{"id":341144,"date":"2025-02-12T17:30:58","date_gmt":"2025-02-12T12:00:58","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=341144"},"modified":"2025-02-17T10:19:46","modified_gmt":"2025-02-17T04:49:46","slug":"financial-creditors-involvement-in-project-monitoring-does-not-absolve-corporate-debtors-from-repayment-obligations-nclat-scc-times","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2025\/02\/12\/financial-creditors-involvement-in-project-monitoring-does-not-absolve-corporate-debtors-from-repayment-obligations-nclat-scc-times\/","title":{"rendered":"Financial Creditors\u2019 involvement in project monitoring does not absolve Corporate Debtors from repayment obligations: NCLAT"},"content":{"rendered":"<style>\n.animate-charcter{background-image: linear-gradient(-225deg, #231557 0%, #44107a 29%, #ff1361 67%, #fff800 100%); background-size: 200% auto; -webkit-background-clip: text; -webkit-text-fill-color: transparent; animation: textclip 0s linear infinite;}\n@keyframes textclip {to {background-position: 200% center;}}\n<\/style>\n<div style=\"text-align: justify; line-height: 150%;\">\n<p style=\"margin-bottom: 1%;\"><span style=\"font-weight: bold;\">National Company Law Appellate Tribunal, New Delhi:<\/span> In an appeal filed by the suspended director of the corporate debtor challenging the Adjudicating Authority&#8217;s order dated 08-01-2025 admitting an application under Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001549806\" target=\"_blank\">7<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002802178\" target=\"_blank\">Insolvency and Bankruptcy Code, 2016<\/a> (IBC), a 3-member bench of Ashok Bhushan, J. (Chairperson), Barun Mitra (Technical Member) and Arun Baroka (Technical Member), upheld the Adjudicating Authority&#8217;s order. The NCLAT held that<\/p>\n<p class=\"animate-charcter\" style=\"margin-bottom: 3%; margin-left: 36pt; font-weight: bold;\">&#8220;The default in repayment of the obligation by obligors cannot in any manner be put on the financial creditor nor constitution of PMC in any manner affect the obligation or absolve the corporate debtor from its default for repayment of the debt.&#8221;<\/p>\n<h3>Factual Matrix<\/h3>\n<p style=\"margin-bottom: 3%;\">In the instant matter, the genesis of the dispute lies in a Debenture Trust Deed (DTD) executed on 19-04-2016 as per which funds were raised through the issuance of secured, redeemable, non-convertible debentures (NCDs) aggregating to &#8377;140 crores. The terms of the debentures were subsequently amended on 20-07-2017, 27-09-2018, and 04-11-2019, with the latter amendment being part of a Settlement Agreement executed between the parties following the corporate debtor&#8217;s default on 30-06-2019.<\/p>\n<p style=\"margin-bottom: 3%;\">Despite multiple opportunities and restructuring of the repayment schedule, the corporate debtor continued to default, leading to the initiation of corporate insolvency resolution process (CIRP) under Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001549806\" target=\"_blank\">7<\/a> <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002802178\" target=\"_blank\">IBC<\/a>. The default notice was issued on 27-09-2023, stating that an amount of &#8377;263,00,46,668\/- was due and payable as of 30-09-2023. The financial creditor filed the Section 7 application on 06-12-2023, which was subsequently admitted by the NCLT on 08-01-2025.<\/p>\n<h3>Appellant&#8217;s Contentions<\/h3>\n<p style=\"margin-bottom: 3%;\">The appellant primarily contended that the financial creditor, through its majority representation in the Project Monitoring Committee (PMC), exercised complete control over the project&#8217;s operations and financial decisions, thereby orchestrating the default. It was argued that, pursuant to the Settlement Agreement dated 04-11-2019, the PMC was constituted with five members, three of whom were nominated by the financial creditor and two by the corporate debtor. The financial creditor dictated crucial commercial decisions concerning sales, marketing, finances, and negotiations with vendors and customers, thereby rendering the corporate debtor devoid of any independent control over the project&#8217;s cash flow. The appellant