The NCLAT New Delhi Bench has held that Non-Fund Based (NFB) facilities cannot be refused disbursement when the approved Resolution Plan contains a specific clause mandating their disbursement.
The corporate debtor was admitted into insolvency on July 4, 2017, and the Resolution Plan, subsequently approved, included a provision for the release of NFB facilities. However, procedural delays led to non-disbursement, prompting applications seeking their release. The Adjudicating Authority allowed these applications and directed the release of the NFB limits, which was challenged by the financial creditors in the present appeal.
The appellants argued that the Adjudicating Authority’s direction to release the NFB limits violated the terms of the Resolution Plan and the NFB agreement, particularly regarding the roll-over of NFB facilities. It was contended that NFB issuance is subject to the review of the borrower’s performance and that the order overlooked this critical consideration. Additionally, the appellants cited the Master Circular issued by the RBI, asserting that safeguards to avert fraud were not adhered to and that the release of NFB limits without evaluating the borrower’s financial viability contravened the agreement.
The respondents submitted that the appellants were obligated to disburse the NFB facilities as the Resolution Plan had been duly approved after evaluating the borrower’s feasibility and viability. They argued that the CoC had already deliberated on the company’s viability and decided to roll over the NFB limits as part of the approved Resolution Plan. Revisiting these factors post-approval, they contended, was unwarranted and contrary to the binding nature of the plan.
The tribunal observed that in State Bank of India vs. MBL Infrastructure Limited and Ors. (2023), it was held that all stakeholders must facilitate the implementation of an approved Resolution Plan, and attempts to evade obligations under the plan cannot be justified. The tribunal emphasized that issues of viability and feasibility must be addressed at the stage of CoC approval and cannot be raised subsequently to delay or avoid implementation. Furthermore, it noted that there was no evidence of fraud or default by the borrower that could justify withholding the NFB facilities.
The tribunal concluded that withholding NFB facilities would hinder the company’s ability to operate and fulfill its repayment obligations, which would defeat the purpose of the Resolution Plan. It clarified that the clauses of the NFB Agreement must be interpreted to support the Resolution Plan, ensuring its provisions are not rendered ineffective. Accordingly, the appeal was dismissed, and the order directing the release of the NFB facilities was upheld.
State Bank of India & Ors. vs. Jyoti Structures Ltd. & Ors.
Company Appeal (AT) (Insolvency) No. 1962 & 1963 of 2024
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