Petition u/s 7 of IBC cannot be barred merely because of pending consideration of OTS before Lenders: NCLAT [Read Order]
The statutory right of a financial creditor under section 7 of the IBC cannot be curtailed by mere inter-se agreement between the creditors as such agreements only regulate inter-se arrangements among lenders.
IBC - OTS - NCLAT - taxscan
IBC - OTS - NCLAT - taxscan
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench has held that the mere fact that a corporate debtor's One Time Settlement (OTS) proposal is under consideration by other lenders does not preclude the submission of an application under Section 7 of the IBC if it is approved by one consortium member subject to approval by all other members.
Shri Rajender Kumar Pahwa Suspended Director of the Corporate Debtor (CD) Good Luck Carbon Pvt. Ltd. filed appeal under section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) assailing the impugned order dated 18th October 2024 passed by Adjudicating Authority, under section 7 of the IBC, whereby the application filed by the petitioner / Respondent No.1 has been accepted and the CIRP process has been initiated against the CD namely Good Luck Carbon Pvt Ltd.
A petition under Section 7 of the IBC was presented by the respondent No. 1 before Ld. Tribunal against the CD, which is an MSME Company, which has been accepted by passing the impugned order and CIRP has been initiated against the CD and Mr Ashok Kumar Gulla, Respondent No.2, was appointed as Interim Resolution Professional (IRP) for the corporate debtor.
The Corporate Debtor was incorporated as M/s Good Luck Impex Pvt. Ltd. in the year 1993 and thereafter in the year 2007 the name of it was changed to Good Luck Carbon Pvt Ltd. The Company is having its unit located at Village Jitwal Kalan, Tehsil Malerkotla, District Sangrur, Punjab-148019, and is engaged in the business of manufacturing all grade of furnace blacks, soft black and hard black grades for the purpose of strengthening and reinforcing rubber products, adding opacity to plastics and balancing colour formulations.
It is also stated in the Memo of Appeal that in the usual course of business the CD sought credit facilities from various banks individually under Consortium of lending between the year 2011 to 2013. The company diligently met its repayment obligations to the concerned banks, against the loan facilities sanctioned by the Lenders to the company.
The OTS submitted by the CD was discussed in the joint lenders meetings of the consortium banks and all the members of the consortium decided to forward the OTS proposal to their respective higher authorities for their approval and decision on the same was yet to be taken in the next scheduled meetings of the JLM but without waiting for the decision of the higher authorities the Respondent NO. 1 has filed the insolvency petition.
It was argued that the cancellation of the OTS by the respondent number one is arbitrary and unlawful and without any reason, no default has occurred in the OTS on the part of the appellant.
The bench of Justice Rakesh Kumar Jain, Justice Mohd Faiz Alam Khan and Mr. Naresh Salecha (Technical Member) observed that by any standards the decision of the consortium of banks to forward the OTS proposal submitted by the appellant to their higher authorities may not amount to acceptance of the same.
The consortium agreement executed between various members of the consortium is an agreement of ease and convenience and it is for the internal management of the consortium banks and also that this inter se agreement entered between the consortium members would not stand in the way of any application which may be moved by any of the member of the consortium under Section 7 of the IBC.
The Tribunal held that the statutory right of a financial creditor under section 7 of the IBC cannot be curtailed by mere inter-se agreement between the creditors as such agreements only regulate inter-se arrangements among lenders. A borrower cannot claim benefit of OTS as a matter of right.
It further observed that the Application under section 7 of the IBC must strictly be considered within the framework of the IBC and once the requirements of debt and default are satisfied, the NCLT has little discretion.
It was viewed that the mere fact that a corporate debtor's One Time Settlement (OTS) proposal is under consideration by other lenders does not preclude the submission of an application under Section 7 of the IBC if it is approved by one consortium member subject to approval by all other members.
In the case in hand the application has been filed by Financial Creditor Respondent No.1, Canara Bank alone, on its own, without approval or consent of other members of the consortium and in our considered opinion there was absolutely no need to take the consent or permission from other creditors (Members of Consortium) to file any such application.
Accordingly, the tribunal dismissed the appeal.
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