asserted that the financial creditor misused its authority by insisting on the construction of additional towers rather than focusing on the completion of eight nearly finished towers. The appellant further alleged that the financial creditor&#8217;s actions led to regulatory hurdles, particularly the cancellation of the project&#8217;s RERA registration by the Haryana Real Estate Regulatory Authority (Haryana RERA) on 20-03-2023. The corporate debtor, through its own efforts, successfully challenged this order, which was subsequently set aside on 29-05-2024, allowing the project to resume. The appellant submitted that the Section 7 application was not filed due to an actual financial default, but rather as a coercive measure following a disagreement between the financial creditor and the corporate debtor regarding the project&#8217;s execution. The appellant also stated that the financial creditor functioned as a co-promoter, and its actions contributed significantly to the project&#8217;s financial distress, thereby negating its right to initiate CIRP.<\/p>\n<h3>Respondent&#8217;s Contentions<\/h3>\n<p style=\"margin-bottom: 3%;\">The respondent-financial creditor argued that the only criteria for admission of a Section 7 application is the existence of a financial debt and the occurrence of a default. It was argued that the corporate debtor&#8217;s liability stands established through the financial statements, the amendment to the restated and amended Debenture Trust Deed (DTD) and the corporate debtor&#8217;s own acknowledgment of default in an official communication dated 23-11-2020. The financial creditor contended that the PMC was merely a monitoring body, constituted under the Settlement Agreement dated 04-11-2019, with the limited objective of overseeing the project&#8217;s progress and ensuring that funds were appropriately utilized for construction and sales. It was contended that Clause 2.6 of the Settlement Agreement expressly stipulated that the responsibility for construction, development, marketing, and repayment of financial dues rests solely with the corporate debtor and its promoters. Thus, the financial creditor&#8217;s role in the PMC did not transfer the repayment obligations onto itself. The respondent also stated that, despite multiple restructuring and repayment opportunities, the corporate debtor persistently defaulted on its obligations, necessitating the filing of the Section 7 application. Additionally, it was submitted that the pendency of arbitration proceedings and litigation before the Delhi High Court does not preclude the financial creditor from invoking its statutory remedy under Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001549806\" target=\"_blank\">7<\/a> of <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002802178\" target=\"_blank\">IBC<\/a>.<\/p>\n<h3>NCLAT&#8217;s Observation<\/h3>\n<p style=\"margin-bottom: 3%;\">The NCLAT adjudicated that the financial creditor had fulfilled the statutory requirements for admission of a Section 7 application. The NCLAT asserted that acknowledgment of debt in financial statements and debt documents strengthen the Financial Creditor&#8217;s case under Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001549806\" target=\"_blank\">7<\/a> of <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002802178\" target=\"_blank\">IBC<\/a>.<\/p>\n<p style=\"margin-bottom: 3%;\">The NCLAT observed that the Project Monitoring Committee (PCM) was instituted merely as a supervisory mechanism, without absolving or mitigating the corporate debtor&#8217;s liability to repay the outstanding amounts. The NCLAT further noted that Clauses 2.6 and 2.22 of the Settlement Agreement explicitly reaffirmed the corporate debtor&#8217;s unwavering obligation to repay the financial dues, irrespective of the PMC&#8217;s involvement. The NCLAT stated that the PMC&#8217;s role, as per the Settlement Agreement, was strictly advisory.<\/p>\n<p style=\"margin-bottom: 3%;\">The NCLAT relied on <span style=\"font-style: italic;\">E.S. Krishnamurthy<\/span> v. <span style=\"font-style: italic;\">Bharath Hi-Tech Builders (P) Ltd.