When Statutory Criteria U/S 7 Of IBC Is Satisfied, Tribunal Must Admit CIRP: NCLT, Mumbai

Brief Facts:

Bank of India (Financial Creditor/Applicant), as part of a consortium of eight lenders, sanctioned a term loan of Rs. 150 Crores to GF Toll Road Private Limited (Corporate Debtor/Respondent) for capital expenditure in respect of upgradation/widening of Gurgaon-Faridabad & Ballabhgarh-Sohna road in Haryana on build, operate and Transfer (BOT) basis under a concession agreement dt. 31.01.2009 for a period of 17 years upto 30.05.2026. The corporate debtor is an SPV of Reliance Infrastructure Ltd. for envisaging design, engineering, finance, construction, improvement, operation and maintenance and upgrading of the existing road.

A Common Loan Agreement dated 26.08.2009 was entered. The loan was secured through first charge on project revenues, accounts, and assets (excluding project assets); assignment of rights under the concession agreement and project contracts; and Negative lien and pledge of 51% equity shares of the SPV.

The Applicant filed the petition under section 7 of the IBC, seeking to initiate CIRP against the Respondent. The amount claimed to be in default was Rs. 73.08 crores as on 30.09.2023. The Date of default was 30.09.2018.

Submissions of the Applicant (Bank of India):

The Applicant submitted that:

The Corporate Debtor acknowledged the debt. The Corporate Debtor failed and neglected to pay the instalments. The corporate debtor also committed other defaults in performance of the conditions of the Common Loan Agreement. Since the Corporate Debtor failed to service the account and clear the outstanding dues of the applicant bank, the applicant bank classified the account of the Corporate Debtor as NPA (Non Performing Asset) on 30.09.2018.

Submissions of the Respondent:

The Respondent contested the petition on the following grounds:

1. The Respondent is temporarily under financial stress and is still a solvent company. It invoked arbitration against Haryana Public Works Department and received an arbitral award of Rs. 164.81 crores (with costs). The Section 34 petition and the Section 36 petition are pending adjudication. In terms of the Award, a sum of Rs. 437.56 crore calculated with interest upto 29.02.2024 is receivable by the Corporate Debtor .
2. Section 7(5)(a) of the Code is discretionary.
3. When initiation of CIRP is resisted on the ground of existence of an award in favour of corporate debtor whose amount far exceeds the debt, the Adjudicating Authority has to exercise discretion under Section 7 (5) (a) of the Code to keep the admission in abeyance or even reject the application. The Respondent relied upon the decision of the Supreme Court in Vidarbha Industries Power Ltd. vs Axis Bank Ltd.
4. The Petition is filed contrary to the terms of financing documents, viz. Inter-Creditor Agreement dated 26.08.2009, wherein it has been stated that action is to be taken collectively and after all the members of the Consortium have been consulted.
5. The Respondent claimed to have paid Rs. 889.29 crores till 29.02.2024.
6. The Respondent proposed an OTS on 30.08.2023.
7. The Petition is contrary to the Object of IBC.
8. The Petition is barred by limitation.

Observations of the NCLT:

The Tribunal noted that there was no dispute regarding the existence of a financial debt and default. The Corporate Debtor also admitted to its liability. It held that the application was within the limitation period.

The Tribunal noted that in Vidarbha Industries Power Limited v. Axis Bank Ltd., it was held that while Section 7(5)(a) of the IBC confers discretionary power on the Adjudicating Authority, such discretion cannot be exercised arbitrarily. In Vidarbha Industries, it was observed that the Adjudicating Authority must consider the grounds made out by the Corporate Debtor against admission, on its own merits. For example when admission is opposed on the ground of existence of an award or a decree in favour of the Corporate Debtor, and the Awarded/decretal amount exceeds the amount of the debt, the Adjudicating Authority would have to exercise its discretion under Section 7(5)(a) of the IBC to keep the admission of the application of the Financial Creditor in abeyance, unless there is good reason not to do so.

The Tribunal referred to the case of M. Suresh Kumar Reddy vs. Canara Bank & Ors., which held that even if it is assumed that the NCLT has the authority to reject a Section 7 application if there are good reasons to do so, the facts of the case did not present any such "good reason" to justify the denial of admission u/s. 7.

The tribunal held it was bound by law to admit the petition if the statutory criteria for financial debt, default, and limitation period were met, and the default amount exceeded Rs. 1 crore. No alternate resolution could be enforced other than that provided in the Code.

The tribunal admitted CIRP against the Corporate Debtor. Mr. Rahul Jindal was appointed as Interim Resolution Professional of the Corporate Debtor.

Case Title: Bank of India vs. GF Toll Road Private Limited

Case Number: CP (IB)/83 (MB)/2024 and CP (IB)/120 (MB)/2024

Appearances:

For the Financial Creditor (Bank of India): Advocate Karan Gandhi (Law Chambers of Karan Gandhi); Mr. Vaibhav Gupta, Chief Manager, BOI.

For the Financial Creditor (Indian Bank): Ms. Anju Bhushan Gupta a/w Mr. Aditya Goel, Advocates. For the Corporate Debtor: Mr. Rohit Gupta a/w Ms. Raghani Sharma i/b Mulla and Mulla Co., Advocates.

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