Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2024 Supreme(Online)(NCLAT) 1305

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Ashok Bhushan, J
Ashok Tiwari – Appellant
Versus
DBS Bank India Ltd. – Respondent
Company Appeal (AT) (Insolvency) No. 464 of 2022

Advocates:
For the Appellant: Mr. Gaurav Mitra, Mr. Shashwat Anand, Mr. Prabhat Ranjan Raj, Mr. Dhruva Vig, Mr. Gunjesh Ranjan, Mr. Ishan Roy Chowdhury
For the Respondents: Mr. Dhruv Malik, Ms. Palak Nenwani, Ms. Prachi Johri, Ms. Abhipsa Sahu, Mrs. Ritu Rastogi

The admission of a Section 7 application is valid if debt and default are proven, despite ongoing disputes regarding underlying claims.

Headnote:(A) Companies Act, 2013 - Section 7 - Corporate Insolvency Resolution Process - Appeal against admission of application - Corporate debtor's inability to repay debts established through recovery certificate - Corporate debtor as guarantor held liable - Insolvency proceedings not to be obstructed due to insufficient assets. (Paras 11 and 12)

(B) Admission of Section 7 application - The initiation of CIRP process against corporate guarantor is justified when debts remain unpaid and the default is proven, even if the corporate debtor asserts the insufficiency of assets for resolution. (Paras 11)

Facts of the case:
The corporate debtor executed a corporate guarantee for a loan provided to the principal borrower, which defaulted. Subsequent proceedings led to a recovery certificate in favor of the financial creditor, prompting the application under Section 7.

Findings of Court:
The Adjudicating Authority found the existence of default and sanctioned the application, validating the claims of the financial creditor based on prior judgments and the recovery certificate.

Issues: The main issue addressed was the legitimacy of admitting the Section 7 application despite existing appeals and reviews challenging underlying decisions related to debt.

Ratio Decidendi: The court emphasized that the insolvency proceedings should not be impeded by ongoing legal challenges if the evidence sufficiently indicates default. Furthermore, a recovery certificate constitutes a valid basis for initiating CIRP.

Result: The appeal is dismissed.

Table of Content
1. the appeal challenges the legitimacy of cirp initiation based on the corporate debtor's prior liabilities. (Para 1 , 2)
2. arguments focused on the corporate debtor's asset deficiency and ongoing litigation affecting the validity of the recovery certificate. (Para 4 , 5)
3. the court reaffirmed that existing defaults and recovery certificates justify the admission of section 7 applications. (Para 6 , 9 , 10)
4. the court determined that insufficient assets do not preclude initiation of insolvency proceedings. (Para 11)
5. final decision affirms dismissal of the appeal, upholding the lower court's admission of the application. (Para 12)

JUDGMENT

(12^th July, 2024)

Ashok Bhushan, J.

1. This Appeal by Suspended Director of the corporate debtor has been filed challenging the order dated 25.01.2024 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench, Court- II admitting Section 7 application filed by the DBS Bank India Ltd., the Financial Creditor. Challenging the order admitting application against the corporate debtor (corporate guarantor) this appeal has been filed.

2. Brief facts of the case necessary to be noticed for deciding this appeal are:-

2.1. M/s. Vayam Technologies Ltd. (principal borrower) obtained working capital facilities from the financial creditor. The said facilities were renewed in the year 13.09.2012 and 22.11.2013. The corporate debtor- M/s. Abhisar Impex Pvt. Ltd. executed a corporate guarantee dated 14.03.2012 to guarantee the repayment of the said facility and also created a charge by way of equitable mortgage on pari-passu basis on commercial property situated at D-319, Sector-63, Noida. As principal borrower failed to honour its obligation and neglected to make the payment. Financial creditor issued Loan Recall Notice dated 20.06.2015 to the principal borrower as well as to the corporate guarantor recalling the entire outstanding amount in terms of the Facility Agreement. Financial creditor filed an OA No.466 of 2015 before the Debt Recovery Tribunal, New Delhi for recovering its outstanding dues. The parties including principal borrower and the corporate debtor entered into settlement and filed a joint application before the DRT which was allowed by order dated 18.07.2016. The Corporate Debtor failed to abide the Terms of the Settlement, hence, financial creditor filed an M.A No. 135/2017 before the DRT for issuance of Recovery Certificate. DRT vide order dated 15.07.2019 issued a Recovery Certificate in favour of the financial creditor for a sum of Rs. 23,29,19,212.46/- along with interest @ 18% from the date of OA till realisation. Recovery Certificate dated 24.07.2019 was issued thereafter. The principal borrower filed an Appeal No.415 of 2019 before the DRAT against the DRT Order dated 15.07.2019 which was disposed of by DRAT on 08.12.2022. Principal borrower also filed a review of the order of DRT dated 15.07.2019. No amount having paid either by the principal borrower or the guarantor, the financial creditor issued a notice of invocation of guarantee dated 29.10.2021. On 18.01.2022, financial creditor filed Section 7 application against the Corporate Debtor- M/s. Abhisar Impex Pvt. Ltd. (corporate guarantor). application was filed relying on the recovery certificate for Rs. 23,29,19,212.46/- dated 24.07.2019 as well as the letter invoking corporate guarantee dated 29.10.2021. application was admitted by the Adjudicating Authority by order dated 25.03.2022. Suspended Director of the corporate debtor filed an appeal being Company Appeal (AT) (Insolvency) No.464 of 2022 challenging the order dated 29.03.2022. Company Appeal (AT) (Insolvency) No.464 of 2022 was allowed on 14.07.2022 by which order the corporate debtor was permitted to file a detailed reply within two weeks and application was revived before the Adjudicating Authority which was heard and decided. Corporate Debtor filed a reply before the Adjudicating Authority to which rejoinder

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2024 Supreme(Online)(NCLAT) 1305

NATIONAL COMPANY LAW APPELLATE TRIBUNALAshok Bhushan, JAshok Tiwari – AppellantVersusDBS Bank India Ltd. – RespondentCompany Appeal (AT) (Insolvency) No. 464 of 2022

The admission of a Section 7 application is valid if debt and default are proven, despite ongoing disputes regarding underlying claims.

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Ashok Bhushan, J
Ashok Tiwari – Appellant
Versus
DBS Bank India Ltd. – Respondent
Company Appeal (AT) (Insolvency) No. 464 of 2022