Non Fund-Based Facilities Cannot be Refused by Lenders on Availability of Disbursement Clause in Resolution Plan: NCLAT Dismisses SBI’s Appeal [Read Order]

The New Delhi Bench of the National Company Law Appellate Tribunal ( NCLAT ) while dismissing the State Bank of India’s appeal, has held that Non Fund Based facilities cannot be refused to be disbursed when the approved Resolution Plan contains a clause for their disbursement.

These appeals have been filed by the financial creditors against an order passed by the Adjudicating Authority by which applications filed by the corporate debtor and certain investors were partly allowed.

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The corporate debtor was admitted into insolvency on July 4, 2017 and the resolution plan was also approved which included a provision for disbursement of Non-Fund Based (NFB) facilities. The NFB was not disbursed due to procedural delays. Thereafter, applications were filed seeking disbursement of the NFB which were allowed directing the release of the NFB limits.

It was challenged that the direction violates the agreed terms of the resolution plan and NFB agreement particularly regarding the roll-over of NFB facilities and their issuance subject to due consideration of the borrower's performance.

The appellant submitted that Adjudicating Authority has directed the Appellants to release the NFB Limits at the first instance without the due consideration of the borrower, while directing the Respondents to furnish the information/ documents required by lenders for review of financial performance of the borrower, after the first release. Such a direction is wholly contrary and over and above the terms agreed under the Resolution Plan as well as the Master Circular issued by the RBI.

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It was also submitted that the lenders have the right to evaluate the borrower under the project and based on that evaluation lenders may disburse the NFB limits. Finally, it was submitted that the Appellants have not denied the release of NFB limits to the borrower and have only sought for certain documents/ information to be provided to check the viability and financial condition of the borrower prior to such release.

On the other hand, the respondents submitted that the submission of the Appellants that they do not have any obligation to issue/ release/ disburse the NFB limits under the approved Resolution Plan is incorrect. The Appellants knowing all facts including the viability of the company have approved the Resolution Plan and approved the plan which provided for rolling over of the NFB facilities on the basis of appraisal of the project.

While dismissing the appeal, the bench of Justice Ashok Bhushan (Judicial Member), Barun Mitra (Technical Member) and Arun Baroka (Technical Member) observed that NFB Agreement clearly stipulated “Recital D of the NFB Agreement: The execution of this Agreement and other financial documents by the borrower has been authorised to give effect to the terms of the approved Resolution Plan.

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While upholding the order, the tribunal held that clauses of the NFB Agreement have to be read in a manner to give effect to the Resolution Plan and not to make any clause of the Resolution Plan otiose and unworkable.

To Read the full text of the Order CLICK HERE

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