The New Delhi bench of the National Company Law Appellate Tribunal (NCLAT) has held that proceeding under Section 13, sub-section (2) and (4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) has been initiated by the creditor prior to filing of Section 10 application, cannot be a ground to hold that Section 10 application is filed with malicious and fraudulent intent to be rejected under section 65 of the Insolvency Bankruptcy Code (IBC), 2016..
The Appeal has been filed by Getz Cables Private Limited, a Corporate Applicant challenging order passed by National Company Law Tribunal, New Delhi Court III rejecting application filed by the Appellant under Section 10 of IBC and allowing application under Section 65 of the IBC being IA No.1955 of 2024 filed by the State Bank of India (“SBI”).
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M/s Shivpriya Cables Pvt. Ltd. , the Principal Borrower availed fund based and non-fund-based loan facilities to the tune of Rs.19,77,00,000/- from the SBI, wherein the Appellant executed a Corporate Guarantee in favour of the SBI. A credit facility of Rs.1,64,59,163/- was also availed by the Principal Borrower from M/s Northern ARC Capital Ltd. A Corporate Guarantee was also executed by the Appellant in favour of Northern ARC Capital Ltd. (“Northern ARC”) on 30.07.2019.
The loan account of Shivpriya Cables Pvt. Ltd. (“Shivpriya Cables”) was classified as Non-Performing Asset (“NPA”) by the SBI. Northern ARC issued notice invoking Corporate Guarantee on 23.01.2023 and demanded payment of outstanding amount of Rs.1,64,59,163/-.
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The SBI issued possession notice, conveying the Principal Borrower and the Applicant about taking possession of the immovable mortgaged property. A Section 10 application being CP(IB) No.749/ND/2023 was filed by the Applicant on 02.11.2023 before the Adjudicating Authority. An order under Section 14 of the SARFAESI Act was also passed by the District Magistrate, Tijara, State of Rajasthan on 05.12.2023, directing the SBI to take physical possession of the immovable assets at City Bhiwadi, Rajasthan.
On an application filed by Northern ARC under Section 7, Corporate Insolvency Resolution Process (“CIRP”) against the Principal Borrower commenced on 07.12.2023. In application filed under Section 10, was filed by the SBI under Section 65 of the IBC, praying for dismissal of Section 10 petition. The Adjudicating Authority heard petition under Section 10 as well as Section 65 application filed by the SBI and by the impugned order, held that Section 10 petition has been filed by the Applicant/ Appellant with malicious and fraudulent intent to delay and halt the recovery proceedings initiated by the Respondent Bank.
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The appellant submitted that mere initiation of proceedings under SARFAESI Act by the SBI cannot be the basis for coming to a finding that Section 10 application is filed with malicious and fraudulent intent and that section 10 application of the Appellant has been rejected by the Adjudicating Authority invoking Section 65 of the IBC, whereas ingredients of Section 65 application were neither pleaded nor proved by the SBI.
A two member bench of Justice Ashok Bhushan (Chairperson) and Arun Baroka (Technical Member) viewed that there are no other facts and ground pleaded to prove any fraudulent and malicious intent by the CD in filing Section 10 application. For allowing Section 65 application, fraudulent and malicious intent of CD has to be proved from some materials on record.
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It was held that merely because proceeding under Section 13, sub-section (2) and (4) has been initiated by the creditor prior to filing of Section 10 application, cannot be a ground to hold that Section 10 application is filed with malicious and fraudulent intent. For proving fraudulent and malicious intent, something more is required to be pleaded and proved apart from initiation of proceedings under Section 13, sub-section (2) and (4) by the creditor against the Corporate Applicant.
The tribunal clarified that where it is proved that initiation of Section 10 application is for purpose other than resolution of the Corporate Debtor and has been initiated with malicious and fraudulent intent, the Adjudicating Authority is fully justified in rejecting Section 10 application.
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