TaxTMI 
TaxTMI 
2026 (7) TMI 844
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....oudhary, Ms. Rushali Sikand for CFM ARC (Intervener). JUDGMENT [Per: Ajai Das Mehrotra, Member (Technical)] 1. The Company Appeal (AT) (Insolvency) No. 1405 of 2024 has been filed by Gursimran Kaur Mann, suspended director of Corporate Debtor, namely, Simbhaoli Sugar Limited against the impugned order dated 11.07.2024 passed by Ld. NCLT, Allahabad Bench in C.P. (IB) No. 331/ALD/2018 filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016) by Oriental Bank of Commerce wherein the Ld. NCLT has admit the Corporate Debtor in Corporate Insolvency Resolution Process (CIRP). 1.2 I.A. No. 7637 of 2024 is filed by State Bank of India (SBI) seeking impleadment in the Company Appeal (AT) No. 1405 of 2024 on the grounds that it had filed a petition under Section 7 of the IBC, 2016 which was disposed of by the Ld. NCLT, on the ground that the Corporate Debtor is already admitted into CIRP vide impugned order dated 11.07.2024. Further it was submitted that SBI is the lead Bank in the Joint Lender's Forum (JLF). Based on the submissions made, SBI was permitted to file written submissions and make oral pleadings in this case. 2. The Company Appeal (AT) (Insolven....
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....ting CIRP against the Corporate Debtor." vi) The Corporate Debtor has taken loans from SBI and other banks also, and the total outstanding, as recorded in the impugned order at para 11(xx), is Rs. 1436.92 crores. 4. The Learned Counsel for the Appellant submitted that debt of the Corporate Debtor was considered for restructuring by the Joint Lender's Forum (JLF). She referred to page 216 of the Appeal Paper Book and specifically to the following two paragraphs to support her contentions: "As evident from the above, though the numbers required for achieving supermajority are reached (68% in value & 50% in number), however, the Scheme can be pursued further only if all the members agree to the same. The JLF advised the Company to sort the issues amicably with the dissenting members before proceeding with the scheme. The Company was also advised to speed up this process (Preferably within 4 weeks) as the lenders which are agreeable at present may than have to explore other options if the restructuring option is not carried forward." 4.2 The Learned Counsel referred to the RBI Circular dated 12.02.2018 wherein RBI withdrew the corporate debt restructuri....
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....by a minimum of 60 percent of creditors by value and 50 percent of creditors by number in the JLF would be considered as the basis for deciding the CAP, and will be binding on all lenders, subject to the exit (by substitution) option available in the Framework. Lenders shall ensure that their representatives in the JLF are equipped with appropriate mandates, and that decisions taken at the JLF are implemented by the lenders within the timelines. 5. It shall be noted that (i) the stand of the participating banks while voting on the final proposal before the JLF shall be unambiguous and unconditional; (ii) any bank which does not support the majority decision on the CAP may exit subject to substitution within the stipulated time line, failing which it shall abide the decision of the JLF; (iii) the bank shall implement the JLF decision without any additional conditionalities; and (iv) the Boards shall empower their executives to implement the JLF decision without requiring further approval from the Board." 5.3 It is submitted that in the JLF meeting held on 19.03.2018, it was noted that the restructuring approach adopted cannot be pursue....
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....rcular, including actions by which the Insolvency Code has been triggered must fall along with the said circular. As a result, all cases in which debtors have been proceeded against by financial creditors under Section 7 of the Insolvency Code, only because of the operation of the impugned circular will be proceedings which, being faulted at the very inception, are declared to be non-est. 46. In view of the declaration by this Court that the impugned circular is ultra vires Section 35AA of the Banking Regulation Act, it is unnecessary to go into any of the other contentions that have been raised in the transferred cases and petitions. The transferred cases and petitions are disposed of accordingly." 5.5 It is the submission of the Ld. Sr. Counsel proceedings under Section 7 against the Corporate Debtor are in violation of the order of the Hon'ble Supreme Court wherein proceedings initiated under Section 7 of the IBC only because of the operation of the impugned RBI Circular were declared to be non-est from inception. It is pointed out the Ld. NCLT had adjourned the proceeding under Section 7, citing the pendency of case before the Hon'ble Supreme Court on several occasi....
