Initiation Of Recovery Proceedings Before DRT Does Not Preclude Financial Creditor From Filing Application U/S 7 Of IBC: NCLAT

Brief Facts:

The present appeal has been filed by suspended director of the corporate debtor against an order passed by the Adjudicating Authority by which an application under section 7 of the code was admitted.

The corporate debtor was advanced loans by a consortium of banks consisting of Oriental Bank of Commerce and Central Bank Of India. Both banks declared accounts of the corporate debtor as Non-Performing Assets (NPA). Both banks also filed applications under section 7 of the code separately out of which the application of the Oriental Bank was admitted and the CIRP was initiated against the CD.

Both banks filed recovery proceedings before the DRT. A decree was passed in favor of the Central Bank. Subsequently, in execution of the decree, recovery proceedings by proclamation of sale of the assets of the CD were initiated which were put on hold when objections were raised. This order was challenged in the Punjab and Haryana High Court by the Central Bank. Thereafter, the Recovery Officer also cancelled the auction. The CD also filed a writ before the High Court.

An interim order was passed by the AA in the proceedings under section 7 filed by the Oriental Bank by which assets of the CD could not be alienated.

Both writ petitions were also dismissed by the High Court affirming the order of the Recovery Officer of cancelling the auction sale and the court directed the refund of the auction sale amount.

Contentions:

The appellant submitted that the lead Bank, i.e. Oriental Bank of Commerce (now Punjab National Bank) had taken steps to restructure the debt and on 16.07.2018 a proposal for restructuring was accepted by the lead Bank.

It was also contended that Central Bank had no jurisdiction to file Section 7 Application and it was only lead Bank, who as per inter-se Agreement, can take steps for enforcement of the securities. The Central Bank having already initiated proceedings before DRT, could not have filed Section 7 Application. Section 7 Application has been filed as a recovery measure.

Refuting the submissions, the Central Bank submitted that there was no recovery of Rs.136 crores as submitted by the Appellant. In fact the auction was held on 05.11.2021 for Rs.37.60 crores, which auction was subsequently cancelled on 24.04.2023. The refund of auction money from the auction purchaser has also been affirmed by the High Court, thus, no money has been recovered by the Central Bank of India and the Appellant by misstatement has obtained the interim order.

It was also contended that there is debt and default and Adjudicating Authority has rightly admitted Section Application and that OTS proposal submitted by the Appellant is wholly insufficient

Observations:

The tribunal noted that the High Court by its order has already affirmed the auction cancellation order passed by the Recovery Officer and also directed the refund of auction amount realised to the tune of Rs. 37.60 crore. The court dismissed the writ petitions filed by the CD and the bank, on the ground that they had become infructuous in light of admission of section 7 application.

The tribunal rejected the contention of the appellant that since proceedings before the DRT had already been initiated, the bank could not file an application under section 7 of the code.

It held that “It is well settled law that the fact that Financial Creditor has initiated proceedings before the DRT does not preclude them to take remedy under Section 7, which is a special remedy provided under the IBC.”

The tribunal also rejected the submission of the appellant that only lead bank could file an application under section 7 of the code on the ground that the lead bank had also filed the application which came to be admitted by the Adjudicating Authority.

The tribunal concluded that no grounds have been made out against the impugned order admitting the section 7 application therefore the present appeal deserves to be rejected. It also directed that an OTS proposal can be filed by the CD within two weeks and an application under section 12A can subsequently be filed seeking withdrawal of the CIRP application. However, if the OTS proposal is not accepted, the IRP shall proceed with the CIRP of the CD in accordance with law.

Accordingly, the present appeal was dismissed.

Case Title:Pawan Kumar Versus Central Bank of India & Ors.

Case Number: Company Appeal (AT) (Insolvency) No.1095 of 2024

Judgment Date: 15/01/2025

For Appellant : Ms. Eshna Kumar and Ms. Jasleen Singh Sandha, Advocates.

For Respondent : Ms. Yaehartha Gupta and Mr. Mayuresh, Advocates for PNB/ R2. Mr. Rajesh Rattan, Mr. Anuj Jain, Advocates for R3. Mr. Anant Gautam, Mr. Dinesh Sharma, Advocates for Indian Bank.

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