When Corporate Debtor's One Time Settlement Proposal Is Rejected By Financial Creditor, Application U/S 7 Of IBC Must Be Admitted: NCLAT
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member) and Mr. Arun Baroka (Technical Member) has held that when a One-Time Settlement (OTS) proposal submitted by the corporate debtor is rejected by the financial creditor and the debt remains unpaid, the application under Section 7 of the Insolvency and Bankruptcy Code, 2016...
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member) and Mr. Arun Baroka (Technical Member) has held that when a One-Time Settlement (OTS) proposal submitted by the corporate debtor is rejected by the financial creditor and the debt remains unpaid, the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (the Code), must be admitted.
Brief Facts:
The corporate debtor was constituted a Special Purpose Vehicle (SPV) for carrying out National Highway Project to construct, operate and maintain the four laning of Bareilly Sitapur Section of National Highway – 24 from kilometre 262 to kilometre 413 in the state of Uttar Pradesh.
State Bank of India by a sanction letter dated 15.11.2010 sanctioned financial facilities to the corporate debtor. Loan account of the corporate debtor was classified as Non-Performing Asset (NPA) on 26.07.2017.
National Highways Authority of India (NHAI) issued termination notice to the corporate debtor on 03.05.2019. Corporate debtor submitted a settlement proposal to the lenders in the year 2020, which was not accepted. SBI filed an application under Section 7 on 15.04.2023 against the corporate debtor for a default of ₹1409.72 Crore.
Date of default was mentioned as 18.01.2019. Notice was issued by National Compnay Law Tribunal (NCLT) to the corporate debtor. A reply was filed before the Adjudicating Authority, the corporate debtor pleaded that it has given One-Time Settlement (OTS) proposal to the consortium of bank, which was rejected by the consortium of banks.
Adjudicating Authority after hearing the parties returned a finding that debt and default is proved, Adjudicating Authority directed for admission of Section 7 application by order dated 23.09.2024.
Against the above order, the present appeal has been filed.
Contentions:
The Appellant submitted that the corporate debtor has invoked arbitration against NHAI on 16 August 2021 and has been making efforts to clear the debts of the lenders through multiple OTS proposals. The corporate debtor has also invoked the Post Termination Arbitration Agreement against the NHAI. The Appellant shall be able to clear all the dues after receiving the amount from the arbitral proceeding.
Per contra, the Respondent submitted that the fact that appellant has taken several opportunities from this Tribunal to settle the dues of the financial creditors in which he failed, clearly proves the debt and default on the part of the appellant.
Observations:
The Tribunal noted that the SBI filed an application under section 7 of the code for a default of Rs. 1049.72 crore committed by the corporate debtor. During proceedings, the corporate debtor submitted an OTS proposal on 3 August 2024 which was rejected by the lenders.
The Tribunal further observed that in its order dated 25 October 2024 noted the rejection of OTS proposal of the SBI. Despite seeking time to settle the loan amount with financial creditor, the corporate debtor failed to do so. From the materials on record, it is clear that the corporate debtor has failed to clear its debts therefore this is a fit case for initiating insolvency process against the corporate debtor.
Accordingly, the present appeal was dismissed.
Case Title: Nakul Bharana Versus National Asset Reconstruction Company Limited and Anr.
Case Number:Company Appeal (AT) (Insolvency) No. 1930 of 2024 & I.A. No. 7495 of 2024
Judgment Date: 25/03/2025
For Appellant: Mr. Krishnendu Dutta, Sr. Advocate with Ms. Prachi Darji, Ms. Divya Verma, Ms. Ritika Gussain and Mr. Manav Goyal, Advocates.
For Respondents : Mr. Niranjan Reddy, Sr. Advocate with Ms. Smriti Churiwal, Mr. Vishesh Kalra, Mr. Jaiveer Kant and Ms. Anoushka Deo, Advocates for R-1.
For Intervenor : Mr. Arijit Prasad, Sr. Advocate with Ms. Nishtha Kaura, Advocates.
