Corporate Insolvency Resolution Process Initiated Despite Ongoing Settlement Discussions; Tribunal Finds No Violation of Natural Justice
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has upheld the National Company Law Tribunal's (NCLT) decision to admit Yes Bank's application under Section 7 of the Insolvency and Bankruptcy Code (IBC), thereby initiating the Corporate Insolvency Resolution Process (CIRP) against KKSPUN India Limited. The appellate tribunal dismissed the appeals filed by Kavish Gupta, the suspended director of KKSPUN India, challenging the NCLT's order.
The bench, consisting of Justice N. Seshasayee, Arun Baroka, and Indevar Pandey, rejected the appellant's contention that the admission of the CIRP was unwarranted given the ongoing settlement discussions and a proposed scheme under Sections 230-232 of the Companies Act, 2013. The tribunal emphasized that the mere pendency of such settlement talks or schemes does not bar the initiation of CIRP once the statutory requirements are met.
The tribunal found that Yes Bank had established the existence of financial debt and default through documentary evidence, including records from the National E-Governance Services Limited (NeSL) and acknowledgments by the corporate debtor. The tribunal also dismissed the appellant's argument that the principles of natural justice were violated, noting that KKSPUN India was provided several opportunities to present its case, including filing written submissions.
Furthermore, the tribunal held that the pendency of a counterclaim filed by the corporate debtor before the Debts Recovery Tribunal (DRT) does not negate the existence of financial debt and default under the IBC. The NCLAT reiterated that the limited inquiry under Section 7 is confined to the existence of debt and default and does not consider collateral proceedings.
The ruling clarified that the decision in Vidarbha Industries Power Ltd. v. Axis Bank Ltd. was confined to exceptional facts and does not universally apply to cases under Section 7 of the IBC. The NCLAT emphasized that the insolvency process under the IBC is triggered by the occurrence of default, not by the commercial strength or future prospects of the corporate debtor.
The tribunal dismissed the appeals, stating that the NCLT's decision to admit the CIRP was in accordance with law, as the financial debt and default were clearly established. The initiation of CIRP is aimed at resolving financially distressed companies, and the tribunal asserted that the ongoing insolvency process should not be interrupted.
Bottom line:-
Insolvency and Bankruptcy Code, 2016 - Admission of Corporate Insolvency Resolution Process (CIRP) upheld despite pendency of settlement discussions, Scheme under Section 230 of Companies Act, 2013, and counterclaim proceedings before DRT.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 - Section 7, Companies Act, 2013 - Sections 230-232
Kavish Gupta v. Yes Bank Ltd., (NCLAT)(Principal Bench, New Delhi) : Law Finder Doc id # 2942981
