NCLT Mumbai: Financial Creditor Can't Initiate CIRP Against Successful Resolution Applicant On Default Of Payment As Per Resolution Plan
The National Company Law Tribunal ('NCLT'), Mumbai Bench, comprising Shri Kuldip Kumar Kareer (Judicial Member) and Shri Anil Raj Chellan (Technical Member) held that the Financial Creditor cannot initiate a Corporate Insolvency Resolution Process ('CIRP') application against the Successful Resolution Applicant ('SRA') on default in payment to Stakeholders/Creditors as per terms of...
The National Company Law Tribunal ('NCLT'), Mumbai Bench, comprising Shri Kuldip Kumar Kareer (Judicial Member) and Shri Anil Raj Chellan (Technical Member) held that the Financial Creditor cannot initiate a Corporate Insolvency Resolution Process ('CIRP') application against the Successful Resolution Applicant ('SRA') on default in payment to Stakeholders/Creditors as per terms of the approved Resolution Plan under Insolvency and Bankruptcy Code, 2016 ('IBC').
Background Facts:
Sunshine Housing and Infrastructure Private Limited ('SHIPL') had defaulted on the payment on 31.12.2017 of Interest on Rs. 40 crores disbursed to it by ICICI Prudential Real Estate AIF I ('Petitioner'). The said amount was disbursed by subscribing to 4,000 unlisted, unrated, secured, redeemable non-convertible debentures of a face value of Rs. 1 Lakh each issued by SHIPL according to a Debenture Subscription Agreement dated 06.09.2016.
The Petitioner filed a CIRPapplication dated 21.12.2018 against SHIPL which was admitted by NCLT Mumbai on 08.05.2019. On 26.09.2020, Nandi Vardhan Infrastructure Ltd. ('Corporate Debtor') submitted its Resolution Plan for SHIPL which was approved by the Committee of Creditors ('CoC') of SHIPL and approved by NCLT Mumbai on 11.02.2022.
The Corporate Debtor had received the copy of the Resolution Plan and as per Clause 3.6.1 of the Resolution Plan, it was required to pay the Petitioner Rs. 5 crores in partial discharge of the financial debt owed to the Petitioner within six months from 11.02.2022.
The present CIRP application under Section 7 of IBC has been filed by the Petitioner against the Corporate Debtor as it has failed to abide by the payment obligation of Rs. 5 crore under the Resolution Plan.
NCLT Verdict:
The NCLT Mumbai dismissed the CIRP application and held that the Financial Creditor cannot initiate a CIRP application against the SRA on default in payment to Stakeholders/Creditors as per terms of the approved Resolution Plan under IBC.
The Tribunal observed that such a promise or undertaking or obligation to pay sums by the Resolution Applicant to the Financial Creditors of the Corporate Debtor in CIRP, if not fulfilled, can be treated as a financial debt covered under the four corners of the definition provided under Section 5(8) of the IBC.
It pointed out that although when the SRA is not able to implement the plan and fulfill its obligations some consequences are bound to follow. It observed that the performance guarantee furnished by such SRA can be forfeited and the SRA can also be prosecuted under Section 74 of IBC. However, the liability of the SRA either to pay the creditor or to infuse money in the Corporate Debtor in CIRP for its revival cannot be equated with a financial debt, CIRP under 7 of IBC cannot be initiated.
Section 74 of IBC reads as follows:
Section 74: Punishment for contravention of moratorium or the resolution plan.
(1) Where the corporate debtor or any of its officer violates the provisions of section 14, any such officer who knowingly or wilfully committed or authorised or permitted such contravention shall be punishable with imprisonment for a term which shall not be less than three years, but may extend to five years or with fine which shall not be less than one lakh rupees, but may extend to three lakh rupees, or with both.
(2) Where any creditor violates the provisions of section 14, any person who knowingly and wilfully authorised or permitted such contravention by a creditor shall be punishable with imprisonment for a term which shall not be less than one year, but may extend to five years, or with fine which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both.
(3) Where the corporate debtor, any of its officers or creditors or any person on whom the approved resolution plan is binding under section 31, knowingly and wilfully contravenes any of the terms of such resolution plan or abets such contravention, such corporate debtor, officer, creditor or person shall be punishable with imprisonment of not less than one year, but may extend to five years, or with fine which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both.
The Tribunal also noted that the obligation of the SRA to implement the Resolution Plan incurring a Financial Debt cannot be equated qua the Financial Creditors or CoC of the Corporate Debtor. The obligations of the SRA cannot be equated to a Corporate Guarantee.
In conclusion, NCLT Mumbai dismissed the CIRP application filed under Section 7 of IBC as the Petitioner could not make the existence of a Financial Debt and its default committed by the Corporate Debtor.
Case Title: ICICI Prudential Asset Management Company Ltd. vs. Nandi Vardhan Infrastructure Ltd.
Case No.: CP(IB) 276 MB 2023
Counsel for the Financial Creditor: Adv. Rohan Rajadhyakhsha a/w Pushkar Deo
Counsel for the Corporate Debtor: Adv. Rohit Gupta a/w Prashansa Agarwal