<\/span>, <a href=\"http:\/\/www.scconline.com\/DocumentLink\/iLy0dr9G\" target=\"_blank\">(2022) 3 SCC 161<\/a>, and reiterated that once a financial debt and default are established, the Adjudicating Authority has no discretion to reject a Section 7 application unless the application is incomplete. In furtherance of this legal position, the NCLAT cited <span style=\"font-style: italic;\">M. Suresh Kumar Reddy<\/span> v. <span style=\"font-style: italic;\">Canara Bank<\/span>, <a href=\"http:\/\/www.scconline.com\/DocumentLink\/71ksbvcL\" target=\"_blank\">(2023) 8 SCC 387<\/a> and reaffirmed that even partial non-payment of a due debt constitutes default, warranting CIRP admission.<\/p>\n<p style=\"margin-bottom: 3%;\">The NCLAT asserted that the allegations were speculative and did not negate the primary fact that the corporate debtor had consistently failed to meet its repayment obligations. The NCLAT emphasised that IBC proceedings focus solely on debt and default and external factors such as mismanagement or ongoing litigation do not prevent CIRP admission. The NCLAT stated that the legal proceedings pending before the Delhi High Court did not dilute the statutory remedy available to the financial creditor under the IBC.<\/p>\n<h3>NCLAT&#8217;s Decision<\/h3>\n<p style=\"margin-bottom: 3%;\">The NCLAT rejected the argument that the Financial Creditor controlled the default was rejected and upheld the Adjudicating Authority&#8217;s order admitting the Section 7 application. The NCLAT dismissed the present appeal asserting that the corporate debtor had failed to discharge its financial liabilities and allowed the CIRP to proceed.<\/p>\n<p style=\"margin-bottom: 3%;\">[<span style=\"font-weight: bold; color: #632423;\"><span style=\"font-style: italic;\">Sandeep Jain<\/span> v. <span style=\"font-style: italic;\">IDBI Trusteeship Services Ltd.<\/span>, <a href=\"http:\/\/www.scconline.com\/DocumentLink\/J4l60V79\" target=\"_blank\" rel=\"noopener\">2025 SCC OnLine NCLAT 286<\/a>, Decided on 10-02-2025<\/span>]<\/p>\n<p style=\"text-indent: 18pt;\"><strong><span style=\"color: #000080;\">*Judgment by Ashok Bhushan<\/span><\/strong><\/p>\n<hr\/>\n<p>Advocates who appeared in this case :<\/p>\n<p style=\"margin-left: 18pt;\">Mr. Arun Kathpalia and Ms. Pooja Mehra Saigal Sr. Advocates with Mr. Rajat Joneja and Ms. Sakshi Kapoor, Counsel for the Appellant<\/p>\n<p style=\"margin-left: 18pt;\">Mr. Krishnendu Datta and Mr. Abhijeet Sinha, Sr. Advocates with Mr. Pranjit Bhattacharya, Ms. Salonee Shukla, Mr. Akhil Nene and Mr. Auritro Mukherjee, Counsel for the Respondent No. 1<\/p>\n<p style=\"margin-left: 18pt;\">Mr. Abhirup Dasgupta, Counsel for the Respondent No. 2<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p style=\"font-style: italic;\">&#8220;Any dispute even pending in the arbitration does not in any manner prohibit the financial creditor to take remedy under Section 7 IBC.&#8221;<\/p>\n","protected":false},"author":67514,"featured_media":315817,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,11],"tags":[73957,60466,43781,78577,22814,40355,78579,32457,22064,46429,30182,22014,78578,33589],"class_list":["post-341144","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-tribunals_commissions_regulatorybodies","tag-arun-baroka-technical-member","tag-barun-mitra-technical-member","tag-cirp","tag-corporate-debtors-payment-obligations","tag-corporate-insolvency-resolution-process","tag-debenture-trust-deed","tag-default-debt-acknowledgment","tag-financial-creditors","tag-insolvency-and-bankruptcy-code","tag-justice-ashok-bhushan","tag-national-company-law-appellate-tribunal","tag-nclat","tag-project-monitoring","tag-section-7-ibc"],"yoast_head":"<!-- This site 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Debtor cannot constitute Committee of Creditors with a single Operational Creditor under IBC: NCLAT","author":"Ritu","date":"July 8, 2023","format":false,"excerpt":"NCLAT held that CIRP be closed with respect to the Corporate Debtor since not a single \u2018Claim' was received by the IRP even after the public announcement.","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"national company law appellate tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/05\/national-company-law-appellate-tribunal-1.