The Insolvency and Bankruptcy Board of India (IBBI) has released notes on the findings of the Supreme Court of India in the matter M. Suresh Kumar Reddy Vs. Canara Bank & Ors. [Civil Appeal No. 7121 of 2022].
The Adjudicating Authority (AA), Hyderabad bench vide order dated 27.06.2022 had admitted M/s Kranthi Edifice Pvt. Ltd (Corporate Debtor) into insolvency on the application filed by Canara Bank/FC under Section 7 of the Insolvency and Bankruptcy Code (IBC).
However, the National Company Law Appellate Tribunal (NCLAT) vide order dated 05.08.2022 dismissed the appeal against this admission order of the AA.
Against the NCLAT order, an was filed before the Supreme Court by the suspended director, M Suresh Kumar Reddy of the Corporate Debtor (CD). The appellant submitted that CD was granted certain contracts by the Telangana State Government, and both had requested the Bank to extend the Bank Guarantees. But the Bank did not extend some of the Bank Guarantees, which has resulted in triggering of default.
The appellant submitted that the facts of this case are akin to judgment of the Supreme Court in the matter of Vidarbha Industries Power Ltd. Vs. Axis Bank Ltd. and that AA was not under an obligation to admit the application under Section 7 of the Insolvency and Bankruptcy Code.
The Supreme Court Bench of Justices Abhay S Oka and Rajesh Bindal observed that, in the case of Innoventive Industries and E.S.Krishnamurthy and others, the SC had held that, in case CD commits default of financial debt, AA has to merely see the records of information utility and other evidence produced by FC to satisfy that default has occurred.
It was further clarified that, Once AA is satisfied that the default has occurred, there is hardly any discretion left with AA to refuse admission under section 7 of the Code. Even non-payment of a part of debt becoming due and payable will amount to default on the part of Corporate Debtor.
The Top Court, in the Vidarbha Industries case has held that the AA cannot exercise discretionary power arbitrarily or capriciously unless the fact and circumstances warrant exercise of discretion in a particular manner.
The Apex Court laid emphasis on the review petition observations that its decision in Vidarbha
Industries case was in the setting of facts of the case and observations in the judgments
are not to be read as provisions of statute.
While dismissing the appeal, the Supreme Court observed that 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 case of Innoventive Industries and E.S.Krishnamurthy.
The Apex Court Bench had held that, “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.”
The IBBI note further warned that, “Prepared by Legal Affairs Division for the sole purpose of creating awareness and must not be used as a guide for taking or recommending any action or decision, commercial or otherwise. One must do its own research or read the original text of the judgment or seek professional advice, if it intends to take any action or decision using the material covered here.”
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