The NCLAT, New Delhi, ruled that financial creditors can initiate insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016, even if recovery actions are ongoing before the Debt Recovery Tribunal (DRT).
The appeal was filed by the suspended director of the corporate debtor (CD) challenging the Adjudicating Authority's order admitting the Section 7 application by the Central Bank of India.
The corporate debtor had received loans from a consortium of banks, including Oriental Bank of Commerce (now Punjab National Bank) and the Central Bank of India. Both banks classified the CD's accounts as Non-Performing Assets (NPA).
Despite filing recovery applications before the DRT, both banks proceeded under Section 7 of the IBC. The Oriental Bank of Commerce's application was admitted, initiating the Corporate Insolvency Resolution Process (CIRP).
The appellant argued that only the lead bank could initiate recovery and that Central Bank's Section 7 application was a recovery tactic, especially after recovery proceedings were underway.
Central Bank countered that no recovery occurred as the auction of CD's assets for Rs. 37.60 crores was canceled, and the Punjab and Haryana High Court upheld this cancellation.
NCLAT observed that proceedings before DRT do not bar financial creditors from pursuing remedies under Section 7 of the IBC. It affirmed that both the lead bank and the Central Bank had independently filed valid Section 7 applications.
The tribunal dismissed the appellant's contentions and upheld the Adjudicating Authority's order admitting the Section 7 application.
The NCLAT allowed the corporate debtor to submit a One-Time Settlement (OTS) proposal within two weeks. If accepted, the CD could file for withdrawal of CIRP under Section 12A of the IBC. Failing acceptance, the Interim Resolution Professional (IRP) will continue CIRP proceedings.
The NCLAT reaffirmed that initiation of DRT proceedings does not restrict financial creditors from seeking remedies under Section 7 of the IBC. The appeal was dismissed, and the CIRP process against the corporate debtor will proceed as per the legal framework.
Pawan Kumar vs. Central Bank of India & Ors.
Company Appeal (AT) (Insolvency) No.1095 of 2024
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