Application U/S 7 Of IBC Must Be Decided First When Application U/S 54C Is Filed 14 Days After S.7 Application: NCLAT

Brief Facts:

The corporate debtor defaulted in repaying the loan facilities extended by the consortium of banks comprising SBI, IDBI Bank and Bank of Baroda which led to its account being declared as an NPA in 2017.

The SBI and IDBI banks consented to the OTS proposal submitted by the CD. However, the Bank of Baroda did not consent to the OTS and proceeded to file an application under section 7. Subsequently, an application under section 54C was filed by the CD after securing 79.12 percent approval from financial creditors which was objected to by the Bank of Baroda on the ground of maintainability.

The Application of the CD was admitted and by the same order the application under section 7 was disposed of. Thereafter, an application filed by the RP seeking approval of the Base Resolution Plan was heard and decided by the AA. Aggrieved by this order, the present appeals have been filed.

Contentions:

The appellant submitted that the CD filed the application under section 54C after 14 days from the section 7 application therefore the latter application should have been decided first. It was also argued that the Resolution Plan violated section 30(2) of the code by treating the assenting and dissenting creditors equally. It was further submitted that the CD was not eligible for the MSME certificate therefore it lacked jurisdiction to file the application under section 54C.

Per contra, the respondents submitted that the Bank of Baroda, without even informing the other Lenders, rushed and filed Section 7 Application on 18.04.2022, which proceeding was nothing but proceeding for recovery of dues.

It was further argued that period, which was taken for necessary statutory compliances, under Section 54A and 54B, if excluded, the Application under Section 54C was well within 14 days. The Adjudicating Authority did not commit error in admitting 'Section 54C' Application filed by the CD and disposing of Section 7 Application filed by the Appellant.

It was also argued that the Base Resolution Plan having been approved by majority of vote shares, the Bank of Baroda is also bound by approval and cannot wriggle out from the decision on the pretext that it has filed Section 7 Application on 18.04.2022.

Observations:

The first question before the tribunal was whether the CD was an MSME or not.

The tribunal noted that in Ramesh Shah vs. Central Bank of India & Ors.(2023) the NCLAT had occasion to consider the issue and this Tribunal had clearly laid down that the Adjudicating Authority is not expected to go into accounts and examination of certificates issued by the competent authority under MSME Act and notification issued thereunder or modify/ revise/ revoke or interfere in any manner with the MSME registration granted etc.

Based on the above, it concluded that “we are satisfied that CD had valid MSME registration certificate dated 21.07.2020 and CD as MSME was eligible to file Application under Section 54C.”

The tribunal noted that when a statute provides for the specific consequences for non compliance, it is deemed mandatory. Section 11A(3) of the code provides that when an application under 'section 54C' is filed after 14 days from the application filed under section 7 of the code, the Adjudicating Authority must first dispose of the application under section 7 of the code.

The Supreme Court in Independent Sugar Corporate Ltd. vs. Girish Sriram Juneja (2023) held that “If the object of a law is to be defeated by non-compliance with it, it has to be regarded as mandatory… Whenever a statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to a specific consequence, it would be difficult to hold that the requirement is not mandatory and the specified consequence should not follow.”

While applying the above ratio to the facts of the present case, it said that when section 11A was inserted through the Amending Act of 2021, the legislature was fully aware of the statutory scheme as delineated under sections 54A and 54B of the code. Hence, the legislature was well aware of the statutory scheme and the statutory scheme does not indicate that while computing 14 days period as referred to in Section 11A, any exclusion of period is provided.

Based on the above, the tribunal rejected the submission of the appellant that while computing 14 days period, the period taken in obtaining statutory compliances need to be excluded.

While answering the second issue, the tribunal observed that “We, thus are of the view that Application under Section 54C was filed after 14 days from filing of Section 7 Application and as per Section 11A, sub-section (3), the Adjudicating Authority was obliged to consider the Application under Section 7 before proceeding to dispose of Section 54A Application.”

It further observed that Section 7 Application filed by the Bank of Baroda was for resolution of the CD and today when the CD stands resolved and payments have been received by all Financial Creditors, including the Bank of Baroda, we are of the view that at this stage, no useful purpose shall be served in setting aside order dated 19.04.2023 passed by Adjudicating Authority admitting Section 54C Application and directing for fresh consideration of Section 7 Application.

While answering the next issue, the tribunal noted that the Appellant was thus clearly entitled for payment in the Resolution Plan as per Section 30, sub-section (2) (b) in reference to Section 53(1) (b), i.e. whatever amount was payable to the dissenting Financial Creditor, in event of liquidation, the said amount would be required to be paid.

The tribunal concluded that “at this stage, when Resolution Plan has been approved and implemented, we are of the view that ends of justice will be served in directing the SRA to make the payment of differential amount, if any, to the Appellant, as per Section 30, sub-section (2) (b), which payments be made within a period of 30 days from today.”

Case Title: Bank of Baroda Versus Shree Rajashthan Syntex Ltd.

Case Number: 'Company Appeal (AT) (Insolvency) No. 888 of 2023, Comp. App. (AT) ('Insolvency') No. 1492 of 2023 & I.A. No. 5310 of 2023 and Company Appeal (AT) (Insolvency) No.890 of 2023'

Judgment Date: 10/02/2025

For Appellant : 'Mr. Ashish Verma, Mr. Saksham Thareja, Mr. Kartik B. and Mr. Nikhil Thakur, Advocates.

For Respondents : Mr. Krishnendu Datta Sr. Advocate with Mr.Prakul Khurana, Mr. Yash Tandon and Mr. Ankit Sareen, Advocates for R-1. Mr. Abhijeet Sinha, Sr. Advocate with Ms. Suruchi Kasliwal Multani, Mr. Naresh Batra, Advocates for R-2. Ms. Suruchi Kasliwal Multan and Mr. Naresh Batra, Advocates for R-3.