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....aluation was Rs. 530 crores and present valuation is around Rs. 220 crores. The farmers debts have to be given priority and they amount to Rs. 487 crores. The total enterprise value was less then Rs. 487 crores and the secured creditors are not likely to get anything and eventually the company will go in liquidation. He also referred to the letter of PNB appearing at page 408 of APB which acknowledges that the recovery will be very low. 5.11 On specific query by the Bench, it is submitted that there is no approved OTS at present. The Ld. Counsel for the PNB confirmed and submitted that no proposal for settlement is pending for consideration of banks. The Ld. Counsel for the SBI referred to para 2 of letter dated 15.01.2025 wherein OTS proposal given by the Corporate Debtor was rejected. 6. The Ld. Sr. Counsel Mr. Gopal Jain, appearing for SBI stated that the Hon'ble Supreme Court has accepted that there is debt and default in Appellant's own case (Special Leave to Appeal (C) No(s). 4092/2024, M/s Simbhaoli Sugars Limited V. State Bank of India & Ors) and has held as under: "10. The High Court has furnished adequate reasons for declining to grant the relief as sought ....
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.... of Supply and Purchase) Act, 1953. The said Act, through Section 16, regulates the purchase and sale of cane in the reserved and assigned areas. The Regulation includes quantity of cane to be supplied or sold by each cane grower, the manner in which cane is to be purchased by factory, and the terms and conditions relating to such sale and purchase, etc. Section 17 of the said Act relates to regulation of payments and emphasis is on speedy payments to farmers and prescribes interest of 12% for delay in payment beyond 15 days. The relevant Sections 16 and 17 of the UP Sugarcane (Regulation of Supply and Purchase) Act, 1953 are reproduced below: "16- (1) The State Government may, for maintaining supplies, by order, regulate- (a) the distribution, sale or purchase of cane in any reserved or assigned area; and (b) purchase of cane in any area other than a reserved or assigned -area. (2) Without prejudice to the generality of the foregoing powers such order may provide for- (a) the quantity of cane to be supplied by each cane-grower or Canegrower's Co-operative Society in such area to the factory for which the area has so been reserved or....
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....ed to recover from such occupier the amount specified therein as if it were an arrear of land revenue. [(5) (a) Without prejudice to the provisions of the foregoing sub-sections, where the owner or any other person having control over the affairs of the factory or any other person competent in that behalf enters into an agreement with a bank under which the bank agrees to give advance to him on security of sugar produced or to be produced in the factory the said owner or other person shall provide in such agreement that [a percentage determined by such authority and in such manner as may be prescribed] of the total amount of price of sugarcane purchased or to be purchased for the factory during the current crushing session from those cane-growers or from or through those societies, and interest thereon and, such societies commission in respect thereof. (b) Every such owner or other person as aforesaid shall send a copy of every such agreement to the Collector within a week from the date on which it is entered into.]" 7.3 It is submitted that as per Notification issued under the said Act, 85% of the receipts of the sugar factory has necessarily to go towards pay....
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....he record before the Court indicates that the sugar factories have entered into tagging agreements within the purview of Section 17(5) which are subject to monitoring by the Collector. However, any advance which is made over to the sugar factory by a bank on the security of the stock of sugar which is produced or which is to be produced, must necessarily comply with the rigour and discipline of Section 17(5). Any other construction would defeat the whole object and purpose of Section 17(5). Otherwise, it would enable the sugar factories to enter upon financial arrangements with banks in respect of the same stock of sugar and defeat the rights of the cane grower by utilisation of the entirety of the advance for a purpose other than re-payment of cane dues. This would, in our view, be plainly a subterfuge and a fraud on the provisions of Section 17(5). Both the banks as well as the sugar mills are clearly aware of the provisions of Section 17(5) and in fact it has been submitted that to the extent to which tagging arrangements were entered into, they have been complied with. However, what is sought to be done is that in the course of entering upon working capital arrangements with th....
