Benefit under BIFR Scheme cannot be Claimed after Approval of Resolution Plan under IBC: NCLAT rules in favour of Axis Bank Ltd [Read Order]

Trinity Auto Components Ltd., the appellant challenged the order dated 26.06.2024 passed by the National Company Law Tribunal, Mumbai Bench, Court-II, whereby the IA No. 2585 of 2019 moved by the appellant has been partly allowed. The case of the appellant as is reflected from the record is that the appellant/Trinity Auto Components Ltd. was engaged in the manufacture of critical closed die forged parts for engines and chassis for heavy commercial vehicles.

The company was taken over for its rehabilitation by Tarini Steels Ltd. under the scheme sanctioned by the erstwhile Board for Industrial & Financial Reconstruction (BIFR) under the provisions of erstwhile SICA, 1985, vide order dated 07.11.2014, which was also modified by the Hon'ble Delhi High Court's orders dated 15.05.2015 and 27.05.2015.

In the event of change of management under the BIFR scheme, the said scheme became binding on all concerned in terms of provisions of Section 19(3) r/w Section 18(8) of erstwhile SICA, 1985. The sanctioned scheme provided an option to unsecured creditors either to accept 15% of the Principal amount or to wait for recovery of full dues after the scheme worked itself out.

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The appellant stated that notwithstanding the provisions contained in the sanctioned scheme, the sole Respondent/Axis Bank continued to charge interest between 14.75% and 16.00% p.a. as against 12% p.a. w.e.f. 31.03.2011 and this aspect was brought to the notice of the bank and thereafter the extra interest charged was reversed/credited on 16.03.2017 to the appellant’s cash credit account by Rs. 1,18,46,343.12/-.

The Repeal of SICA, 1985, w.e.f. 01.12.2016, the bank again started calculating interest between 14.75% - 16.00% p.a. and despite repeated requests by the appellant to revise the same to 12% p.a. in terms of the Sanctioned Scheme, the same was not revised, which led to an excess interest debit of Rs. 82,42,351/-. Though the SICA was repealed w.e.f. 01.12.2016, the sanctioned schemes under the said Act was saved by Section 5(1)(d) of SICA Repeal Act, 2003 and thus the scheme sanctioned by the BIFR continued to remain binding on all concerned.

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It is further stated that the appellant was unable to serve unsecured operational creditors as most of them were insisting on payment of their entire dues after the scheme worked out itself/ 7 years and thus the appellant was compelled to file an application under Section 10 of the Insolvency and Bankruptcy Code (IBC), 2016, read with Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, and the CIRP was initiated on 25.05.2017, however, the Respondent/ bank continued to charge interest in excess of the rate provided in the BIFR scheme.

The bank restructured the loan facility as per the order and started charging interest @12% p.a. from December 2018. The appellant further stated that as per the approved resolution plan all unimplemented provisions pertaining to relief/concessions approved under the sanctioned scheme of BIFR were to continue to be applicable subject to the provisions of the said resolution plan and thus the differential amount of interest charged in excess of 12% from 01.12.2016 to 30.11.2018 (Rs. 38,01,590/-) required to be credited in the bank account of the appellant for which he made various representation to the bank.

On 10.06.2019 the bank erroneously declared that the appellant/CD has failed to convert the cash credit into a fresh term loan as per the BIFR scheme and thus the scheme has not been implemented by the appellant itself and in this view the bank sought refund of excess interest of Rs. 118 lakhs which was credited in the bank account of appellant on 16.03.2017 for the period commencing from April 2011 to September 2016 and further the bank also decided to charge higher interest rate than provided in the BIFR scheme till 25.05.2017 i.e. the date of commencement of the insolvency.

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Justice Mohammad Faiz Alam Khan and Mr. Naresh Salecha (Technical Member) observed that the demand in the present case arises from differential interest rate under the BIFR scheme which qualifies as a financial debt under section 5(8) of the IBC. The Respondent had ample opportunity having 96% voting rights in the CoC to include its claim under Regulation 12 of the Corporate Insolvency Resolution Process (CIRP) Regulations, 2016 and in the approved resolution plan. Having approved the resolution plan without any reference to this amount, the bank cannot now revive the claim as it would defeat the objectives of the IBC and the principle of clean slate.

The bench held that the failure of the BIFR scheme does not create an independent cause of action that too after the approval of the resolution plan by none other than the Respondent itself.

Since neither side filed their claims, they are prohibited from claiming the amount that too after the approval of the Resolution Plan. The appellant cannot now seek the same concessions and benefits which were given to it under the BIFR scheme as it would grant concessions without reciprocal obligations. This would cause prejudice to the Respondent Bank which had already sanctioned a substantial amount in compliance with the Resolution Plan.

The tribunal dismissed the appeal and ruled in favour of respondent

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