Approval Of OTS Proposal By One Member Of Consortium Subject To Approval Of Other Lenders Can't Bar Petition U/S 7 Of IBC: NCLAT
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Rakesh Kumar Jain, Justice Mohd Faiz Alam Khan and Mr. Naresh Salecha (Technical Member) has held that an One Time Settlement (OTS) proposal submitted by the corporate debtor, and approved by one consortium member subject to approval by all members, cannot bar the filing of an application under Section 7 of...
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Rakesh Kumar Jain, Justice Mohd Faiz Alam Khan and Mr. Naresh Salecha (Technical Member) has held that an One Time Settlement (OTS) proposal submitted by the corporate debtor, and approved by one consortium member subject to approval by all members, cannot bar the filing of an application under Section 7 of the IBC merely because the OTS is pending consideration before other lenders.
The present appeal has been filed under section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) against an order of the National Company Law Tribunal (NCLT) New Delhi by which it admitted an application under section 7 of the IBC.
The Appellant submitted that the OTS submitted by the CD was discussed in the joint lenders meetings of the consortium banks and all the members of the consortium decided to forward the OTS proposal to their respective higher authorities for their approval and decision on the same was yet to be taken in the next scheduled meetings of the JLM but without waiting for the decision of the higher authorities the Respondent NO. 1 has filed the insolvency petition.
It was further argued that the cancellation of the OTS by the respondent number one is arbitrary and unlawful and without any reason, no default has occurred in the OTS on the part of the appellant.
Per contra, the Respondents submitted that there is no statutory bar for initiation of insolvency proceedings against the CD while an OTS is under consideration.
It was further argued that in view of Section 12 A of the IBC and Regulation 30A, IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, if the OTS of the appellant is approved by the all the members of the consortium the recourse may be taken under these provisions, as the CD is MSME he can also submit a resolution plan.
The Tribunal observed that by any standards the decision of the consortium of banks to forward the OTS proposal submitted by the appellant to their higher authorities may not amount to acceptance of the same.
It further observed that the consortium agreement executed between various members of the consortium is an agreement of ease and convenience and it is for the internal management of the consortium banks and also that this inter se agreement entered between the consortium members would not stand in the way of any application which may be moved by any of the member of the consortium under Section 7 of the IBC.
The Tribunal held that “only because the other members of the consortium have not joined the Respondent No.1 in the petition, the petition moved by one of the member of the consortium, Respondent No.1, may not be rejected only on this score, if the same is fulfilling all other conditions required for initiation of CIRP against the Corporate Debtor.”
It held that the statutory right of a financial creditor under section 7 of the IBC cannot be curtailed by mere inter-se agreement between the creditors as such agreements only regulate inter-se arrangements among lenders. A borrower cannot claim benefit of OTS as a matter of right.
It further observed that the Application under section 7 of the IBC must strictly be considered within the framework of the IBC and once the requirements of debt and default are satisfied, the NCLT has little discretion. The inability of the corporate debtor and reasons for non payment are inconsequential at this stage. In the present case, the OTS proposal was conditional upon approval of all consortium members which was never obtained unlike the case in Ambience Pvt. Ltd wherein the OTS was absolute.
It concluded that “in the case in hand the application has been filed by Financial Creditor Respondent No.1, Canara Bank alone, on its own, without approval or consent of other members of the consortium and in our considered opinion there was absolutely no need to take the consent or permission from other creditors (Members of Consortium) to file any such application.”
Accordingly, the present appeals were dismissed.
Case Title: RAJENDER KUMAR PAHWA (SUSPENDED DIRECTOR OF GOODLUCK CARBON PRIVATE LIMITED) Versus CANARA BANK and ORS.
Case Number: Company Appeal (AT) (Insolvency) No. 1980 of 2024
Judgment Date: 03/09/2025
For Appellant : Mr. Gaurav Mitra, Ms. Lavanya Pathak, Ms. Ankita Bajpai, Ms. Vatsala Kak & Mr. Sagar Thakkar, Advocates.
For Respondent : Mr. Abhishek Naik, Ms. Gulafsha Kureshi, Ms. Katyayani, Ms. Deepsikha Mishra, Mr. Falak Zaidi & Mr. Mojahid Karim Khan, for R-1. Mr. Santosh Kumar Root & Ms. Dharna Veragi, for R-3/ PNB.