Insolvency and Bankruptcy Code, 2016 – ss.3(12), 7, 14 – Scope of s.7 – ‘Default’ u/s.3(12) – Application filed by the respondent-Bank u/s.7 against corporate debtor, admitted by NCLT – Moratorium was declared for the purposes referred in s.14 – Challenged by appellant, a suspended Director of the Corporate Debtor – Appeal dismissed by NCLAT – Held: Once NCLT is satisfied that the default has occurred, there is hardly a discretion left with it to refuse admission of the application u/s.7 – Even the non--payment of a part of debt when it becomes due and payable will amount to default on the part of a Corporate Debtorò – In such a case, an order of admission u/s.7 must follow – In the present case, the amount payable by the Corporate Debtor also included the amount repayable under fund-based credit facility of secured overdrafts – The facility granted to the Corporate Debtor was not confined to Bank Guarantees – Corporate Debtor committed a default within the meaning of s.3(12) due to non-payment of the amounts due to the Bank – Thus, even assuming that NCLT has the power to reject the application u/s.7 if there are good reasons to do so, in the instant case, the conduct of the appellant was such that no such good reason existed on the basis of which NCLT could have denied admission of the application u/s.7 – Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – s.13(2).
Dismissing the appeal, the Court
HELD: 1. Once NCLT is satisfied that the default has occurred, there is hardly a discretion left with NCLT to refuse admission of the application under Section 7. Thus, even the nonpayment of a part of debt when it becomes due and payable will amount to default on the part of a Corporate Debtorò. In such a case, an order of admission under Section 7 of the IB Code must follow. If the NCLT finds that there is a debt, but it has not become due and payable, the application under Section 7 can be rejected. Otherwise, there is no ground available to reject the application. [Para 10][397-C, E-F]
E.S. Krishnamurthy and others v. Bharath Hi Tecch Builders Private Limited (2022) 3 SCC 161; Innoventive Industries Limited v. ICICI Bank and Another (2018) 1 SCC 407 : [2017] 8 SCR 33 – relied on.
2. The decision in the case of Vidarbha Industries cannot be read and understood as taking a view which is contrary to the view taken in the cases of Innoventive Industries and E.S. Krishnamurthy The view taken in the case of Innoventive Industries still holds good. [Para 13][399-A-C] Vidarbha Industries Power Limited v. Axis Bank Limited 2022 (8) SCC 352 – referred to.
3. In this case, the amount payable by the Corporate Debtor also included the amount repayable under fund-based credit facility of secured overdrafts. The facility granted to the Corporate Debtor was not confined to Bank Guarantees. Moreover, a demand notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 dated 29th August 2018 was issued by the first respondent. As the Corporate Debtor did not honour the said notice, the original application for recovery has been filed by the first respondent before the Debt Recovery Tribunal at Hyderabad. Moreover, the Corporate Debtor acknowledged the debt on 5th May 2019 to the extent of Rs. 63,36,61,897.26. Moreover, the Balance Sheet as of 31.03.2019 of the Corporate Debtor reflects the said liability of the Corporate Debtor. It is true that as far as Bank Guarantees are concerned, the Executive Engineer of the Government of Telangana addressed letters to the Bank requesting the Bank to revalidate the Bank Guarantees. On 8th January 2020, the Government addressed a letter to Syndicate Bank to extend the seven Bank Guarantees mentioned therein. The letter mentions that if the action of revalidation or extension of the Bank Guarantees is not taken, the Bank Guarantees be realized and the amount be paid by Demand Drafts to the State Government. Thus, Bank Guarantees were invoked by the State Government. In view of the said letter, on 9th January 2020, the Corporate Debtor addressed a letter to the Syndicate Bank mentioning that the issue relating to the pre-closure of the two contracts granted by the State Government was under the active consideration of the State Government. The letter mentions that if the Bank Guarantees were not extended, the same are likely to be encashed by the Government. Therefore, a request was made by the Corporate Debtor to the Bank to revalidate the Bank Guarantees. However, the first respondent by a letter dated 18th January 2021, specifically informed the Corporate Debtor that the competent authority has not considered the proposal of the Corporate Debtor for extending Bank Guarantees and Secured Overdraft Facilities. By the same letter, the first respondent called upon the Corporate Debtor to clear the outstanding immediately. Thus, there is no doubt that the Corporate Debtor committed a default within the meaning of Section 3(12) of the IB Code due to non-payment of the amounts due to the Bank. There are a large number of Guarantees issued by the Bank. The interim order of the Telangana High Court does not relate to all Bank Guarantees. Moreover, there is no finding recorded in the interim order that the Corporate Debtor is not liable to pay the dues. The interim order only prevents coercive action against the Corporate Debtor. Even assuming that NCLT has the power to reject the application under Section
7 if there were good reasons to do so, in the facts of the case, the conduct of the appellant is such that no such good reason existed on the basis of which NCLT could have denied admission of the application under Section 7. [Paras 14-18][399-D-H; 400-A-D]
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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