bank guarantee requirement was substituted by a further deposit of Rs.100 crore, which was also deposited, taking the total deposit to Rs.125 crore. During these proceedings, DVC was impleaded [IA No. 240917/2025.] and sought vacatur of the stay [IA No. 240982/2025.] citing serious prejudice and economic hardship due to stalling of the CIRP. Additionally, SEFL's application to intervene was allowed [IA No. 260460/2025.] whereby they sought release of the Rs. 125 crore deposit towards the Appellant's alleged dues, contending that the Appellant must first clear liabilities to SEFL before seeking to fund settlement plans for the Corporate Debtor. ARGUMENTS AT THE BAR 15. The Appellant argues that the CIRP is barred by Section 10A, IBC which prohibits initiation of CIRP for defaults occurring between 25.03.2020 and 24.03.2021. Although the Section 7 application attributes a default date of 31.03.2018 under the Common Loan Agreement dated 19.06.2013, Appellant submits that the first restructuring agreeme....
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.... submit that the Appellant's reliance on Section 10A is misconceived. According to the Respondents, the restructuring proposals dated 21.02.2020 and 29.09.2020 never ripened into binding arrangements because the Corporate Debtor failed to satisfy the pre-implementation conditions. Once the restructuring failed at that threshold stage, the date of default cannot be shifted by referring to repayment schedules contemplated under those unimplemented proposals. Even otherwise as per the Appellant's case, the 1st restructuring proposal had been subsumed in the 2nd restructuring proposal, wherein the first instalment fell due on 31.03.2021 beyond the Section 10A window. 20. The Respondents further contend that the Appellant's case of novation is unsustainable for the same reason. As the preimplementation conditions were not fulfilled, the proposals did not crystallise into enforceable agreements, and there was no novation of the original financing terms. The Respondents submit that subsequent part payments made towards an existing debt do not revive a failed restructuring nor do they satisfy the debt in full justifying the dismissal of the Section 7 application. 21. The Respondents ....
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....ore viable than that of the successful Resolution Applicant and accordingly, the CIRP ought to be kept in abeyance and such settlement proposal be favourably considered by the CoC. A. Bar under Section 10A, IBC 25. Firstly, we take up the issue with regard to admission of the Section 7 application. In our considered view, the plea of bar under Section 10A, IBC is a non-starter. In the backdrop of outbreak of COVID-19 pandemic, as an ameliorative measure, Section 10A was incorporated in the IBC. The provision barred initiation of CIRP against a corporate debtor in the event the default arose on or after 25.03.2020, for a period of 6 months or such period not exceeding one year as may be notified. It may be noted that by notification the government extended the embargo till 24.03.2021. [Notification S.O. 4638(E) dated December 22, 2020, Ministry of Corporate Affairs.] Explanation to the Section, however, clarified that the bar will not apply to any default committed before 25.03.2020. 26. In the Section 7 application, 2nd Respondent's case is that the Corporate Debtor had defaulted under the common loan agreement dated 19.06.2013 on 31.03.2018, much prior to the commencement....
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....e of the restructuring proposals, thereby novating the earlier loan agreement. Neither would such part payments constitute full satisfaction of the existing debt so as to render the Section 7 application inadmissible. 29. It has also been vociferously contended that the Corporate Debtor is an ongoing concern and does not lack the ability to repay the debt. It has a subsisting PPA for 25 years with WBSEDCL, and has raised bills of Rs. 906 crore from 01.11.2024 to 31.03.2025. It also has a continuous fuel supply arrangement with Mahanadi Coalfields Ltd. under the SHAKTI scheme and had earned EBIDTA of Rs. 20 crore per month during the CIRP. These facts though attractive at first blush, do not yield either legal or factual justification to rebut the admission of the Section 7 application. 30. On the legal score, one must bear in mind the scope and purpose for which IBC was promulgated. The main objective of its enactment was to create a complete code for easy, prompt and seamless resolution of insolvency process and thereby ensure that the net worth of the corporate debtor is not dissipated and the entity is salvaged from corporate death through a viable resolution plan accepted....
