The National Company Law Appellate Tribunal (“NCLAT”) in the case Reliance Commercial Finance Limited v Darode Jog Builder Private Limited, the Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Judicial Member, Justice M. Satyanarayana Murthy and the Technical Member, Mr. Barun Mitra observed while adjudicating an appeal filed in Reliance Commercial Finance Limited v Darode Jog Builder Pvt. Ltd., has upheld the Adjudicating Authority’s decision to not admit a petition under Section 7 of IBC, despite there being a default and a debt. It was recorded by the bench the Corporate Debtor an opportunity to pay/settle the full amount of default despite the Financial Creditor’s unwillingness to enter settlement.
Background Facts of the Case:
The Appellant/ Financial Creditor, Reliance Commercial Finance Limited had sanctioned Term-Loans of Rs. 19.5 Crores to the Corporate Debtor i.e., Darode Jog Builder Pvt. Ltd. on 29.07.2013. In 2017, the Loan Accounts were declared as the Non-Performing Assets. On 04.11.2019, a petition under Section 7 of Insolvency and Bankruptcy Code, 2016 (“IBC”) was filled by Financial Creditor, wherein seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) over a default of Rs. 15,79,41,658/- against the Corporate Debtor.
It was observed that in an hearing held on 06.07.2022, the Corporate Debtor acknowledged its liability to pay and made an offer of Rs. 12.75 Crores, which is to be paid within 45 days. Thus, the Adjudicating Authority directed the Counsel for the Financial Creditor to obtain appropriate instructions. Thus, the court observed that if the Settlement did not take place, the Petition would automatically be admitted on the next date of hearing.
The court on the next date of hearing i.e. 11.07.2022, it was submitted by the Corporate Debtor that it is willing to deposit the entire amount of Rs. 15,79,41,658/- within 45 days. However, the Financial Creditor expressed its unwillingness for settling the matter. The Bank account details of the Financial Creditor were obtained by the Adjudicating Authority and alongside granted liberty to the latter to file for restoration of petition in case said amount is not deposited within 45 days. The court disposed of the appeal.
The Financial Creditor filed an appeal before the NCLAT, aggrieved by the order dated 11.07.2022.
Contentions Made By Appellant:
It was submitted by the Financial Creditor that the Adjudicating Authority committed error in disposing of the Petition, as it was not willing to settle the matter. However, the Adjudicating Authority could not have permitted the Corporate Debtor to deposit amount in Financial Creditor’s account.
Contentions Made By Respondent:
It was argued by the Corporate Debtor that Financial Creditor was unwilling to settle as earlier entire amount was not offered and settlement had not taken place despite several adjournments. Further, it was submitted that the Corporate Debtor has financial capacity to deposit the entire amount.
NCLAT Decision:
The Bench placed reliance on the Supreme Court judgment in the case Vidarbha Industries Power Limited Vs. Axis Bank Limited, Civil Appeal No. 4633 of 2021.
It was observed by the bench that as per the judgment, even after debt and default is there, Adjudicating Authority has to apply its mind to assess the feasibility of initiating CIRP.
It stated that when the Corporate Debtor has complied to deposit the entire defaulted amount of the Financial Creditor as permitted by the Adjudicating Authority and no purpose and occasion shall survive to still proceed with the Corporate Debtor Insolvency Resolution.
Accordingly, the bench observed that the proceedings under Section 7 are for resolution of insolvency. Adjudicating Authority had not erred in ascertaining whether the Corporate Debtor can comply to deposit the entire defaulted amount in bank account of Financial Creditor’s. Further, the court observed that the Financial Creditor’s interest was fully protected, since liberty was already given to revive the petition in case full amount was not received within 45 days.
The bench dismissed the appeal.