Application u/s 7 of IBC Acceptable as Exist of Financial Debt and Default: NCLAT [Read Order]
Application us 7 of IBC Acceptable – as Exist of Financial Debt and Default – NCLT – TAXSCAN
Application us 7 of IBC Acceptable – as Exist of Financial Debt and Default – NCLT – TAXSCAN
The National Company Law Appellate Tribunal, New Delhi has held that the application under section 7 of the Insolvency and Bankruptcy Code (IBC) is acceptable as exist of financial debt and default.
Naresh Kumar Aggarwal, Shareholder of the Corporate Debtor has filed a challengeto the order passed by the Adjudicating Authority (National Company Law Tribunal), by which order Section 7 application filed by the Respondent - CFM Asset Reconstruction Pvt. Ltd.has been admitted.
State Bank of India sanctioned various credit facilities in favour of Action Ispat and Power Private Limited (Principal Borrower). Master Restructuring Agreement was executed between the State Bank of India and several other Banks with the Principal Borrower. The Corporate Debtor – M/s Nikhil Footwear Pvt. Ltd. executed a Deed of Guarantee on 30.09.2013 in favour of SBICAP Trustee Company Ltd.
Company Petition CP (IB) No.1096 of 2018 was filed by the State Bank of India against the Principal Borrower which was admitted on 23.03.2022. The State Bank of India entered into an agreement on 18.01.2021 with Respondent No.1 assigning debt owned by the Principal Borrower.
The corporate Debtor appeared and filed its reply to the Section 7 application. A rejoinder affidavit was also filed by the Financial Creditor. The Adjudicating Authority after hearing both the parties, by the impugned order dated 28.02.2023, admitted the Section 7 application.
The Assignment Agreement being an unregistered agreement, there was no valid assignment in favour of Respondent No.1, to entitle him to initiate proceedings under Section 7 of the I&B Code. The Deed of Guarantee was executed in favour of the SBICAP Trustee Company and can only be enforced by a security trustee.
The SBICAP Trustee Company entered into an agreement with the Corporate Debtor on behalf of six lenders. The Adjudicating Authority has already commenced Corporate Insolvency Resolution Process (CIRP) against the Principal Borrower vide its order dated 23.03.2022 by admitting the Section 7 application filed by the State Bank of India, based onthe same debt on the same set of facts, filing of present application under Section 7 by Respondent No.1 was a malafide attempt to initiate CIRP on same debt and same facts.
The agreement executed by the State Bank of India is by Section 5 of the SARFAESI Act, 2002. Assignment of the financial debt by a Bank or Financial Institution in favour of Asset Reconstruction Company can be affectedby the statutory scheme provided in Section 5 of the SARFAESI Act.
Section 5 of the SARFAESI Act does not contemplate the Assignment of financial debt by the registered document. Respondent No.1 is a Financial Creditor and is fully entitled to initiate a Section 7 application. Section 7 application against another Corporate Guarantor i.e. Micro Stock Holding Pvt. Ltd. has already been admitted on an application filed by Respondent No.1 in C.P. (IB) No. 108/2022 by order dated 11.05.2022 which was passed on the same assignment.
It was evident that the application under Section 7 having admitted against the Principal Borrower, was not open for Respondent No.1 to apply to the Corporate Guarantor since two simultaneous proceedings under Section 7 cannot be proceeded with.
The Adjudicating Authority has returned the finding that there exist financial debt and default, and no error has been committed by the Adjudicating Authority in admitting the Section 7 application. The Board comprising Justice Ashok Bhushan, Chairperson and Barun Mitra,Member (Technical) upheld the impugned order admitting the Section 7 application.
To Read the full text of the Order CLICK HERE
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