The NCLAT, Principal Bench New Delhi held that the protective umbrella over the assets of the Corporate Debtor is not to be misused or abused in a manner so as to become a tool for deriving undue advantage at the cost of insolvency resolution which objective unequivocally resonates in the preambular aspirations of the IBC.

Brief Facts:

The present appeal has been filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) against order of the NCLT vide which application seeking CIRP was dismissed.

Contentions of the Appellant:

It was contended that Agroha Paper Industries Pvt. Ltd.- Corporate Debtor had filed an application under Section 10 of IBC for initiation of CIRP against itself due to fiscal distress and suffering of business losses triggered by the Covid pandemic. Further, though having defaulted in making repayment of outstanding loan to the Respondent Bank but being of the view that the Corporate Debtor company had fair chance of revival, the Appellant filed Section 10 application under IBC.

It was contended that the Respondent Bank was forcing the sale of property of the Corporate Debtor purely with a view to recover the outstanding loan at the cost of pushing the Corporate Debtor to death.

Contentions of the Respondent:

It was argued that Appellant chose to file the Section 10 application with a view to take undue advantage of the moratorium provisions of IBC to stall further recovery proceedings. Further the fact that the Corporate Debtor also filed a writ petition before the Hon’ble Allahabad High Court challenging the proceedings under Section 13(4) of the SARFAESI Act shows that the Corporate Debtor was desperate to somehow stall the entire auction process which is nothing but an abuse of the process of law.

Observations of the Tribunal:

It was observed that the procedural prescriptions and requirements laid down for filing Section 10 application was met by the Appellant and found complete in all respects.

Further, it was observed that even after being declared a defaulter, the Appellant continued not to respond to the notices issued by the Respondent Bank. Moreover, while on the one hand it was dodging the notices for appearance, on the other hand, it was making strenuous efforts to enter into some sort of settlement with the Respondent Bank.

Chronologically seen, the SARFAESI proceedings in the present facts of the case clearly preceded the Section 10 application. The Respondent Bank took physical possession of the property under Section 14 of SARFAESI Act and sale was confirmed to the successful bidder. All these steps under the SARFAESI proceedings had therefore clearly preceded the filing of the Section 10 application by the Appellant.

The Bench ruled that the Appellant made incessant efforts to put a spanner in the recovery proceedings initiated by the Respondent Bank and finally resorted to filing the Section 10 application.

It was held that the protective umbrella over the assets of the Corporate Debtor is not to be misused or abused in a manner so as to become a tool for deriving undue advantage at the cost of insolvency resolution which objective unequivocally resonates in the preambular aspirations of the IBC.

The decision of the Court:

Based on above findings, accordingly, the appeal was dismissed.

Case Title: M/s Agroha Paper Industries Private Limited v. Bank of Maharashtra

Case No.: Company Appeal (AT) (Insolvency) No. 1342 of 2023

Coram: Hon'ble Mr. Justice Ashok Bhushan, Mr. Barun Mitra (Technical Member)

Advocates for Appellant: Advs. Ms. Divya Jagga, Mr. Neeraj Kant Singh and Mr. Narendra Kumar

Advocates for Respondent: Mr. Sameer Kumar and Ms. Somi Sharma

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