General Power Of Attorney Holder Can File An Application U/S 7 Of IBC Without A Specific Board Resolution Authorization: NCLT Mumbai

Background Facts

Punjab National Bank, (“Financial Creditor”) sanctioned a loan to Arshiya Northern FTWZ Limited (“ANFL”) for which Arshiya Limited (“Corporate Debtor”), a holding company of ANFL, acted as the Corporate Guarantor.

ANFL defaulted in making the repayments for a long time and subsequently its account was classified as a Non-Performing Asset (“NPA”) in September 2014. The Financial Creditor issued a notice to ANFL and the Corporate Debtor under section 13(2) SARFAESI in October 2015 seeking repayment of the outstanding debt amounting to Rs. 322,23,46,819 as on 31 July 2015 along with interest.

Corporate Insolvency Resolution Process (“CIRP”) was initiated against ANFL through an order of NCLT, Mumbai Bench on 14 November 2022 in CP No.1245(IB)-MB-V/2021. Subsequently, the Financial Creditor through its Chief Manager, Mr. Dinesh Solanki, filed an application under section 7 of the Code in August 2019 seeking initiation of CIRP against the Corporate Debtor for default amount of Rs. 193,24,35,349.59 as on 13 August 2019.

The Corporate Debtor argued that Mr. Solanki was not properly authorized to file the application as merely an authority letter and a GPA were insufficient to make his appointment valid per rule 2(6) of the National Company Law Tribunal Rules, 2016 (“NCLT Rules”).

It further contended that as per a notification issued by the Ministry of Corporate Affairs on 27 February 2019 (“MCA Notification”), only an authorized representative having specific Board Resolution can file an application under section 7 of Code on behalf of an entity.

NCLT Verdict

The NCLT held that the GPA granted sufficient authority to Mr. Solanki to file the application on behalf of the Financial Creditor. It noted that rule 2(6) of the NCLT Rules and section 432 of the Companies Act, 2013 (“Act”) only deal with persons authorized to “appear and present” a case. It drew a distinction between persons authorized to file an application and persons authorized to appear and present cases.

It held that a GPA holder is different from the authorized person referred to in section 432 of the Act read with rule 2(6) of the NCLT Rules and based on the terms of the GPA, it found that Mr. Solanki was duly authorized to file the application.

It also noted that as per section 7(1) of the Code, the Financial Creditor can either file the application itself or through any person on its behalf as specified by the Central Government. It found that MCA notification relied upon by the Corporate Debtor defined the persons who can file an application on behalf of the Financial Creditor.

However, upon a joint reading of section 7(1) of the Code and the MCA Notification, it held that the application filed by the Chief Manager of the Financial Creditor and GPA holder, Mr. Solanki, will be considered to be an application by the Financial Creditor “itself” and not by “any person on its behalf”. It noted that a similar view had been taken by the NCLT in Edelweiss Asset Reconstruction Company Ltd. v. NCR Rail Infrastructure Ltd. [CP(IB) No. 1079/MB-VI/2022].

In conclusion, the NCLT held that under section 7(1) of the Code, an application filed by a GPA holder will be considered to have been filed by the Financial Creditor itself and not by any person on its behalf. Therefore, a GPA holder does not need to have a specific Board Resolution as per the MCA Notification. The NCLT initiated CIRP proceedings against the Corporate Debtor and appointed Mr. Nitin Vishwanath Panchal as the Interim Resolution Professional.

Case Title: Punjab National Bank v. Arshiya Limited

Case No.: CP (IB) No. 3143/MB/2019

Counsel for the Applicant: Adv. Shyamadhar Upadhyay i/b Intralegal

Counsel for the Respondent: Adv. Nausher Kohli a/w Adv. Shivam Bhagwati, Adv. Prerna Wagh and Adv. Hunaut Singh i/b M/s. Crawford Bayley & Co.

Click Here To Read/Download Order