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2024 Supreme(Online)(NCLAT) 909

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Justice Ashok Bhushan (Chairperson) , Hon'ble Mr. Arun Baroka (Member (Technical)) , Hon'ble Mr. Barun Mitra (Member (Technical)) ,
JUBIN KISHORE THAKKAR – Appellant
Versus
PHOENIX ARC PRIVATE LIMITED & ANR – Respondent
1931/ND/2024 COMPANY APPEAL(AT)(INS)

Mr. Krishnendu Dutta & Mr. Abhijeet Sinha, Sr. Advocate with Mr. Abhirup Dasgupa, Ms. Jayashree Shukla Dasgupta and Mr. Rohan Aggarwal, Advocates. Mr. Amar Dave, Sr. Advocate with Ms. Bhavana Duhoon, Mr. Abhinav Agarwal, Mr. Manaswi Agarwal and Ms. Saloni Kalwade, Advocates for R-1. Mr. Pulkit Dutt Tiwari and Shreeya Pednekar, Advocates for R-2/IRP.

Section 7 of the IBC can be initiated based on a Recovery Certificate, and defaults post-Consent Decree are valid for insolvency proceedings, not barred by Section 10A.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 7 and Section 10A - Appeal against admission of Corporate Debtor into Insolvency Resolution Process - Corporate Debtor defaulted on payments, leading to NPA declarations by lenders - Consent Decree issued by DRT on 29.08.2022 acknowledged the debt and default, which was the basis for the Section 7 Application - Court found that the default was not barred by Section 10A as it occurred post-Consent Decree. (Paras 4, 10, 26)

(B) Corporate Insolvency Resolution Process - The initiation of proceedings under Section 7 can occur based on a Recovery Certificate from the DRT, affirming the existence of debt and default. (Para 33)

(C) Legal Principles - The court held that a Consent Decree constitutes a fresh cause of action for filing a Section 7 Application, and prior defaults do not negate the applicability of the IBC provisions. (Paras 12, 26)

Facts of the case:
The Corporate Debtor defaulted on loans from multiple banks, was declared NPA, and a Consent Decree was issued by DRT acknowledging the debts. On 26.09.2024, the Adjudicating Authority admitted the Section 7 Application for CIRP based on the default amounting to ₹968,20,63,285.

Findings of Court:
The Adjudicating Authority found that the Corporate Debtor had committed default and acknowledged the debt, thus admitting the application for CIRP.

Issues: The main issues included whether the Section 7 Application was barred by Section 10A due to defaults occurring during the protected period and the validity of the Consent Decree as a basis for the application.

Ratio Decidendi: The court reasoned that the default post-Consent Decree was valid for initiating CIRP and that earlier defaults did not impede the application under Section 7.

Result: Appeal dismissed.

ORDER

ASHOK BHUSHAN, J. This Appeal by a Suspended Director of the Corporate Debtor, KLT Automotive and Tabular Products Limited has been filed challenging the Order dated 26.09.2024 passed by the Learned Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court – III), by which Order, Application under Section 7 filed by the Financial Creditor, Respondent herein has been admitted.

2. Brief facts of the case necessary to be noticed for deciding the Appeal are:

i. Corporate Debtor, KLT Automotive and Tabular Products Limited availed various credit facilities from Bank of India between 2005–11. In 2011, Corporate Debtor availed financial facility from Corporation Bank (now Union Bank of India) which included working capital facilities, comprising of fund based limit and non-fund based limit aggregating to a sum of ₹61 Crores.

ii. On 24.08.2012, Corporate Debtor, availed additional credit facility from Bank of India to the tune of ₹126 Crores.

iii. Account of Corporate Debtor was declared as NPA by Bank of India on 31.03.2015.

3 of 18 iv. On 28.09.2015, a Facility Agreement was executed between the Corporate Debtor and KKR Financial Services Limited for availing Term Loan Facility of INR 195 Crores.

v. On 31.03.2016, Corporate Debtor issued acknowledgement of debt to Bank of India.

vi. Corporation Bank (now Union Bank of India) declared the account of Corporate Debtor as NPA on 21.12.2017.

vii. KKR Financial Services Limited also declared the account of Corporate Debtor as NPA on 29.06.2018.

viii. On 24.01.2019, Bank of India assigned its debt to Respondent No. 1.

ix. The Financial Creditor, KKR Financial Services Limited also assigned its debt to Bank of India.

x. On 13.03.2019, Corporation Bank also assigned the loan facility granted to it by Corporate Debtor in favour of Respondent No. 1.

xi. On 26.04.2019, Financial Creditor agreed to settle and restructure the dues of the Corporate Debtor in Terms of the Letter of Acceptance (LoA).

xii. On 20.03.2023, Respondent No. 1 revoked all the waivers/concessions under the LoA issued in respect of loan facility granted by Bank of India, Corporation Bank, as well as KKR Financial Services Limited.

xiii. On 15.09.2020, Respondent No. 1 by a separate three Notices recalled the loan facilities granted by Bank of India, KKR Financial Services Limited and Corporation Bank.

4 of 18 xiv. In the year 2021, Respondent No. 1 filed OA No. 201/2021 before the Debt Recovery Tribunal (DRT) for recovery of outstanding dues from the Corporate Debtor.

xv. A Company Petition 1207/2021 was also filed before the Adjudicating Authority by the Financial Creditor on 16.10.2021.

xvi. On 29.08.2022, Financial Creditor and Corporate Debtor arrived at amicable settlement and executed Consent Terms before the DRT.

xvii. DRT by Decree issued a Consent Decree on 29.08.2022.

xviii. On 10.10.2022, Adjudicating Authority disposed of the Company Petition 1207/2021 in accordance with the Consent Terms.

xix. There being breach of Consent Terms by the Corporate Debtor, Financial Creditor filed Section 7 Application being C.P. (IB) No. 881(MB)/C–III/2023, seeking initiation of Corporate Insolvency Resolution Process (CIRP) in respect of the Corporate Debtor, claiming default of total amount of ₹ 968,20,63,285/ – only as on May 15, 2023.

xx. In Section 7 Application, Notices were issued and Corporate Debtor filed its Reply to Section 7 Application.

xxi. Adjudicating Authority after hearing both the parties held that Corporate Debtor committed default which is due to the Corporate Debtor in the Order impugned finding has been returned that Corporate Debtor has proved existence of debt and default, which is excess of ₹1 Crore, hence, Corporate Debtor was admitted to Insolvency by the Order dated 26.09.2024.

5 of 18 xxii. This Appeal has been filed challenging the Order dated 26.09.2024.

3. We have heard Learned Sr. Counsels, Mr. Krishnendu Datta and Mr.

Abhijeet Sinha appearing for the Appellants and Learned Sr. Counsel, Mr.

Amar Dave

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2024 Supreme(Online)(NCLAT) 909

NATIONAL COMPANY LAW APPELLATE TRIBUNALJustice Ashok Bhushan (Chairperson) , Hon'ble Mr. Arun Baroka (Member (Technical)) , Hon'ble Mr. Barun Mitra (Member (Technical)) ,JUBIN KISHORE THAKKAR – AppellantVersusPHOENIX ARC PRIVATE LIMITED & ANR – Respondent1931/ND/2024 COMPANY APPEAL(AT)(INS)

Section 7 of the IBC can be initiated based on a Recovery Certificate, and defaults post-Consent Decree are valid for insolvency proceedings, not barred by Section 10A.

Cases Referred (2)