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NCLT Bengaluru Rules Can Initiate Insolvency Under Section 7 Despite Trustee Appointment
In a significant ruling clarifying the rights of under the Insolvency and Bankruptcy Code, the has held that the mere appointment of a does not divest the actual of their independent statutory right to initiate insolvency proceedings under Section 7 of the Code. The Bench, comprising Judicial Member Sunil Kumar Aggarwal and Technical Member Radhakrishna Sreepada, admitted a petition filed by , ordering the into the over a of over ₹627 crore.
The Background: A ₹385 Crore Debenture
The case arose from a dated , under which the two funds subscribed to issued by the . invested ₹225 crore in Senior Debentures, while Series 2 invested ₹160 crore in Series VI Debentures, aggregating to ₹385 crore. The funds were disbursed for the development of the 's real estate project, and the transaction was secured through a appointing as the .
The failed to meet its redemption and interest obligations, leading the to issue Notices in , followed by in recalling the entire outstanding amount. When the failed to pay, the funds approached the NCLT in , claiming that as on , the total outstanding had swelled to ₹627.61 crore including interest and other contractual dues.
The Core Legal Objection: Who Can File?
The raised a threshold objection: since a had been appointed under the , the Trustee was the exclusive representative authorised to enforce rights against the company. It was argued that the individual lacked to file a petition under Section 7, and that the petitioners had bypassed the contractual grievance mechanism. The also disputed the calculation of dues, calling the petition an attempt to enforce disputed contractual claims through .
The countered that the appointment of a Trustee merely created a representative arrangement and did not strip them of their . They argued that the existence of the debt and were undisputed, and that the contractual mechanism could not override the Code.
Court’s Analysis: Trustee Appointment Does Not Override Statute
The NCLT held that at the admission stage, it is only required to ascertain the existence of a and the occurrence of , citing the 's decision in The Tribunal noted that the had not disputed the execution of the transaction documents or the receipt of the ₹385 crore subscription amount. The production of statements of account, Notices, and established the .
Rejecting the
's primary objection, the Tribunal ruled that the appointment of a
merely enables the Trustee to act in a
.
"Such appointment merely enables the
to act on behalf of the
. It cannot be construed as divesting, extinguishing or excluding the independent statutory right of the actual
to invoke
,"
the Bench observed.
The Tribunal further clarified that while a contractual arrangement may regulate the manner in which the Trustee acts, it cannot curtail or override a
.
"The
does not become the creditor in substitution of the
; it merely acts as their representative,"
it stated.
On the issue of disputed quantification, the NCLT held that even if the exact calculation was contested, the undisputed principal amount of ₹385 crore was far above the threshold under , and therefore the petition was maintainable. The remaining objections related to interpretation of the transaction documents were deemed insufficient to defeat a Section 7 application.
Key Observations from the Bench
The Tribunal made several pivotal observations in its order:
"The
, being a contractual arrangement between the parties, may regulate the manner in which the
acts for the benefit of the
, but it cannot curtail or exclude the
available under the Code. A contractual stipulation cannot override the provisions of a statute unless the statute itself so provides."
"The Respondent has not disputed the execution of the transaction documents or the receipt of the subscription amounts. Thus, the existence of the
and the occurrence of
stand established from the material placed on record."
"The principal objection regarding maintainability is wholly misconceived and the
contained in the transaction documents cannot curtail or override the
available under the
."
The Decision: CIRP Admitted, IRP Appointed
After finding that a existed and had occurred, the NCLT admitted the petition under Section 7 of the IBC. It declared a under , prohibiting any suits, asset transfers, or enforcement of security interests against the . The Bench appointed Sh. Dhanshyam Kantilal Patel as the and directed the Financial Creditor to deposit ₹3 lakh with the IRP for initial expenses. The IRP was instructed to collate claims, constitute a , and file a report within thirty days. The matter has been listed for further reporting on .
Implications of the Ruling
The decision reinforces the principle that statutory remedies available under the IBC cannot be contracted away by private agreements. It provides clarity for , who often invest through a trust structure, confirming that they retain the right to directly initiate insolvency proceedings if the Trustee fails to act. The ruling is expected to have broad implications for the real estate and infrastructure financing sectors, where debentures are a common instrument for raising capital.
