Section 7 IBC | Ruling In ‘Vidarbha Industries’ Inapplicable When Corporate Debtor Admits Due Debt Amount: NCLAT Delhi

The National Company Law Appellate Tribunal (“NCLAT”), New Delhi Bench, comprising of Justice Rakesh Kumar Jain (Judicial Member) and Shri Naresh Salecha (Technical Member), while adjudicating an appeal filed in Mohan Nathuram Sakpal v State Bank of India, has held that the ruling given in Vidarbha Industries Power Limited v. Axis Bank Limited is inapplicable to proceedings under Section 7 of IBC when the Corporate Debtor has clearly admitted the due debt amount. The Bench held as under: “We have heard Counsel for the parties and are of the considered opinion that in the given facts and circumstances of the case Vidarbha Industries Power Limited (Supra), relied upon by the Appellant, is not applicable because there is a clear admission on the part of the Corporate Debtor of the amount of debt due in view of the letter dated 31.01.2018.” Background Facts AA Estates Private Limited (“Corporate Debtor”) is engaged in the business of real estate development and had availed credit facilities from the State Bank of India (“Financial Creditor”). The Financial Creditor had initiated recovery proceedings against the Corporate Debtor before the Debt Recovery Tribunal (“DRT”). While the proceedings were pending before the DRT, the Corporate Debtor submitted a compromise proposal dated 31.01.2018 to the Financial Creditor, admitting its liability to pay Rs. 59.33 Crores and offered Rs. 40 Crores as the compromise amount. However, the complete payment was not made by the Corporate Debtor. Therefore, the Financial Creditor filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor. On 06.12.2022, the NCLT admitted the petition and initiated CIRP against the Corporate Debtor. The Shareholder/Director of the Corporate Debtor (“Appellant”) filed an appeal against the order dated 06.12.2022. The Supreme Court in Innoventive Industries Limited v. ICICI Bank and Another, (2018) 1 SCC 407, had held that the NCLT must admit a petition under Section 7 of IBC once existence of debt and default is established. Following which, in Vidarbha Industries Power Limited v. Axis Bank Limited, (2022) 3 SCC 161, the Supreme Court held that NCLT has discretion to not to admit Section 7 petition even after the existence of debt and default had been proved. However, Vidarbha Industries was passed based on the facts of that particular case and it did not hold anything contrary to the Innoventive Industries judgment. The Appellant placed reliance on Vidarbha Industries and argued that the Legislature has intended Section 9(5)(a) of IBC to be mandatory and Section 7(5)(a) of IBC to be discretionary. Therefore, the NCLT ought to have considered the grounds made by the Corporate Debtor for dismissal of Section 7 petition. The Financial Creditor argued that Vidarbha Industries was inapplicable and placed reliance upon the Review Petition (Review Petition (Civil) No. 1043 of 2022) filed in Vidarbha Industries, whereby the Supreme Court had clarified as under: “The elucidation in paragraph 90 and other paragraphs were made in the context of the case at hand. It is well settled that judgments and observations in judgments are not to be read as provisions of statute. Judicial utterances and/or pronouncements are in the setting of the facts of a particular case. To interpret words and provisions of a statute, it may become necessary for the Judges to embark upon lengthy discussions. The words of Judges interpreting statutes are not to be interpreted as statutes.” NCLAT Verdict The Bench opined that the judgment in Vidarbha Industries Power Limited v Axis Bank Limited is not applicable since the Corporate Debtor has clearly admitted the due debt amount in the Compromise Proposal dated 31.01.2018. “We have heard Counsel for the parties and are of the considered opinion that in the given facts and circumstances of the case Vidarbha Industries Power Limited (Supra), relied upon by the Appellant, is not applicable because there is a clear admission on the part of the Corporate Debtor of the amount of debt due in view of the letter dated 31.01.2018.” The Bench placed reliance on the Supreme Court judgment in M. Suresh Kumar Reddy v Canara Bank & Ors., Civil Appeal No. 7121 of 2022, wherein it was held that the decision of Vidarbha Industries was passed based on the facts of that particular case and it did not hold anything contrary to the Innoventive Industries judgment. The Supreme Court had observed as under: “13. Thus, it was clarified by the order in review that the decision in the case of Vidarbha Industries was in the setting of facts of the case before this court. Hence, the decision in the case of Vidarbha Industries cannot be read and understood as taking a view which is contrary to the view taken in the ...

Section 7 IBC | Ruling In ‘Vidarbha Industries’ Inapplicable When Corporate Debtor Admits Due Debt Amount: NCLAT Delhi

Pallavi Mishra

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