A Financial Creditor Cannot Challenge The Insolvency Proceedings Initiated By Another Financial Creditor On The Ground Of Superior Claim: NCLAT

In this case, an Agreement was executed between National Highway Authority of India ('NHAI') and the Gwalior Bypass Project Ltd, (Corporate Debtor). According to the terms of the agreement, Gwalior Bypass Gwalior Bypass was barred from creating any encumbrance, lien or from creating any rights or benefits under this Agreement except with prior consent in writing from NHAI.

For seeing the project through, Gwalior Bypass had approached L&T Infrastructure Finance Company Ltd. for refinancing an erstwhile loan advanced by IDFC. Certain credit facilities by way of non-convertible debentures were sanctioned by L&T Infrastructure based on no objection letters issued by NHAI in favour of Gwalior Bypass. In the meantime, the ICICI Bank sanctioned certain loan facilities amounting to Rs.91.5 crore to the Gwalior Bypass.

L&T Infrastructure claimed that the move by ICICI Bank to move to NCLT and initiating insolvency proceedings against Gwalior Bypass blatantly disregarded its secured lender status vis-à-vis Gwalior Bypass and by resorting to provisions under the I&B Code, it had acted in collusion with the Corporate Debtor, Gwalior Bypass.

The NCLAT while referring to Supreme Court's judgment in Innoventive Industries Ltd. v. ICICI Bank, reiterated that NCLT is only required to notice as to whether the application is complete or not, if there is a debt and the Debtor' defaulted in payment, and the amount is more than Rs.1 lakh, it is bound to admit an application under Section 7.

In view of the law settled by the Supreme Court, the NCLAT held that L&T not being a Member/ Shareholder of the Corporate Debtor Gwalior Bypass, has no right to intervene to oppose admission of the application under Section 7 preferred by the ICICI Bank against the Corporate Debtor.

The Bench concluded that as a 'Financial Creditor', L&T could file a claim before the Resolution Professional, but could not challenge the order of admission in absence of any challenge by the 'Corporate Debtor', on the ground that it has first charge on the asset of the 'Corporate Debtor' or has superior claim over the claim of the other 'Financial Creditors'. The appeal was accordingly dismissed.