NCLT Admits Application of IDBI Bank u/s 7 of IBC as Corporate Debtor Acknowlegdes OTS on Due Debt within period of limitation [Read Order]

In a recent case, the Cuttack bench of the National Company Law Tribunal(NCLT) admitted the application of IDBI Bank filed under section 7 of the Insolvency and Bankruptcy Code,2016 (IBC) as the Corporate Debtor acknowledged the one-time Settlement (OTS) on due debt within period of limitation.

IDBI Bank Limited, the applicant, filed the application through its authorized representative Purna Chandra Majhi (“ the Applicant/ Financial Creditor") seeking to initiate Corporate Insolvency Resolution Process ("CIRP") against Fortune Spirit Limited ("the Respondent/ Corporate Debtor") by invoking the provisions of Section 7 of the Insolvency and Bankruptcy Code,2016 ("Code") read with Rule 4 of Insolvency & Bankruptcy (Application to adjudicating Authority) Rules, 2016 for a Financial Debt.

The Corporate Debtor had approached Financial Creditor through its promoters and directors for a working capital limit of Rs. 15 Crore for the construction of a factory, building, and installation of machinery for the production of Indian-made Foreign Liquor ("IMFL") and in this regard submitted necessary financial papers along with its board resolution.

The Financial creditor sanctioned the loan of Rs. 15 crores through a cash credit limit by way of hypothecation and also took a personal guarantee from the directors of the Corporate Debtor. The interest component involved BBR + 200 bps p.a for the said cash credit loan, and the aforesaid loan has to be repaid in 12 months and the interest to be paid as and when accrued, excluding the moratorium period. On the approach of the Corporate Debtor, the Financial creditor on 30.12.2018 renewed the cash credit loan and brought down the credit loan to the tune of Rs. 12 crores on 31.10.2019.

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The loan account of the Corporate Debtor was declared as NPA, after which on 06,05.2021, the Financial creditor issued a loan recall notice to pay the outstanding dues. The Financial Creditor issued a Demand Notice under Section 13(2) of the SARFAESI Act, and after issuance of the Demand Notice, the Financial Creditor had also issued a Possession Notice on 11,08.2021 and 12.08.2021 under Section 13(4) of the SARFAESI Act pertaining to different properties of the Corporate Debtor.

The Corporate debtor had made One Time Settlement ("OTS") proposal for Rs. 10 crores with an upfront payment of Rs.1 Crore on 23.02.2023, which was allowed by the Financial Creditor on 12.06.2023 vide its sanction letter by revising the OTS amount to Rs. 11 Crores instead of Rs. 10 Crores.

The Applicant had intentionally classified the account of the Corporate Debtor as NPA on 31.03.2021 after expiry of suspension period, thereafter used the same as the date of default without any basis in its Application, which is evident from the Loan Recall Notice of the application where the date of default is seen as 30.10.2020,

The Respondent submitted that it has the means and intention to make the payment of the outstanding dues, and it is a solvent company. As the Respondent was undergoing temporary stress during the COVID-19 pandemic, the Respondent was unable to pay, which is also admitted by the Applicant.

In regard to the point of limitation, it is noted that the Corporate Debtor had approached the Financial Creditor for OTS settlement on 23002.2023 after the order passed by the High Court of Orissa in WP(C) No.35696 of 2021 vide order dated 24.11.2021.

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Such an OTS proposal was also accepted by the Financial Creditor, but it was revoked on 0801.2024 as the Corporate Debtor could not meet the schedule of payment prescribed by it in its OTS proposal. It is also observed that the said Writ Petition has already been disposed of vide order dated 03.02.2025 by observing that Writ Petition has become infruCtuous as e-auction date has already been over.

The two members bench of Deep Chandra Joshi (Member Judicial) and Banwari Lal Meena (Member Technical) viewed that as the default has occurred on 31.03.2021 and the subsequent acknowledgement made by the Corporate Debtor through OTS extends the limitation period. It is seen that the Applicant had filed this application on 07.03.2024 which is well within the period of limitation. Hence, the period of limitation stands satisfied.

As all the conditions to admission of Section 7 application are satisfied in the present case for the fact there exists a 'debt' and 'default' in payment of debt by Corporate Debtor, the Tribunal admitted the Petition filed under Section 7 of the Code.

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