Continuous Default and Non-Payment Lead to CIRP Admission Despite OTS Attempts
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench in New Delhi, dismissed an appeal by Ashutosh Majumdar, ex-director of Chemstar Organics (India) Limited, challenging the initiation of Corporate Insolvency Resolution Process (CIRP) against the company. The appeal was against the National Company Law Tribunal (NCLT), Mumbai Bench's order admitting the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), filed by Omkara Asset Reconstruction Private Limited, the financial creditor.
The bench, comprising Justice Yogesh Khanna and Mr. Ajai Das Mehrotra, examined the continuous default history of Chemstar Organics. Despite multiple One-Time Settlement (OTS) offers and extensions, the corporate debtor failed to clear outstanding dues, leading to the revocation of the OTS by the financial creditor. The Tribunal emphasized that the adjudicating authority is mandated to admit the application once "debt" and "default" are established, and the amount exceeds the threshold under Section 4 of the IBC.
Chemstar Organics had entered into a series of agreements with Gujarat Industrial Investment Corporation Limited (GIIC) and later with Omkara Asset Reconstruction Pvt. Ltd., which took over the debt. Despite restructuring attempts and payment extensions, the company failed to meet its obligations, with the financial creditor citing an outstanding debt of over Rs. 10.51 crore as of June 2021.
The Tribunal rejected the appellant's argument that the debt fell within the exclusion period under Section 10A of the IBC, noting that the default continued beyond this period. The NCLAT also dismissed the contention regarding excessive interest rates, observing that the agreed interest terms were not challenged timely by the corporate debtor.
The decision underscores the IBC's objective to resolve corporate distress expeditiously, highlighting that the adjudicating authority's role is limited to verifying the existence of debt and default. The Tribunal reiterated that the financial creditor's refusal to settle at a reduced amount does not bar the initiation of CIRP.
Bottom Line :
In proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016, the Adjudicating Authority is mandated to admit the application if "debt" and "default" are conclusively established, and the amount exceeds the threshold prescribed under Section 4 of the IBC, 2016. Immunity under Section 10A of IBC is not available if the default continues beyond the exclusion period.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 7, 10A, 13(2) of SARFAESI Act, 2002
