Pendency Of Proceedings Before NCLT For Approval Of Scheme Of Arrangement Does Not Preclude Financial Creditor From Filing Petition U/S 7: NCLAT

The NCLAT New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical Member) has held that the pendency of proceedings before the NCLT for approval of the scheme of arrangement does not preclude the Financial Creditor to proceed with Section 7 application. The tribunal also held that direction of RBI under Section 35AA of Banking Regulation Act, 1949 for initiation of insolvency cannot be disregarded/ ignored while determining application under Section 7 of IBC. Brief Facts The present appeals have been filed against an order passed by the NCLT by which an application under section 7 of the code was admitted against Jaiprakash Associates Limited (JAL), corporate debtor. In these appeals, orders dismissing applications filed by the Corporate Debtor, including one seeking dismissal of the Section 7 petition, another requesting adjournment due to a restructuring proposal under consideration, and one seeking deferment of judgment are also challenged. Additionally, the Appeals further challenge an order allowing the replacement of the proposed Interim Resolution Professional (IRP) with Mr. Bhuvan Madan. The corporate debtor was admitted into insolvency despite a Debt Realignment Plan (DRP) and a One-Time Settlement (OTS) proposal by JA. The account of the corporate debtor was classified as Non Performing Assets in 2014. The Joined Lenders Forum approved a restructuring plan in which the debt of the corporate debtor was divided into three buckets for resolution. However, after directions of the RBI and subsequent approval by the Supreme Court to proceed under the IBC, the bank initiated insolvency proceedings. The initiation of the initiation proceedings were challenged by the corporate debtor first before the Allahabad High Court and later before the Supreme Court. However, the insolvency proceedings could not be stopped. Contentions: The appellant submitted that Comprehensive Reorganisation and Restructuring Plan (CRRP) was approved on 22.06.2017, thereafter, Master Restructuring Agreement (MRA) was executed on 31.10.2017, which MRA resolved all debt. As per MRA, the previous default and the remedies were specifically waived by the Lenders. The binding nature of sanction letter dated 19.05.2017 issued by ICICI Bank and the MRA has not been questioned by the Lender at any stage. That Sanction letter dated 19.05.2017, does not confine to only Bucket 2A rather it covers all the dues shown in all the Buckets. Sanction letter novated all the existing facilities pertaining to the erstwhile debt. The argument of the Lenders that MRA is not relevant for the purposes of Bucket 2B is misconceived. The Appellant has also referred to the letter dated 07.12.2017 issued by the ICICI Bank, which was counter signed by SBI and IDBI to RBI stating that account of Corporate Debtor may be treated to be resolved, which letter clearly depicts the understanding of the Lenders themselves regarding resolution of entire debt. That Any determination of default, dehors the IBC Process is not relevant nor can be basis for admitting Section 7 Application. Reliance of the Lender on the Order of the Hon'ble Supreme Court dated 09.08.2018 and letter dated 14.08.2018 by the RBI is misplaced. That Respondent Bank in spite of restructuring document has relied on earlier facility documents. There being no revocation of the restructuring document, no reliance could have been placed by the Bank on the earlier financing documents. That OTS Proposal having been submitted, a request was made to the Adjudicating Authority to defer the pronouncement of Order reserved on 17.05.2024, which was not acceded to and Judgment delivered when the OTS Proposal was submitted with upfront payment. Adjudicating Authority, ought to have waited for outcome of the OTS and then proceeded to admit Section 7 Application. On the other hand, the respondents submitted that the Central Government has notified the RBI as an authority to issue necessary direction to the Banks to initiate Insolvency Resolution Process against a Corporate Debtor. The RBI having found the Corporate Debtor committing default under IBC has issued direction to the ICICI Bank on 14.08.2018 for initiating CIRP against the Corporate Debtor which direction was issued in exercise of statutory function by the RBI. That Debt under Bucket 2B was to be transferred to an SPV of JAL i.e. Jaypee Infrastructure Development Limited vide scheme which scheme was never approved by the NCLT. The transfer of debt never took place to SPV debt which was subject matter of Bucket 2B continues to be in default in view of the scheme having never been implemented. That the Corporate Debtor in the written submission before the Adjudicating Authority has itself admitted that the present petition under Section 7 does not pertain to Bucket 1 or Bucket...

Pendency Of Proceedings Before NCLT For Approval Of Scheme Of Arrangement Does Not Preclude Financial Creditor From Filing Petition U/S 7: NCLAT

Mohd Malik Chauhan

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