M. Suresh Kumar Reddy vs Canara Bank & Ors
Civil Appeal 7121 of 2022
Facts:
1.Respondent filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (for short, ‘the IB Code’) before the National Company Law Tribunal, Hyderabad, Telangana against a Corporate Debtor M/s Kranthi Edifice Pvt. Ltd and NCLT by an Order dated 27th June 2022, admitted the application filed by the respondent and declared a moratorium for the purposes referred in Section 14 of the IB Code.
2.Appellant claiming to be an aggrieved person preferred an appeal against the said Order before the National Company Law Appellate Tribunal (for short, ‘NCLAT’). By the impugned judgment dated 5th August 2022, NCLAT dismissed the appeal.
3.Appellant has moved the court challenging the order of NCLAT dismissing the appeal.
Issue: Whether NCLAT was correct in upholding the NCLT decision of admitting the application.
Arguments:
For Appellant:
1.Counsel submitted that repeated efforts were made to have onetime settlement of the dues payable to the first respondent. But the said request was not acceded to. Counsel relied upon a decision of this Court in the case of Vidarbha Industries Power Limited v. Axis Bank Limited. He submitted that even assuming that the existence of financial debt and default on the part of the Corporate Debtor was established, the NCLT was not under an obligation to admit the application under Section 7.
2.Counsel invited attention to the correspondence between the Government of Telangana and the Syndicate Bank. There were contracts granted by the Telangana Government to the Corporate Debtor. He invited our attention to a letter dated 5th November 2018 addressed by the Executive Engineer on behalf of the Government of Telangana requesting the Bank to extend the Bank Guarantees furnished by the said Bank on the request of the Corporate Debtor.
3.Counsel also invited the attention of the Court to a letter dated 8th January 2020 addressed by the Government of Telangana to the Bank requesting the Bank to extend the seven Bank Guarantees mentioned therein. He submitted that notwithstanding the requests made by the State Government, Syndicate Bank did not extend the Bank Guarantees. Thus, in a sense, the failure of the Bank to extend the Bank Guarantees forced the Corporate Debtor to commit default. He submitted that the Bank is responsible for triggering the default.
For Respondent:
1.Counsel pointed out that the decision in the case of Civil Appeal No. 7121 OF 2022 Vidarbha Industries is in peculiar facts of that case, as is explained by the same Bench while disposing of the Review Petition. He submitted that the decision of this Court in the case of E.S. Krishnamurthy and others v. Bharath HiTecch Builders Private Limited still holds the field
2.Counsel submitted that once NCLT is satisfied that there is a financial debt and a default has occurred, it is bound to admit an application under Section 7. He submitted that the request made by the Corporate Debtor for extension of the Bank Guarantees was specifically rejected as communicated by the first respondent by a letter dated 18th January 2021 addressed to the Corporate Debtor.
Decision: Supreme Court dismissed the appeal upholding the order of NCLAT.
Rationale:
1.Once NCLT is satisfied that the default has occurred, there is hardly a discretion left with NCLT to refuse admission of the application under Section 7. Even the nonpayment of a part of debt when it becomes due and payable will amount to default on the part of a Corporate Debtoṛ. In such a case, an order of admission under Section 7 of the IB Code must follow.
2.If the NCLT finds that there is a debt, but it has not become due and payable, the application under Section 7 can be rejected. Otherwise, there is no ground available to reject the application.
Order Copy:
