{"id":344003,"date":"2025-03-20T15:00:02","date_gmt":"2025-03-20T09:30:02","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=344003"},"modified":"2025-03-26T10:35:19","modified_gmt":"2025-03-26T05:05:19","slug":"force-majeure-doesnt-absolve-corporate-debtor-from-contractual-obligations-nclt-directs-initiation-of-cirp-against-corporate-debtor-scc-times","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2025\/03\/20\/force-majeure-doesnt-absolve-corporate-debtor-from-contractual-obligations-nclt-directs-initiation-of-cirp-against-corporate-debtor-scc-times\/","title":{"rendered":"Force Majeure doesn\u2019t absolve Corporate Debtor from contractual obligations; NCLT directs initiation of CIRP against Corporate Debtor"},"content":{"rendered":"
\n

National Company Law Tribunal, Chennai:<\/span> In an application filed under Section 7<\/a> of the Insolvency and Bankruptcy Code, 2016<\/a> (IBC), seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, a Division Bench of Sanjiv Jain (Judicial Member) and Venkataraman Subramaniam (Technical Member), admitted the Section 7 IBC<\/a> application and initiated the insolvency proceeding against Corporate Debtor<\/p>\n

Factual Matrix<\/h3>\n

The instant matter revolves around an application filed by Canara Bank-Financial Creditor against ARS Energy Pvt. Ltd.-Corporate Debtor seeking to initiate an insolvency proceeding against the Corporate Debtor. The Corporate Debtor, incorporated on 19-09-1990, had availed various financial assistance from a consortium of banks, including Canara Bank, for working capital and term loans. The total amount claimed by the Financial Creditor as financial debt due and payable by the Corporate Debtor was \u20b9 110,57,11,831.97\/-. The Corporate Debtor defaulted on its repayment obligations, leading to the classification of its accounts as Non-Performing Assets (NPA). The Financial Creditor issued a notice demanding payment, but the Corporate Debtor failed to comply, prompting the initiation of the CIRP.<\/p>\n

Appellant’s Contentions<\/h3>\n

The appellant contended that the Corporate Debtor had committed defaults on multiple loan accounts, leading to the classification of these accounts as NPA in accordance with the guidelines issued by the Reserve Bank of India (RBI). The appellant asserted that the Corporate Debtor acknowledged its debt through various documents and communications, including revival letters and balance sheets. The appellant cited the Innoventive Industries Ltd.<\/span> v. ICICI Bank<\/span>, (2018) 1 SCC 407<\/a>, where the Supreme Court emphasised that once a default is established, the tribunal is required to initiate the CIRP. Furthermore, the appellant argued that the Corporate Debtor’s claims of force majeure do not absolve it of its contractual obligations, as established in Energy Watchdog<\/span> v. CERC<\/span>, 2018 SCC OnLine SC 3904<\/a>.<\/p>\n

Respondent’s Contentions<\/h3>\n

The respondent contended that the defaults were a result of force majeure events beyond its control, including the significant increase in coal prices and the operational disruptions caused by the COVID-19 pandemic. The respondent argued that it had consistently engaged with the Financial Creditor and the consortium to restructure its debts and had made several proposals to address its financial difficulties. The respondent cited Dena Bank<\/span> v. C. Shivakumar Reddy<\/span>, (2021) 100 SCC 330 and asserted that the acknowledgment of debt in balance sheets should be considered in the context of the overall financial health of the company. The respondent also claimed that the appellant’s refusal to consider its restructuring proposals indicated a lack of genuine intent to resolve the financial issues.<\/p>\n

Court’s Observations<\/h3>\n

Existence of Debt and Default<\/p>\n

The Court noted that the Financial Creditor had provided comprehensive documentation, including loan agreements, demand letters, and balance sheets that reflected the outstanding amounts, demonstrating the existence of a financial debt owed by the Corporate Debtor. The Court emphasised that the Corporate Debtor had acknowledged its debt through various communications, including revival letters and acknowledgments of liability, which were pivotal in establishing the existence of a financial obligation.<\/p>\n

Classification as NPA<\/p>\n

The Court observed that the Financial Creditor had classified the Corporate Debtor’s accounts as NPA in accordance with the guidelines set forth by the RBI. The Court highlighted that the classification was not arbitrary but followed the regulatory framework that mandates such action when a borrower defaults on repayment. The Court referenced to the RBI’s circulars, which stipulated that all facilities granted to a borrower must be treated as NPA if any one of them becomes irregular. The Court deemed this classification as valid given that the Corporate Debtor had defaulted on multiple loan accounts.<\/p>\n

Response to Force Majeure Claims<\/p>\n

The Court assessed the Corporate Debtor’s claims of force majeure, which it argued were the primary reasons for its inability to meet its financial obligations. The Court acknowledged the unprecedented rise in coal prices and the operational disruptions caused by the COVID-19 pandemic. However, the Court held that while these factors are significant, they do not absolve the Corporate Debtor of its contractual obligations. The Court referred to Energy Watchdog<\/span> (Supra), where the Supreme Court established that commercial impossibility or hardship does not negate the duty to perform contractual obligations.<\/p>\n

Engagement with Financial Creditor<\/p>\n

The Court noted that the Corporate Debtor had made several attempts to engage with the Financial Creditor and the consortium of banks to restructure its debts. The Court found that the Financial Creditor had adequately documented the Corporate Debtor’s failure to adhere to the repayment schedule and the lack of substantial progress in the restructuring discussions. The Court emphasised that while the Corporate Debtor’s efforts to propose restructuring plans were commendable, they did not mitigate the fact that defaults had occurred.<\/p>\n

Overall Corporate Debtor’s Financial Health<\/p>\n

While the Court recognised the Corporate Debtor’s claims regarding its operational challenges, it maintained that the financial health of the Corporate Debtor, as evidenced by its acknowledgment of debt and the classification of accounts as NPA, warranted the initiation of CIRP. The Court held that the Corporate Debtor’s financial distress was not sufficient to counter the established defaults and the resultant legal obligations.<\/p>\n

Court’s Decision<\/h3>\n

In light of facts of the case, arguments advanced, authorities cited and observations, the Court admitted the Financial Creditor’s application under Section 7 of IBC<\/a> and initiate the insolvency proceeding against Corporate Debtor. The Court appointed the Interim Resolution Professional (IRP) and mandated him to take necessary steps as per the provisions of the IBC. The Court also imposed a moratorium on the Corporate Debtor, prohibiting any legal proceedings against it during the CIRP.<\/p>\n

[Canara Bank<\/span> v. ARS Energy (P) Ltd.<\/span>, 2025 SCC OnLine NCLT 1062<\/a>, Decided on 14-02-2025<\/span>]<\/p>\n\n

