The Principal Bench of the National Company Law Appellate Tribunal(NCLAT) has held that application under section 7 of the Insolvency Bankruptcy Code can be admitted when Debit and default against Corporate Debtor is Available.
An Application was filed under Section 7 Respondent – SREI Equipment Finance Limited, has been filed aggrieved by order dated 20.12.2023 admitting Section 7 application filed against Varutha Developers Private Limited – the Corporate Debtor. Applicant has come up in this Appeal aggrieved by order dated 20.12.2023.
The Appellants entered into a Share Purchase Agreement with Vision India Fund (VIF) and Infra Resurrection Fund (IRF), the shareholders of Varutha Developers Private Limited (Corporate Debtor). Under which Share Purchase Agreement, the Appellants were required to pay Rs.1 Crore as share purchase consideration towards value of the shares to VIF and IRF and sum of Rs.299 Crore to the Corporate Debtor towards repayment of debt of Rs.300 Crores availed by the Corporate Debtor from SREI Equipment Finance Limited for purchasing 9.26 acres of land situated at Sector 62, Gurugram.
SREI Infrastructure Finance Limited (SIFL) invited bids for 9.26 acres of land situated at Sector 62, Gurugram. Corporate Debtor – VDPL submitted its bid and declared as Successful bidder on 09.08.2019 and a sale certificate was issued. The land was provisionally attached by the Enforcement Directorate (ED) by order dated 04.02.2020 which was later confirmed by the Adjudicating Authority under PMLA Act, 2002 vide order dated 27.08.2021.
Section 7 application was filed by SREI Equipment Finance Limited against the Corporate Debtor on default being committed in repayment of loan of Rs.300 Crores which was disbursed by SREI Equipment Finance Limited to the Corporate Debtor. Section 7 application was filed in the year 2023 by Administrator of SREI Equipment Finance Limited appointed by order dated 04.10.2021.
Shri Arun Kathpalia, senior counsel appearing for the Appellants challenging the order contends that Appellants having entered into the Share Purchase Agreement with two shareholders of the Corporate debtor namely VIF and IRF, Appellants were always ready to perform its obligation of paying amount to clear the debt of the Corporate Debtor. Initiation of CIRP against the Corporate Debtor shall cause prejudice to the rights of the Appellants.
It was submitted that the loan transaction of Rs.300 crores by SEFL in favour of the Corporate Debtor was a sham transaction. The Administrator of the SEFL has already filed an application under Section 66 of the Code for avoiding the loan transaction of Rs.300 crores in favour of the Corporate Debtor, which application is pending. It is submitted that Section 7 application could not have been proceeded with before the Adjudicating Authority as the Appellant was always ready and willing to liquidate the debt of the Corporate Debtor to which he could not get any opportunity since the VIF, IRF and SIFL did not perform their obligations.
Shri Krishnendu Datta, senior counsel appearing for the Respondent submitted that the Appellant has no locus to challenge the order dated 20.12.2023. Appellant is not even a shareholder of the Corporate Debtor. Appellant has only entered into a Share Purchase Agreement with two shareholders of the Corporate Debtor which also could not fructify. It was submitted that the land has already been provisionally attached by the Enforcement Directorate (ED), which order has been confirmed on 27.08.2021. There is no right in the Appellant to question the admission under Section 7.
The Appellants could not acquire any shareholding of the Corporate Debtor since according to its own case the Share Purchase Agreement could not be given effect to in view of attachment of land by the Enforcement Directorate (ED) on 04.02.2020. The Appellant has referred to Settlement Award where it was agreed between the parties that the Appellants would be liable to pay the amounts due towards repayment of the loan amount received by Varutha Developers Private Limited (VDPL) within 360 days of the variation of the ED order, whereunder the Land had been attached by the ED. Provisional attachment has been confirmed by the Adjudicating Authority under the PMLA Act.
It was held that the debt and default is not denied only by the Corporate Debtor but the Appellants also. The Appellant has every right or jurisdiction to enforce his Settlement Award.
The Coram comprising of Justice Ashok Bhushan, Chairperson, Barun Mitra, Member (Technical) and Arun Baroka, Member (Technical) observed that there being debt and default against the Corporate Debtor, which is an admitted fact, no error has been committed by the Adjudicating Authority in admitting Section 7 application. It was always open for the Appellant to file its claim, if any, in the CIRP of the Corporate Debtor which may be considered in accordance with law.
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