CD can’t use RBI Directions to Evade Obligations under IBC, Circular can’t Hinder Financial Creditor’s Application u/s 7

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  • Last Updated on 5 July, 2023

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financial creditor’s application u/s 7

Case Details: GVK Energy Ltd. v. Axis Bank Ltd. - [2023] 151 taxmann.com 302 (NCLAT-Chennai)

Judiciary and Counsel Details

    • M. Venugopal, Judicial Member & Naresh Salecha, Technical Member
    • P.H. Arvindh Pandian, Sr. Adv. Anant Merathia, Rishi Srinivas & Ms Poornima Devi, Advs. for the Appellant.
    • Vivek Reddy, Sr. Adv., Ms Aparna Ravi, Ms Neha Pandey, Aakash Sherwal & Ms Kanishka Prasad, Advs. for the Respondent.

Facts of the Case

In the instant case, the financial creditor along with other lenders (together referred to as senior lenders) sanctioned loans to the corporate debtor for setting up of a thermal power plant. An amendment agreement was entered into between senior lenders and the corporate debtor, wherein the corporate debtor undertook to repay facilities availed in quarterly instalments.

Pursuant to the RBI directions 2019, an inter-creditor agreement (ICA) was entered by some consortium lenders, including financial creditors, to afford a scaffold, for a possible resolution. Due to default by the corporate debtor in making payments, resulting in the account being classified as a non-performing asset (NPA), a loan recall notice was issued by the financial creditor.

Subsequently, the financial creditor filed an application u/s 7 of the IBC against the corporate debtor and the same was admitted vide the impugned order. Dissatisfied by the impugned order, the corporate debtor filed an instant appeal contending that in view of ICA entered by lenders pursuant to RBI directions, no lender could initiate any legal action against the corporate debtor and the application u/s 7 was filed in a premature manner.

NCLAT Held

The NCLAT observed that the corporate debtor could not seek umbrage under ICA entered as per RBI directions to avoid, evade and supplant its obligation as IBC would have an overriding effect.

The NCLAT held that the RBI circular could not come in way of a financial creditor to prefer an application under section 7 of the Act. Therefore, the impugned order didn’t suffer from any material irregularity or patent illegality in the eyes of the law. Accordingly, the appeal was to be dismissed.

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