Advocates who appeared in this case:<\/p>\n

Shri. Varun Srinivasan, Counsel for the Petitioner<\/p>\n

E.Om Prakash, Senior Counsel for P.S.Suman, Counsel for the Respondent<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The NCLT acknowledged the impact of force majeure events, particularly the unprecedented rise in coal prices and operational disruptions caused by the COVID-19 pandemic on Corporate Debtor.<\/p>\n","protected":false},"author":67011,"featured_media":315346,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,11],"tags":[45905,43781,22814,39924,59090,15811,22064,3539,12521,14121,80005,33589],"class_list":["post-344003","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-tribunals_commissions_regulatorybodies","tag-acknowledgment-of-debt","tag-cirp","tag-corporate-insolvency-resolution-process","tag-covid-19","tag-debt-and-default","tag-force-majeure","tag-insolvency-and-bankruptcy-code","tag-National_Company_Law_Tribunal","tag-nclt","tag-non-performing-assets","tag-sanjiv-jain-judicial-member-and-venkataraman-subramaniam-technical-member","tag-section-7-ibc"],"yoast_head":"\nForce Majeure doesn't absolve Corporate Debtor from contractual obligations; 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NCLAT addresses","author":"Bhumika Indulia","date":"February 22, 2022","format":false,"excerpt":"\u00a0If CIRP or Liquidation Proceeding of a Corporate Debtor is pending before a NCLT, application relating to Insolvency Process of Corporate or Personal Guarantor should be filed before same NCLT. National Company Law Appellate Tribunal, New Delhi (NCLAT): The Coram of Justice Ashok Bhushan (Chairperson) and Dr Alok Srivastava (Technical\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"NCLAT","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":251773,"url":"https:\/\/www.scconline.com\/blog\/post\/2021\/07\/27\/personal-guarantor\/","url_meta":{"origin":344003,"position":2},"title":"NCLT | Personal Guarantor not liable to be prosecuted under S. 95 IBC where corporate debtor concerned is not under corporate insolvency resolution process","author":"Bhumika Indulia","date":"July 27, 2021","format":false,"excerpt":"National Company Law Tribunal, Mumbai:\u00a0Coram of H.V. Subba Rao, Judicial Member and Chandra Bhan Singh, Technical Member dismissed an interlocutory application filed against a personal guarantor under Section 95 (\"application by creditor to initiate insolvency resolution process\") of the Insolvency and Bankruptcy Code, 2016, finding that the Corporate Debtor concerned\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"National Company Law Tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":264487,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/03\/26\/national-company-law-tribunal-orders-insolvency-proceedings-against-supertech\/","url_meta":{"origin":344003,"position":3},"title":"National Company Law Tribunal orders insolvency proceedings against Supertech: Indebted and defaulted repayment of loan","author":"Bhumika Indulia","date":"March 26, 2022","format":false,"excerpt":"National Company Law Tribunal, New Delhi: The Coram of P.N. Prasad, Judicial Member and Rahul Bhatnagar, Technical Member, declared insolvency proceedings against the builder Supertech Limited. An application was filed to initiate the Corporate Insolvency Resolution Process against Supertech Limited under Section 7 of the Insolvency and Bankruptcy Code 2016\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"National Company Law Tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":252536,"url":"https:\/\/www.scconline.com\/blog\/post\/2021\/08\/11\/nclt-rejects-withdrawal-application-under-s-12-a-ibc\/","url_meta":{"origin":344003,"position":4},"title":"NCLT rejects withdrawal application under S. 12-A IBC where corporate debtor entered into settlement only with a fraction of creditors: CIRP against Rolta India Ltd. will continue\u00a0","author":"Bhumika Indulia","date":"August 11, 2021","format":false,"excerpt":"National Company Law Tribunal, NCLT Mumbai: Coram of Suchitra Kanuparthi, Judicial Member and Chandra Bhan Singh, Technical Member, observed that, \u201c\u2026a Judicial authority ought not to pass Orders which would lead to further multiplicity of proceedings.\u201d The instant application was filed by the Operational Creditor who had earlier initiated the\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"National Company Law Tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":255301,"url":"https:\/\/www.scconline.com\/blog\/post\/2021\/10\/07\/nclt-deducing-from-the-acts-and-the-tactics-of-the-corporate-debtor-failing-the-test-of-legality-initiates-cirp\/","url_meta":{"origin":344003,"position":5},"title":"NCLT | Deducing from the acts and the tactics of the corporate debtor failing the test of legality, initiates CIRP","author":"Editor","date":"October 7, 2021","format":false,"excerpt":"National Company Law Tribunal, Mumbai Bench, Mumbai- The Coram of Ashok Kumar Borah, Judicial Member, and Shyam Babu Gautam, Technical Member while allowing the company petition, ordered for initiation of Corporate Insolvency Resolution Process (CIRP). The Bench stated that, \u201cThe Operational Creditor has successfully demonstrated and proved the debt and\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"National Company Law Tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/10\/NCLT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/344003","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/users\/67011"}],"replies":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/comments?post=344003"}],"version-history":[{"count":0,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/344003\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media\/315346"}],"wp:attachment":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media?parent=344003"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/categories?post=344003"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/tags?post=344003"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}