Section 7 Petition To Be Kept In Abeyance For 6 Months, Hoping Settlement: NCLT Indore

Background Facts

State Bank of India ("Financial Creditor") had granted credit facilities to M/s. Krishidhan Seeds Pvt. Ltd. ("Corporate Debtor") in 2006. The Corporate Debtor had defaulted in repayments its loan account was declared to be a Non Performing Asset ("NPA") in 2014.

In 2018, the Financial Creditor filed a petition under Section 7 of Insolvency and Bankruptcy Code, 2016 ("IBC"), seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, over a financial debt of Rs.1,89,41,55,485/-.

Initially by order dated 16.09.2020, this Adjudicating Authority had rejected the petition holding that the claim of the financial debt was time barred. The order was challenged before NCLAT and the appeal was dismissed. Thereafter, the Financial Creditor filed an appeal before the Supreme Court and the Court vide order dated 18.04.2022 set aside both the orders directing this Adjudicating Authority to adjudicate the petition afresh, giving both parties the opportunity of being heard.

Contentions Of Corporate Debtor

The Corporate Debtor placed reliance upon Supreme Court's judgment in Vidarbha Industries Power Limited vs. Axis Bank Limited, (Civil Appeal No.4633 of 2021), wherein it was held that to admit the Corporate Debtor in CIRP on an application under Section 7 IBC by the Financial Creditor is a matter of discretion. If the Corporate Debtor makes out grounds to show that it is solvent company and in position to repay the debt, then generally, the Adjudicating Authority may reject the application or keep the proceedings in abeyance for some time.

It was submitted that the Corporate Debtor has been paying the debts of some of its creditors, one of them being M/s. Mahyco Monsanto Biotech (India) Pvt. Ltd. The OTS of the Corporate Debtor was accepted by Mahyco for a sum of Rs. 35 crores and Rs. 6 crores have been deposited so far. Mahyco has renewed the Corporate Debtor's licence and there are chances to get business at international level. Further, the Corporate Debtor's OTS proposal before the Financial Creditor is pending consideration.

It was further submitted that the Corporate Debtor has the capacity of producing and packaging three lakhs quintals seeds every year. It has 25,000 dealers across sixteen States and about two million consumers being maintained for the last thirty years successfully. It has 350 employees and 1000 labourers working with it. Therefore, the Corporate Debtor being a solvent company and dealing in the agricultural sector, may not be admitted into CIRP at once.

Contentions Of Financial Creditor

The Financial Creditor argued that CIRP is being used for the welfare and benefit of the corporate debtor, as the present management would be replaced by expert Resolution Professionals. Further, the Corporate Debtor has defaulted in repayments not just to Financial Creditors but also other bankers and the Financial Creditor has rejected the OTS proposal submitted by Corporate Debtor. Depositing Rs. 6 crores in OTS of one of the creditors is not sufficient to hold that the company started reviving back.

Decision Of The NCLT

The Bench observed that a financial debt over Rs. 1 Crore was due and payable and the Corporate Debtor had defaulted in repayments. The Petition was within limitation and for these reasons the Corporate Debtor was liable to be admitted in CIRP. However, the Bench also considered the mandate of Supreme Court in Vidarbha Industries Power Limited vs. Axis Bank Limited, (Civil Appeal No.4633 of 2021) and held:

"We have already noted that in view of the proved facts, the corporate debtor has to be admitted in CIRP. However, we have to examine other facts to decide whether this case falls in exception as indicated by the Hon'ble Supreme Court. We must give them some time. We believe their intention to settle the dues with other creditors. Hence, instead of admitting the corporate debtor in CIRP or rejecting this application, we think it proper to keep this proceeding in abeyance for six months from today. We make it clear that if the corporate debtor fails to settle the due debts, we will pass further orders. We further direct the Corporate Debtor not to sale the mortgaged assets of the Corporate Debtor to SBI without consent of the State Bank of India."

The Registry was directed to put the proceedings of Section 7 petition on the cause list after six months.

Case Title: State Bank of India v Krishidhan Seeds Pvt Ltd, TP 82 of 2019 [CP(IB) 500 of 2018]

Counsel For Financial Creditor: Ld. Sr. Adv. Mr. Niranjan Reddy a.w. Ld. Adv. Ms. Fatema Kachwalla

Counsel For Corporate Debtor: Ld. Sr. Adv. Mr. Saurabh Soparkar a.w. Ld. Adv. Mr. Kunal Vaishnav (R-1)

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