Recently, the National Company Law Appellate Tribunal (hereinafter referred to as “NCLAT”) upheld the Adjudicating Authority’s decision to admit a Section 7 application against KLT Automotive and Tabular Products Limited (the “Corporate Debtor”) for initiating the Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”). The application was filed after the Corporate Debtor breached the terms of a Consent Decree issued by the Debt Recovery Tribunal. The suspended director of the Corporate Debtor challenged the admission, but the NCLAT found no merit in the appeal, emphasizing the binding nature of the Recovery Certificate and rejecting the applicability of Section 10A. The appeal was dismissed.
Brief Facts:
KLT Automotive and Tabular Products Limited (“Corporate Debtor”) availed several credit facilities from multiple banks, including Bank of India, Corporation Bank (now Union Bank of India), and KKR Financial Services Limited, from 2005 to 2011. In 2015, the Corporate Debtor’s account was declared a Non-Performing Asset (“NPA”) by Bank of India, followed by similar actions from Corporation Bank in 2017 and KKR Financial Services in 2018. After multiple loan assignments, the Financial Creditor (Respondent No. 1) issued notices for loan recall in 2020. In 2021, a recovery case was filed, and a Consent Decree was issued by the Debt Recovery Tribunal (hereinafter referred to as “DRT”) in 2022. Due to a breach of consent terms by the Corporate Debtor, the Financial Creditor filed a Section 7 application in 2023, which led to the initiation of the Corporate Insolvency Resolution Process against the Corporate Debtor by the Adjudicating Authority on 26.09.2024.
Contentions of the Applicant:
The Petitioner, a suspended director of the Corporate Debtor, challenged the order passed by the Adjudicating Authority, which admitted the Section 7 application. The Petitioner argued that the debt claimed by the Financial Creditor has not been conclusively established and that the Corporate Debtor has made efforts to settle the dues. Additionally, the Petitioner contended that the breach of the Consent Terms was not substantial enough to justify initiating CIRP.
Contentions of the Respondent:
The Respondent, the Financial Creditor, asserted that the Corporate Debtor has defaulted on significant dues amounting to ₹ 968,20,63,285, as per the Section 7 application. The Respondent emphasized that the Corporate Debtor’s failure to comply with the Consent Decree and the breach of the settlement terms justify the initiation of the Corporate Insolvency Resolution Process. The Respondent argued that the Adjudicating Authority correctly found the existence of a debt and default exceeding ₹1 crore, leading to the admission of the insolvency petition.
Observations of the Tribunal:
The Tribunal observed that the Section 7 application was based on a default occurring after the Consent Decree of 29.08.2022. It highlighted the Recovery Certificate from the Debt Recovery Tribunal (hereinafter referred to as “DRT”) as key evidence, quoting Dena Bank v. C. Shivakumar Reddy and Ors.: "Section 7 of the Petition can be initiated on the basis of the Recovery Certificate obtained by the DRT."
The Tribunal also referenced the binding nature of a final judgment: "A final judgment and order/decree is binding on the judgment debtor... a fresh right accrues to the creditor to recover the amount specified in the Recovery Certificate."
It noted that the Corporate Debtor's failure to adhere to the Consent Terms allowed the Financial Creditor to file a fresh Section 7 application, quoting: "The parties hereto agree... to file a fresh Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, in case the Corporate Debtor defaults in any of the obligations."
The Tribunal rejected the appellant’s argument regarding the 10A period, citing Vishal Chelani & Ors. v. Debashis Nanda (2023): "The underlying claim of an aggrieved party is crystallised in the form of a court order or decree."
The Tribunal also noted that the "purpose of Section 10A was to prevent companies from being pushed into insolvency due to temporary financial distress caused by the COVID-19 pandemic," rejecting arguments based on subsequent agreements.
The Decision of the Tribunal:
The Tribunal was satisfied that the Adjudicating Authority had not committed any error in admitting the Section 7 Application filed by the Financial Creditor. The Section 7 Application was in no manner hit by Section 10A of the Insolvency and Bankruptcy Code (IBC). The Tribunal found no merit in the Appeal and, therefore, dismissed it.
Case Title: Jubin Kishore Thakkar, Member of The Suspended Board of Directors of Klt Automotive & Tubular Products Limited v. Phoenix Arc Private Limited
Case No: Company Appeal (AT) (Insolvency) No. 1931 of 2024
Coram: Justice Ashok Bhushan (Chairperson), Barun Mitra Member (Technical), Arun Baroka Member (Technical)
Advocate for Petitioner: Mr. Krishnendu Dutta & Mr. Abhijeet Sinha, Sr. Advocate with Mr. Abhirup Dasgupa, Ms. Jayashree Shukla Dasgupta and Mr. Rohan Aggarwal
Advocate for Respondent: Mr. Amar Dave, Sr. Advocate with Ms. Bhavana Duhoon, Mr. Abhinav Agarwal, Mr. Manaswi Agarwal and Ms. Saloni Kalwade, Advocates for Respondent 1, Mr. Pulkit Dutt Tiwari and Shreeya Pednekar, Advocates for Respondent 2.
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