National Company Law Tribunal

National Company Law Tribunal, Prayagraj: In an application filed by the Jammu and Kashmir Bank under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) to initiate the Corporate Insolvency Resolution Process (CIRP) against the Himalayan Mineral Waters Private Limited for a financial debt of Rs. 50,04,38,456/-, a division bench comprising of Mr. Praveen Gupta (Judicial Member) and Mr. Ashish Verma (Technical Member), while reaffirming that a financial creditor can independently initiate CIRP against a corporate debtor, even if a claim has been filed in the liquidation proceedings of the principal borrower, initiated the insolvency proceedings against Himalayan Mineral Water and appointed Interim Resolution Professional (IRP).

Factual Matrix

In the instant matter, the applicant-Financial Creditor, Jammu and Kashmir Bank, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the respondent-Corporate Debtor, Himalayan Mineral Waters Private Limited, for a financial debt of Rs. 50,04,38,456/-. The credit facilities were initially sanctioned in 2015 and subsequently modified in 2017 and 2018. The Corporate Debtor provided a corporate guarantee for these facilities. The Borrower (Leel Electricals) defaulted on its obligations, leading to the Financial Creditor declaring the account as Non-Performing Asset (NPA) on 31-01-2019. A notice under Section 13(2) of the SARFAESI Act was issued on 12-03-2019. The Borrower offered a settlement of Rs. 12.85 crores, which was rejected by the applicant. Notices were issued on 06-02-2020 and 12-02-2020, respectively, demanding repayment. The Borrower was admitted for liquidation by NCLT on 06-12-2021. The respondent failed to file a reply despite multiple opportunities, leading to the NCLT closing their right to file on 07-11-2022. The respondent filed an application under Rule 11 of the NCLT Rules, 2016, to recall the order of 07-11-2022. The NCLT allowed this application on 09-10-2023, subject to a cost of Rs. 25,000/-.

Moot Point

  1. Whether the Financial Creditor can proceed unilaterally under Section 7 of the IBC despite the consortium agreement?

  2. Whether the application under Section 7 is maintainable when the principal borrower is already undergoing liquidation?

Parties’ Contentions

The applicant argued that each creditor in the consortium has an independent right to initiate proceedings under Section 7 of the IBC. The applicant cited precedents supporting the right of an individual creditor to enforce their claims even if the principal borrower is in liquidation. However, the respondent challenged the maintainability of the application and argued that the financial creditor cannot proceed individually and must act jointly with other consortium banks. Additionally, the respondent contended that since the applicant had already filed a claim in the liquidation proceedings of the principal borrower, therefore, the appellant could not file a Section 7 application for the same debt against the guarantor.

NCLT’s Analysis

The NCLT referenced the NCLAT judgment in Amitabh Kumar Jha, affirming the right of financial creditors to proceed individually under Section 7. The NCLT cited the Mohan Kumar Garg v. Omkara Assets Reconstruction (P) Ltd. reinforcing that proceedings under Section 7 can be initiated against both the Principal Borrower and the Corporate Guarantor simultaneously.

The NCLT stated that the Corporate Debtor’s contention that the creditor cannot file against the guarantor after filing a claim in the liquidation of the principal borrower is unfounded. The NCLT noted that the Deed of Corporate Guarantee allows the financial creditor to act jointly or severally. The NCLT stated that the Principal Borrower’s One-Time Settlement (OTS) offer indicates an acknowledgment of default. The NCLT opined that the debt in default exceeded the threshold limit of Rs. 1 crore, fulfilling the conditions of Section 7 of the IBC.

NCLT’s Decision

The NCLT held that the application under Section 7 is maintainable, the applicant has proven the existence of a debt and a default, both exceeding the threshold limit and the application is within the limitation period and complete in all respects. The NCLT admitted the application under Section 7 and appointed Mr. Bhoopesh Gupta as the IRP. The NCLT directed the IRP to take steps as mandated under Sections 13, 15, 17, 18, 20, and 21 of the IBC and constitute a Committee of Creditors (CoC) and convene its first meeting within the stipulated timelines. The NCLT further directed that a sum of Rs. 2,00,000/- is to be deposited by the Financial Creditor with the IRP for expenses. The matter with next be heard on 09-07-2024.

[Jammu and Kashmir Bank v. Himalayan Mineral Waters (P) Ltd., CP (IB) NO.37/ALD/2022, order dated 03-06-2024]

Advocates who appeared in this case:

Mr. Rahul Chaudhary, Counsel for the Applicant

Mr. Kiran Bala Agarwal, Counsel for the Respondent

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