Whether Pendency of proceeding before DRT is Ground of Rejection under IBC
Whether Pendency of proceeding before
DRT is Ground of Rejection under IBC
Short Summary:
In this flash tabloid, the writer initiates by speak of
the provisions of Insolvency & Bankruptcy Code, 2016 (hereafter referred as
“IBC”) in relation to power of NCLT to accept the application in which
proceedings are already pending before DRT.
The
main drive of the broadsheet, on the other hand, is upon the “Whether pendency of proceeding before DRT is ground of
rejection under IBC.”
This is article no.
261 of the series of editorials written by the author on corporate laws
{Including Companies Act, 2013, SEBI, RBI Regulations, IBC, LLP Act, 2008
etc.}.
Introduction:
With the Insolvency and Bankruptcy
Code inching in reality, the Debt Recovery Tribunals (DRT) will resolve
individual bankruptcy cases, the National Company Law Tribunal will work on
corporate insolvency.
The reasons for the pile-up of cases
varied from legal lacunae to insufficient technical expertise in dealing with
such cases. Labour and infrastructure issues also played a big role in
hindering resolution. The time taken to close such cases was another major
hindrance.
Here the question is; If a creditor
has already filed application in DRT for recovery of Debt and case is pending
with DRT in such situation whether application can be before NCLT under IBC.
CASE ELEMENT:
Case Name
|
SREI
Infrastructure Finance Ltd V/s K.S. Oils Ltd
|
Bench Name
|
NATIONAL COMPANY
LAW TRIBUNAL, AHMEDABAD BENCH
|
Order No.
|
C.P. (IB) NO. 32/7/NCLT/AHM/2017
|
Section
|
7
(Financial Creditor)
|
A. Factual Background:
1. M/s. SREI
Infrastructure Finance Limited filed this Application invoking Section 7 of the
Insolvency and Bankruptcy Code, 2016 ("Code") in respect of M/s. K.S.
Oils Limited.
2. Petitioner….. sanctioned Rupee Term Loan of Rs. 100 Crores to the Respondent
on 16th August, 2010. Respondent accepted the terms and conditions mentioned in
the sanction letter. On 23rd August, 2010, Rupee Loan Agreement No. SRE 130 was
entered into between Applicant and Respondent
3. The respondent-company
failed and refused to make payment of its outstanding dues in accordance with
terms and conditions of the Rupee Loan Agreement. Various cheques given by
the respondent to the applicant towards payment of its outstanding dues were
dishonored.
4. Petitioner……. initiated
proceedings against the respondent under provisions of the Negotiable
Instruments Act before the Debt Recovery Tribunal which was pending.
5. Petitioner……. Further
filed instant application as per sub rule (1) of rule 4 of the insolvency and
Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiation
of Insolvency resolution process against the respondent company and served a
copy of the said application on the respondent company.
6. Respondent……..Secured
creditors had filed original petition before the Debt Recovery Tribunal in
respect of the assets of the company.
7. Respondent……. Multiple
litigations were pending between the company and secured creditors including
claims/counter claims, set offs. The secured creditors were interested in
realization of dues through direct sale under SARFAESI Act.
8. Respondent……. It
stated that initiation of corporate insolvency resolution process was not in
public interest. It was also stated that incidence of default claimed in
petition would be subject-matter of adjudication before DRT.
9. Respondent……. Learned
Counsel appearing for the Respondent contended that this Adjudicating Authority
has to see whether corporate insolvency resolution process is in the public
interest or not. He further argued that 'public interest' includes interest of
stakeholders.
B.
Findings of the NCLT Bench:
The pendency of proceedings before Debt
Recovery Tribunal and initiation of action under SARFAESI Act by other secured
creditors was no ground to reject application. Provisions of section 7 read
with Rule 4 do not contemplated notice to other creditors, secured or
unsecured, operational creditor or financial creditor. There is every
opportunity for other Creditors of any class to refer their claims before the
Interim resolution professional in case of admission of this application.
Therefore, in the absence of any provision enjoining upon this authority to
issue a notice to other creditors, no notice need to be issued to other
creditors.
The main object of enacting 'Insolvency Code'
is to have corporate insolvency resolution plan in respect of corporate debtors
with an intention to revive the operations of the corporate debtor without
straightway going to liquidation. In the process of resolution, every creditor
has an opportunity and interest of every stakeholder is to be taken into
consideration. Therefore, to say that corporate insolvency resolution process
is not in public interest in all cases is not correct. In the case on hand Corporate
debtor is unable to pay the debts to several creditors including the present
financial creditor. Therefore, to keep the corporate debtor away from the
resolution process is, not in public interest including the stakeholders.
Therefore, the argument of respondent may not suit to the facts of this case.
This petition is admitted under section 7(5) of
the Code.
Conclusion:
On the basis of above decided case law it can
be opine that “pendency of proceeding before DRT is not an ground for rejection
of application of creditor under IBC”. Even with the pending DRT application,
creditor can file petition with the NCLT under IBC. There are many other cases
decided by the many benches of Hon’ble Tribunals in relation to pendency of
cases with DRT.
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