In a ruling in favour of ICICI Bank, the New Delhi bench of the National Company Law Appellate Tribunal (NCLAT) has held that the pendency of proceedings before the National Company Law Tribunal (NCLT) for approval of the scheme of arrangement does not preclude the Financial Creditor to proceed with Section 7 of the Insolvency Bankruptcy Code (IBC), 2016 application.
Sunil Kumar Sharma, the appellant challenges the order passed by the NCLT by which an application under section 7 of the code was admitted against Jaiprakash Associates Limited (JAL), corporate debtor. In these appeals, orders dismissing applications filed by the Corporate Debtor, including one seeking dismissal of the Section 7 petition, another requesting adjournment due to a restructuring proposal under consideration, and one seeking deferment of judgment are also challenged.
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The corporate debtor was admitted into insolvency despite a Debt Realignment Plan (DRP) and a One-Time Settlement (OTS) proposal by JA. The account of the corporate debtor was classified as Non Performing Assets in 2014. The Joined Lenders Forum approved a restructuring plan in which the debt of the corporate debtor was divided into three buckets for resolution. However, after directions of the RBI and subsequent approval by the Supreme Court to proceed under the IBC, the bank initiated insolvency proceedings.
The initiation of the initiation proceedings were challenged by the corporate debtor first before the Allahabad High Court and later before the Supreme Court. However, the insolvency proceedings could not be stopped.
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The appellant submitted that Comprehensive Reorganisation and Restructuring Plan (CRRP) was approved, thereafter, Master Restructuring Agreement (MRA) was executed, which MRA resolved all debt. As per MRA, the previous default and the remedies were specifically waived by the Lenders. The binding nature of the sanction letter dated 19.05.2017 issued by ICICI Bank and the MRA has not been questioned by the Lender at any stage.
That Sanction letter dated 19.05.2017, does not confine to only Bucket 2A rather it covers all the dues shown in all the Buckets. Sanction letter novated all the existing facilities pertaining to the erstwhile debt. The argument of the Lenders that MRA is not relevant for the purposes of Bucket 2B is misconceived.
The Appellant has also referred to the letter issued by the ICICI Bank, which was counter signed by SBI and IDBI to RBI stating that the account of Corporate Debtor may be treated to be resolved, which clearly depicts the understanding of the Lenders themselves regarding resolution of entire debt.
The Respondent Bank in spite of restructuring documents has relied on earlier facility documents. There being no revocation of the restructuring document, no reliance could have been placed by the Bank on the earlier financing documents.
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On the other hand, the respondents submitted that the Central Government has notified the RBI as an authority to issue necessary direction to the Banks to initiate Insolvency Resolution Process against a Corporate Debtor. The RBI having found the Corporate Debtor committing default under IBC has issued direction to the ICICI Bank on 14.08.2018 for initiating CIRP against the Corporate Debtor which direction was issued in exercise of statutory function by the RBI.
The tribunal observed that there was a statutory authorisation on the RBI to issue directions to any banking company to initiate CIRP in respect of default under the provisions of the Insolvency and Bankruptcy Code, 2016. The explanation to Section 35AA provided that for the purposes of section, “default” has the same meaning assigned to it in clause (12) of section 3 of the Insolvency and Bankruptcy Code, 2016.
The bench viewed that the MRA did not cover the six facilities for which ICICI Bank filed the application under Section 7, hence, the debt under the MRA which relate to Bucket 2A which was being serviced by the Corporate Debtor is not relevant for the facilities for which Section 7 application was filed by the Financial Creditor.
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The bench of Justice Ashok Bhushan (Judicial Member), Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical Member) observed that a scheme to make arrangement with creditors filed by the corporate debtor before the NCLT remains pending cannot have the effect of arresting the default or to cause any impediment in proceedings under Section 7 application which has to be given precedent.
The tribunal held that the direction of RBI under Section 35AA of Banking Regulation Act, 1949 for initiation of insolvency cannot be disregarded/ ignored while determining application under Section 7 of IBC.
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