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....ur Units are under payment at this point of time, the Respondent No 2 (IRP) shall continue to adhere to the Tagging Orders of office of District Magistrate dated 11.11.2024 for Simbhaoli & Brijnathpur Units & dated 26.10.2024 for Chilwaria Unit, to the extent of sale proceeds from available stocks of Sugar, Molasses, Ethanol & Other Allied Products from the season 2024-25 as well as upcoming season of 2025-26, which is slated to start in first week of November 2025 for Simbhaoli & Brijnathpur Units & last week of November for Chilwaria Unit." 17. Further, it is submitted that similar issues were raised before this Hon'ble Appellate Tribunal in the case of Excel Engineering & Ors. v. Vivek Murlidhar Dabhade & Ors, 2022 SCC OnLine NCLAT 4461, decided on 16 November 2022 wherein the farmers were given 100% of their dues in the approved resolution plan and the said resolution plan was upheld by this Hon'ble Appellate Tribunal. It is necessary to highlight that the said order dated 16 November 2022 was challenged before the Hon'ble Supreme Court by Excel Engineering. However, the Hon'ble Supreme Court vide order dated 21 April 2023 (in Civil Appeal Diary No. 917....
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....editor had taken various steps under the law to seek repayment of the sanctioned loan, including identifying the account of the Corporate Debtor as fraud, reporting the same to CBI and ED, recalling the loan through a letter dated 01.11.2017, and further filing for recovery proceedings before the Debt Recovery Tribunal on 23.11.2017. The Financial Creditor had also sent a legal notice dated 29.10.2017 seeking repayment of the loan, to which a restructuring plan was proposed by the Corporate Debtor and submitted to the Financial Creditor on 10.11.2017. The Financial Creditors subsequently rejected the said plan on the basis that the amount offered was too low. However, to mitigate the liability, it was seen that the Financial Creditor appropriated the TDR of Rs. 5 crores provided by the Corporate Debtor as additional security for the repayment of the Term Loan Facility. 42. The Financial Creditor emphasized that the total borrowing owed by the CD to the present financial creditor was only Rs. 103.61crores which was not within the ambit of the circular and, therefore, the said circular could not have been applicable on debts owed to the present financial creditor as the said....
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....ION. 45. The last submission made by the Ld. Counsel representing the Corporate Debtor is that the instant Application filed under section 7 should be dismissed in the light of Dharni Sugar (Supra) since this Judgment specifically dealt with the RBI's Circular dated 12.02.2018, which was struck down by the Hon'ble Apex Court. 46. The Ld. Counsel representing the Financial Creditor, on the other hand, argued that since the insolvency proceedings were never initiated under the said circular, therefore, there shall be no applicability of the said judgment on the present proceedings. The relevant excerpt of the judgment has been reproduced hereunder: "...For these reasons also, the impugned circular will have to be declared ultra vires as a whole, and be declared to be of no effect in law. Consequently, all actions taken under the said circular, including actions by which the Insolvency Code has been triggered must fall along with the said circular. As a result, all cases in which debtors have been proceeded against by financial creditors under Section 7 of the Insolvency Code, only because of the operation of the impugned circular will be proceedings which, ....
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.... the Corporate Debtor which exceeds the debt owed. We seek guidance from the decision of the Hon'ble Supreme Court in Elegna Co-Op. Housing and Commercial Society Ltd. & Anr. v. Edelweiss Asset Reconstruction Co. Ltd. & Anr. reported in (2026) 264 Comp Cas 239 delivered on 15.01.2026 wherein in paras 12.5 and 12.6, the Hon'ble Supreme Court held as under: "12.5. The reliance placed by the corporate debtor on Vidarbha Industries Power Ltd. v. Axis Bank Ltd. is wholly misconceived. That decision has consistently been recognised as a narrow exception confined to its peculiar facts, namely the existence of an adjudicated and realisable claim in favour of the corporate debtor exceeding the debt owed. 12.6. This position now stands authoritatively clarified in M. Suresh Kumar Reddy v. Canara Bank, wherein this court held that Vidarbha Industries Power Ltd. v. Axis Bank Ltd. does not dilute the binding ratio of Innoventive Industries Ltd. v. ICICI Bank and E.S. Krishnamurthy v. Bharath Hi-Tech Builders P. Ltd. Admission under section 7 thus remains mandatory once debt and default are established, with Vidarbha Industries Power Ltd. v. Axis Bank Ltd. operating only in exc....