Financial Creditors Proceeding With Application U/S 7 Only As A Recovery Measure Is Not The Objective Of IBC: NCLAT

Background

An appeal was filed by Mr. Maneesh Ramakant, a suspended director of the Corporate Debtor (Maneesh Pharmaceuticals Limited) challenging the order by the National Company Law Tribunal (NCLT), Mumbai Bench. The order was admitted under Section 7 application against the corporate debtor filed by financial creditors.

The financial creditors including Barclays Bank PLC extended a term loan facility of USD 45 million to the subsidiary company of the corporate debtor under a facility agreement with the corporate debtor acting as a guarantor. The borrower and the guarantor both defaulted in the repayment and as a result the creditor classified the loan as a Non-Performing Asset (NPA). A foreign suit was instituted before the Queen's Bench in the UK and the decree was given against the borrower and the guarantor. The corporate debtor also sought relief under the Sick Industrial Companies Act., 1985 filing a reference of the same with the BIFR.

Due to the repeal of the SICA in 2016, the financial creditors filed a fresh Section 7 petition in 2019. This petition was initially dismissed in 2022, regarded as time-barred but on appeal the NCLAT allowed the case to proceed in 2023. After the restoration of Section 7 application, the NCLAT admitted it and initiated CIRP on 15^th October, 2024.

Appellant Arguments

In reciprocation to the initiation of CIRP process and appointment of IRP, the appellant expressed his willingness to settle to settle the outstanding amount by depositing Rs. 369.11 crores before the Tribunal. The appellant also relied upon the RBI guidelines which stated that no interest can be charged on penal interest and that the deposited amount covered all the debts. The appellant also contended that the financial creditors were using the resolution process as means for recovery which was against the intention of IBC.

Financial Creditors Argument

The financial creditor contended that the debt and default were well established and that the interest charged was permitted under the agreement and the Rbi guidelines did not apply to the foreign currency notes. They also accused the appellant of delaying the Resolution Process and emphasized that the default interest was invoked rightfully.

NCLAT Judgement

The NCLAT dismissed the appeal and upheld NCLT's order stating that there was a debt and default and contended that the appellant's deposit of Rs. 369.11 crores amounted to acknowledgement of the debt. The appellant's dissent regarding penal interest and RBI guidelines was not accepted and the Tribunal stated that any compromise must follow the procedure laid down under Section 12A of the IBC and must be approved by the CoC with a 90% voting.

The tribunal also dealt with the contention of the appellant that that financial creditors were using the Insolvency process as a tool for recovery. The Tribunal in its judgement stated that

“11. The submission which has been pressed by learned Counsel for the Appellant that although the Appellant has deposited the amount to liquidate 100% debt as was existing on the date when Application under Section 7 was filed as well as on the date when CIRP commenced, but the Financial Creditors are not ready to accept the amount to liquidate their debt, which indicate that Financial Creditors are proceeding with Section 7 Application only as a recovery measures, which is not the object of IBC.”

The court also cited the judgement of the Hon'ble Supreme Court in GLAS Trust Company LLC vs. BYJU Raveendran & Ors. in Civil Appeal No.9986 of 2024 and highlighted the law withdrawal of CIRP stating that for withdrawal of the proceedings, appropriate measures must be taken under Section 12A and Regulation 30A of the CIRP Regulations before the Adjudicating Authority

The IRP was instructed to form a CoC and the appellant was given the autonomy to present a settlement proposal.

Case Title: Maneesh Ramakant Sapte Vs Export Import Bank of India & Ors

Case Number: Company Appeal (AT) (Insolvency) No.1954 of 2024

Tribunal: National Company Law Appellate Tribunal, Principal Bench, New Delhi

Coram: Justice Ashok Bhushan (Chairperson) and Barun Mitra (Member Technical)

For Appellant: Mr. Abhinav S. Raghuvanshi, Mr. Milan Singh Negi, Mr. Nikhil Kumar Jha, Ms. Aakriti Gupta, Ms. Shweta, Advocates.

For Respondents: Mr. Krishnendu Datta, Sr. Advocate with Ms. Palak Nenwani, Mr. Rohit Gupta, Advocates.

Date of Judgement: 24.05.2025

Read/Download Order Here