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/05\/national-company-law-appellate-tribunal-1.webp?resize=350%2C200&ssl=1 1x, 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Mukhopadhaya, Chairperson and Justice A.I.S Cheema, Member (Judicial) and Kanthi Narahari, Member (Technical) allowed the appellant (shareholder of the Corporate Debtor) to pay the total dues of the Operational Creditor after the application filed against it under Section 9\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":219586,"url":"https:\/\/www.scconline.com\/blog\/post\/2019\/09\/16\/nclat-appellate-tribunal-exercises-inherent-powers-under-r-11-of-nclat-rules-quashes-cirp-where-settlement-reached-between-parties-before-constitution-of-coc\/","url_meta":{"origin":341144,"position":2},"title":"NCLAT | Appellate Tribunal exercises inherent powers under R. 11 of NCLAT Rules, quashes CIRP where settlement reached between parties before constitution of CoC","author":"Bhumika Indulia","date":"September 16, 2019","format":false,"excerpt":"National Company Law Appellate Tribunal (NCLAT):\u00a0A Bench of Justice S.J. Mukhopadhaya, Chairperson and Kanthi Narahari, Member (Technical), allowed an appeal seeking to quash the Corporate Insolvency Resolution Process against the Corporate Debtor. The Operation Creditor had filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 which\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":205223,"url":"https:\/\/www.scconline.com\/blog\/post\/2018\/11\/15\/binani-industries-cannot-not-pay-dues-and-settle-ultratech-cements-revised-resolution-plan-for-binani-cement-accepted-nclat\/","url_meta":{"origin":341144,"position":3},"title":"Binani Industries cannot now repay dues and settle; UltraTech Cement\u2019s revised resolution plan for Binani Cement accepted: NCLAT","author":"Bhumika Indulia","date":"November 15, 2018","format":false,"excerpt":"National Company Law Appellate Tribunal (NCLAT): A Two-Member bench comprising of S.J. Mukhopadhya (Chairperson) and Bansi Lal Bhat, Member (Judicial) disposed of a set of company appeals by directing National Company Law Tribunal, Kolkata to set up a monitoring committee for implementation of the approved revised resolution plan for Binani\u2026","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":297687,"url":"https:\/\/www.scconline.com\/blog\/post\/2023\/07\/26\/irp-rp-cannot-seek-unpaid-fees-costs-members-corporate-debtor-insolvency-nclat-scc-blog-legal-news\/","url_meta":{"origin":341144,"position":4},"title":"In project wise insolvency, IRP\/RP cannot seek unpaid Fees\/Costs from members of CoCs of another project of Corporate Debtor: NCLAT","author":"Ritu","date":"July 26, 2023","format":false,"excerpt":"The NCLAT held that the appellant has no Locus Standi to make claim for any unpaid Fees\/Costs from the members of the CoCs, as he is neither the RP in the project nor is connected with another project.","rel":"","context":"In &quot;Case Briefs&quot;","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"national company law appellate tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/05\/national-company-law-appellate-tribunal-1.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/05\/national-company-law-appellate-tribunal-1.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/05\/national-company-law-appellate-tribunal-1.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/05\/national-company-law-appellate-tribunal-1.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":200221,"url":"https:\/\/www.scconline.com\/blog\/post\/2018\/08\/17\/i-insolvency-resolution-process-cannot-be-defeated-by-taking-resort-to-internal-dispute-nclat\/","url_meta":{"origin":341144,"position":5},"title":"I&#038;B Code overrides Companies Act; Insolvency Resolution Process cannot be defeated by taking resort to internal dispute: NCLAT","author":"Bhumika Indulia","date":"August 17, 2018","format":false,"excerpt":"National Company Law Appellate Tribunal (NCLAT): A two-member bench comprising of Justice S.J. Mukhopadhaya, Chairperson and Justice Bansi Lal Bhat, Member (Judicial) dismissed an appeal filed by the Corporate Debtor against the initiation of Insolvency Resolution Process. 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