NCLAT Upholds Repayment Obligations Despite Termination of Concession Agreement

NCLAT Upholds Repayment Obligations Despite Termination of Concession Agreement

Introduction

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Rakesh Kumar Jain and Mr. Naresh Salecha (Technical Member) has held that termination of a Concession Agreement by the Government of Maharashtra does not discharge the Corporate Debtor from its repayment obligations, especially when such termination has no relation to the default committed by the Corporate Debtor.

Factual Background

The present appeal was filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) against an order passed by the National Company Law Tribunal (NCLT) Mumbai, admitting an application under Section 7 of the IBC. The Appellant argued that with the termination of the Concession Agreement, the debt stood transferred to the Government of Maharashtra (GoM), and nothing was payable by the Corporate Debtor (CD).

Procedural Background

The NCLT Mumbai had admitted the application under Section 7 of the IBC, and the Appellant challenged this order before the NCLAT. The Appellant contended that the termination of the Concession Agreement shifted the liability to GoM, while the Respondent argued that the debt had been duly acknowledged by the CD and default had existed since November 2016.

Reasoning and Analysis

The NCLAT rejected the Appellant's contention, holding that the Corporate Debtor was obligated to make payment to the Financial Creditor (FC). The tribunal noted that the Corporate Debtor had acknowledged the debt in its revival letter dated 22.01.2018 and had reflected the debt due and payable in its balance sheet for FY 2016-17. The default on the part of the CD existed for a period of 7 years, as the account was classified as NPA in November 2016.

The NCLAT relied on the Supreme Court's judgment in Innoventive Industries case, which held that once debt and default are established, the NCLT must admit the application. The tribunal also rejected the Appellant's claim that GoM had offered Rs. 174 crore, which was allegedly sufficient to discharge the debt, holding that the offer was grossly insufficient to discharge the liability of the financial creditor.

Issues

The primary issue before the NCLAT was whether the termination of the Concession Agreement discharged the Corporate Debtor from its repayment obligations.

Contentions of the Parties

Appellant: The Appellant submitted that with the termination of the Concession Agreement, the debt stood transferred to GoM, and nothing was payable by the CD.

Respondent: The Respondent submitted that the debt has been duly acknowledged by the CD in its revival letter and reflected in the balance sheet, and default had existed since November 2016.

Implications

This judgment clarifies that termination of a Concession Agreement does not absolve a Corporate Debtor of its repayment obligations when the termination is unrelated to the debtor's default in servicing its loans. The decision emphasizes the importance of establishing debt and default in insolvency proceedings.

In this case the appellant was represented by Mr. Abhirup Das Gupta and Ms. Jayashree S. Das Gupta, Advocates. Meanwhile the respondent was represented by Mr. Dhrupad Vaghani & Mr. Ajiz MK, Advocates for R2 along with Mr. Sunil Fernandes, Sr. Advocate with Ms. Shankari Mishra, Mr. Arun Kumar Shukla and Mr. Naman Shukla, Advocates for R1