Discretionary right of Tribunal under IBC cannot be used to Impel Financial Creditor to consider Settlement: NCLT [Read Order]

The Chennai bench of the National Company Law Tribunal (NCLT) has held that the discretionary right of the tribunal under the Insolvency and Bankruptcy Code (IBC), 2016 cannot be used to Impel Financial Creditor to consider Settlement.

Punjab National Bank, financial creditor the petitioner applied Section 7 of the Insolvency and Bankruptcy Code, 2016 (“the Code”) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (“the AAA Rules”) through Mr. C.J. Ranjith , Chief Manager for initiating CorporateInsolvency Resolution Process ( “CIRP”) in respect of Aban Offshore Limited, the Corporate Debtor (CD).

The petitioner is a banking company that sanctioned the loan to the Corporate Debtor through its branch office situated in Chennai. Corporate Debtor a limited company having a registered office at Chennai, was incorporated in 1986. It is stated that the Corporate Debtor is engaged in the business of offshore drilling (extraction of crude petroleum and gas) drilling rigs in different parts of the world.

The corporate debtor availed a credit facility not only from the financial creditor but also from the other lender banks namely SBI, ICICI Bank Ltd, IOB, State Bank of Mysore (presently merged with SBI), IDBI Bank Ltd, LIC, LVB Ltd ( presently with DBS) and 3i Infotech Trusteeship Services Ltd.

In Part III of the Petition, Petitioner has recommended the name of Shri. Ram Ratan Kanoongo, Registration No :IBBI/IPE0021/IPA-1/2022-23/50005 as Interim Resolution Professional. As per Part IV of the petition, date of NPA is 02.05.2017 and the outstanding as on 15.08.2024 was Rs.1062,86,03,208.45 ( Rs. One thousand sixty two crores , eighty six lakhs, three thousand, two hundred and eight and paise forty five only).

The Corporate Debtor exclusively mortgaged the schedule mentioned property situated at Tirunelveli District by depositing the original title deeds with an intention to create equitable mortgage in terms of Section 58(f) of Transfer of Property Act and executed MOD on 04.12.2014, 29.05.2015, 16.11.2015 registered as Doc.Nos.3148/2014, 1804/2015, 3575/2015, 3576/2015 and 3588/2015 at SRO Radhapuram, respectively. It is stated that Corporate Debtor created charge before ROC on 04.12.2014 and 23.11.2015 thereby confirming the loan liability of the Financial Creditor.

The financial creditor lastly reviewed the existing term loan (FCTL) of USD 90 million on 01.10.2016 and issued NOC for the third charge on 11 rigs owned by Aban Holding Pte Ltd and imposed additional conditions. It is stated that since the CD failed and neglected to service the principal and interest regularly to the financial creditor/bank as per the terms of sanction, the loan account of the CD became NPA on 02.05.2017 in terms of RBI guidelines.

SBI CAP Trustee Co. Ltd, on behalf of the financial creditor issued demand notice under Section 13(2) of SARFAESI Act on 07.05.2018 and a Possession Notice under 13(4) of SARFAESI Act 2002 on 08.07.2021 and e-auction Sale Notices on 28.12.2022, 20.01.2023, 14.02.2023, 15.03.2023, 04.05.2023 & 24.05.2023 but all the e-auction sales failed for want of bidders.

The Corporate Debtor and Aban Holdings P Ltd (AHPL), gave OTS letters on 23.12.2020, 30.09.2022 and 06.01.2023 whereby they requested the financial creditor to consider the OTS amount offered for AHPL and its subsidiaries loan account. Since the OTS offer was not commensurate to the staggering outstanding loan amount, the financial creditor rejected the same. It is stated that the OTS letters and admission of liability in balance sheet of the CD Company are nothing but acknowledgement of loan amount in terms of Section 18 of Limitation Act, 1963.

The Petition is not only bereft of details but also failed to disclose all the pertinent factors including the details of the payments made by the CD or the 1000 acres of land belonging to the CD, which is still in the possession of the Financial Creditor. It is stated that the petitioner failed to disclose that it was part of a consortium of lenders and it received the funds from the sale of rigs belonging to the CD's group company. It is stated that the Financial Creditor chose to pull itself out of the Consortium and is the only lender who has filed this Petition, without disclosing this fact.

The financial creditor required funds to invest in its subsidiary company AHPL, for expansion of the subsidiary company's business and it approached the Financial Creditor for a loan facility of Rs.600 crores. It is stated that the Corporate Debtor provided mortgage to an extent of 1000 acres of land located at Tirunelveli District and Pari passu second charge on 11 rigs owned by the wholly owned subsidiary viz., Aban Holdings Private Limited (AHPL) as

security for the loan.

Corporate Debtor has admitted the loan liability in paras 6.4 and 6.9 of the reply. It is stated that Corporate Debtor cannot take a legal plea that since various payments were received in OTS, the petitioner cannot file this petition. It is stated that the above petition has been filed since the corporate debtor is not commercially solvent to repay the outstanding loan amount not only to the financial creditor but also to various financial creditors. Adding to that the associate company namely Aban Holding Limited (AOL) is also indebted several crores to various financial creditors.

The Corporate Debtor cannot thrust the financial creditor to accept the OTS proposal as it is commercial wisdom of the creditor. It is stated that the Corporate Debtor cannot canvass SARFAESI proceedings before this Tribunal. Apex Court has categorically observed that doctrine of election is always open to the secured creditor. If this Tribunal admits Section 7 petition, there shall be moratorium in respect of all other legal proceedings initiated by the secured creditor.

It was viewed that even though there is no obligation on the part of the tribunal to wait for the settlement / OTS, till date there is no update regarding OTS from the parties after the above hearing date.

The bench comprising Sanjiv Jain (Member-Judicial) and Venkataraman Subramaniam (Member-Technical) observed that “there exists some level of discretion vested in the Adjudicating Authority under Section 7(5)(a), the same must be exercised cautiously. Such discretionary power cannot be used to impel the financial creditor to consider the settlement proposed by the corporate debtor.”

Accordingly, the adjudicating authority ordered the CIRP of the corporate debtor.

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