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....ncial debts. 32. In light of such classification, the Code makes a distinction in the manner in which an insolvency process may be initiated by a financial creditor under Section 7, IBC in contradistinction to an operational creditor under Section 8 and 9, IBC. Unlike an operational creditor, a financial creditor may trigger an insolvency process under Section 7 in respect of default of any financial debt, whether owed to itself or to any other financial creditor. While the financial creditor may directly file an application under Section 7 setting out the particulars of the financial debt and evidence of default,^1 the operational creditor, on the occurrence of a default, is to first deliver a demand notice of the unpaid debt to a corporate debtor and the latter may within 10 days of receipt of such demand notice bring to the notice of the operational creditor the existence of a dispute or record the pendency of a pre-existing suit or arbitration proceeding in respect of such debt. Once a corporate debtor demonstrates a dispute regarding the existence of the debt, the insolvency process stands aborted vis-à-vis the operational creditor. But when the financial creditor in....
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....hereby arrive at a requisite satisfaction whether it is just and equitable to wind up the company. The Code restricts the scope of enquiry for admission of an insolvency process by a financial creditor merely to the existence of default of a debt due and payable and nothing more. The legislative intent behind such prompt and summary intervention is "to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation." [Swiss Ribbons (supra), Para 28.]. 35. The Appellant has heavily relied on Vidarbha (supra) to argue that the Adjudicating Authority has ample discretion to apply its mind to relevant factors including the feasibility of initiation of insolvency process notwithstanding the existence of default on a debt due and payable by the Corporate Debtor. In Vidarbha (supra), this Court observed:- "61. In our view, the Appellate Authority (NCLAT) erred in holding that the adjudicating authority (NCLT) was only required to see whether there had been a debt and the corporate debtor had defaulted in making repayment of the debt, and that these two aspects, if satisfied, would trig....
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....cedent. 39. Even otherwise on facts, Vidarbha (supra) does not come to the aid of the Appellant. In Vidarbha (supra), this Court had taken note of an award passed by APTEL [Appellate Tribunal for Electricity.] in favour of the corporate debtor which far exceeded the claim of the financial creditor, and held in the setting of such facts, initiation of CIRP was unwarranted. In the present case, Appellant's contention regarding Corporate Debtor's viability is highly dubious. Though the Corporate Debtor strenuously demonstrates its commercial viability, the NCLAT has noted that the extent of outstanding liability as on 02.01.2024 was Rs. 3103.31 crore, which far exceeds the bills raised on WBSEDCL to the tune of Rs. 906 crore and EBITDA of Rs. 20 crore per month during the CIRP. 40. For these reasons, we are of the opinion the admission of the Section 7 application was lawful and does not call for interference. C. Settlement Proposals 41. Finally, the Appellant in a last-ditch effort, has prayed that the settlement proposal offered by them is more viable than that of the successful Resolution Applicant, and on such score the CIRP may be stayed as per Section 12A. During the....
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.... SCC 625, Para 64., held reference to inherent powers under Rule 11, NCLT/NCLAT Rules, [National Company Law Tribunal Rules, 2016, and National Company Law Appellate Tribunal Rules, 2016.] or under Article 142 to direct post-admission withdrawal/settlement of claims no longer arises. However, we hasten to add that our observation may not be construed as a complete bar on the plenary powers under Article 142 to pass directions during CIRP in appropriate cases to do complete justice. 44. Notwithstanding the above stated statutory scheme and merely as a concessionary measure, this Court stalled the CIRP vide order dated 12.09.2025 subject to the Appellant depositing Rs. 25 crore and furnishing a bank guarantee of Rs. 100 crore. At this stage, DVC intervened and vehemently opposed delay in final approval of its resolution plan. Having considered these concerns of the successful Resolution Applicant, we are in agreement with the Respondents that any further direction to stall the CIRP on the plea of further settlement proposals at the behest of the Appellant would be prejudicial to the interest of a swift and timely resolution of insolvency process. CONCLUSION 45. In light of t....