NCLT in Yes Bank's Petition to Admit Zee Learn: Once 'Debt' and 'Default' is proved, Adjudicating Authority is Bound to Admit Petition

NCLT in Yes Bank's Petition to Admit Zee Learn: Once 'Debt' and 'Default' is proved, Adjudicating Authority is Bound to Admit Petition

The National Company Law Tribunal, (NCLT), Mumbai, by its division bench comprising of Justice P.N. Deshmukh (Judicial Member) and Mr. Shyam Babu Gautam (Technical Member) while allowing Yes Bank's petition to admit Essel Group company Zee Learn for the Corporate Insolvency Resolution Process (CIRP), observed that unlike Section 9 of the Insolvency Bankruptcy Code, 2016 (IBC), there is no scope of raising a 'dispute' as far as Section 7 petition. As soon as a 'debt' and 'default' is proved, the adjudicating authority is bound to admit the petition.

Section 9 of IBC states Application for initiation of corporate insolvency resolution process by operational creditor whereas Section 7 of IBC talks about Initiation of corporate insolvency resolution process by financial creditor is concerned.

The present petition was filed by Yes Bank (hereinafter referred to as "the Financial Creditor") under Section 7 of IBC read with Rule 4 Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 seeking initiation of CIRP against Zee Learn Limited, (hereinafter referred to as "the Corporate Debtor").

The total amount of debt alleged to be in default was Rs.4.689, 990,947.45 (Rupees Four Billion Six Hundred and Eighty-Nine Million Nine Hundred and Ninety Thousand Nine Forty-Seven and Four Five Paise Only). Out of this, the Principal amount is Rs.4106758668.88 and Rs.583,232,278.57- is the amount of interest. The date of default was 2nd August, 2021.

It was un-disputed that the Principal Borrower had failed to pay. The fact that the aforesaid financial debt was due and payable to the Financial Creditor was self-evident from the records maintained by the Central Repository of Information on Large Credits ("CRILIC"), in respect of the Principal Borrowers. CRILIC is a database set up by the Reserve Bank of India to collect, store and disseminate credit data to lenders.

The Corporate Debtor contended that the petition was not maintainable owing to misjoinder of parties and cause of action. It argued Section 7 of IBC provides for the filing of an application for initiating of CIRP against the corporate debtor by itself or jointly with other financial creditors or by any other person on behalf of the financial creditor as may be notified by the Central Government. Section 7 of the IBC does not provide for clubbing of different causes of action in one petition. In the present case, the Petitioner had clubbed the alleged corporate guarantees given by the Corporate Debtor to secure payments of different borrowers under different loan facilities/transactions, granted at different points of time under different sanction letters and security documents, which have been declared Non-Performing Assets (NPA) on different date (though incorrectly) and which have different claim, stated the Corporate Debtor.

The NCLT found that the Financial Creditor had clarified that the debt as far as the Corporate Debtor was concerned, arose when such a demand was made i.e., on 2nd August, 2021. Under the Guarantee, payment was to be made within one week thereafter i.e., 9th August, 2021. The bar under Section 10A of the IBC applies only in respect of debts arising between 25th March, 2020 and 25th March, 2021. As the debt in question arose in August 2021, Section 10A of the IBC has no application to the present Petition, stated the bench.

Further the Financial Creditor placed on record valid deed(s) of guarantee entered by the Corporate Debtor and Axis Trustees Services Limited, being the security trustee on behalf of the Financial Creditor, the Financial Creditor being the lender.

The Tribunal noted that as per the terms of the Deed(s) of Guarantee, in an event of default to repay the loan amount by the Borrowers, the Deed of Guarantee can be invoked by the Security Trustee or the Lender. Accordingly, on default by the Borrowers, the Financial Creditor has invoked the Deed of Guarantee. Hence, there is exists a valid debt, added the NCLT.

The Tribunal also referred to the orders passed by the Supreme Court of India in the case of n Swiss Ribbons Pvt. Ltd. & Ors. Vs. Union of India & Ors (2018), upholding the Constitutional validity of IBC, the position is very clear that unlike Section 9, there is no scope of raising a 'dispute' as far as Section 7 petition is concerned. As soon as a 'debt' and 'default' is proved, the adjudicating authority is bound to admit the petition.

The bench observed, "application made by the Financial Creditor is complete in all respects as required by law. It clearly shows that the Corporate Debtor is in default of a debt due and payable, and the default is in excess of minimum amount stipulated under section 4(1) of the IBC. Therefore, the debt and default stands established and there is no reason to deny the admission of the Petition."

In view of aforementioned observations, the NCLT admitted the Petition filed by the Financial Creditor- Yes Bank and ordered initiation of CIRP against the Corporate Debtor- Zee Learn Limited.