The Supreme Court Bench, consisting of Justices Abhay S. Oka and Rajesh Bindal heard an appeal filed by the Corporate Debtor and held that once the NCLT is convinced that a default has occurred, it is obligated to admit an application under Section 7 of the Insolvency and Bankruptcy Code, regardless of any disputes or the status of the debt being due or not.
Brief Facts:
The appellant, claiming to be a suspended director of the corporate debtor, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 against a bank. The NCLT admitted the application and declared a moratorium, but the NCLAT dismissed the appeal against the NCLT's order.
Contentions of the Appellant:
The appellant argued that the bank's failure to extend bank guarantees led to the default. Efforts were made for a one-time settlement, which the bank rejected. The bank had granted credit facilities, including a secured overdraft and bank guarantees, with outstanding liabilities claimed against the corporate debtor. The appellant relied on a previous Supreme Court decision and highlighted correspondence between the government and the bank regarding bank guarantee extension. The appellant also mentioned an interim order from the Telangana High Court restraining coercive actions related to the bank guarantees. The appellant claimed that the NCLT should not have admitted the application under Section 7 considering these circumstances.
Contentions of the Respondent:
The bank contended that the previous Supreme Court decision cited by the appellant did not apply to the current case and asserted that the NCLT correctly admitted the application under Section 7. Additionally, the bank clarified that it had declined the corporate debtor's plea for the extension of bank guarantees.
Observations by the Court:
The Supreme Court, referring to its prior rulings, explained the scope of Section 7 of the Insolvency and Bankruptcy Code. It emphasized that the NCLT, as the Adjudicating Authority, must determine the occurrence of a default based on evidence provided by the financial creditor. Once satisfied with the existence of a default, the Adjudicating Authority must admit the application unless incomplete. The Supreme Court emphasized that the disputed nature of the debt is irrelevant as long as it is due and payable.
The decision of the Court:
Applying these principles, the Supreme Court upheld the NCLAT's dismissal of the appeal. It affirmed that the NCLT correctly admitted the bank's application under Section 7 after confirming the occurrence of a default. The court rejected the appellant's arguments regarding the bank's accountability for the default and the Telangana High Court's interim order, stating that they did not impact the NCLT's decision. Therefore, the appeal was dismissed.
Case Name: M. Suresh Kumar Reddy vs Canara Bank & Ors.
Citation: 2023 Latest Caselaw 468 SC
Coram: Hon’ble Mr. Justice Abhay S. Oka and Hon’ble Mr. Justice Rajesh Bindal
Advocate for Appellant: Mr. Krishnan Venugopal, Sr.Adv. Mr. R.Anand Padmanabhan,Adv. and Mr. Shashi Bhushan Kumar, AOR
Advocate for Respondent: Mr. Rajesh Kumar Gautam, AOR Mr. Anant Gautam, Adv., Mr. Kartik Jindal, Adv., Mr. Sumit Sharma, Adv., Ms. Anani Achumi, Adv., Ms. Madhumita Bagchi, Adv., Mr. Dinesh Sharma, Adv., Ms. Shivani Sagar, Adv., Mr. Kiran Kumar Patra, AOR, Mr. Chandrasekhar Padhi, Adv.
Case No.: Civil Appeal No. 7121 OF 2022
Read Judgement @LatestLaws.com
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