NCLT Chandigarh Admits CIRP, Holds Pending Arbitration Cannot Defeat Established Debt and Default
NCLT Chandigarh Admits CIRP, Holds Pending Arbitration Cannot Defeat Established Debt and Default
Introduction
The National Company Law Tribunal (NCLT) has held that mere pendency of arbitration proceedings does not constitute a realizable asset nor extinguish an admitted financial liability under the Insolvency and Bankruptcy Code, 2016 (IBC).
A Bench comprising Judicial Member Khetrabasi Biswal and Technical Member Kaushalendra Kumar Singh admitted the corporate debtor into CIRP, emphasizing that once debt and default are established, insolvency cannot be deferred on speculative recoveries.
Factual Background
The case concerned Supreme Ahmednagar Karmala Tembhurni Tollways Private Limited, which had availed credit facilities from Canara Bank as part of a consortium lending arrangement for a road project. The borrower defaulted in repayment in December 2015, and the account was subsequently classified as a non-performing asset (NPA). The financial creditor claimed an outstanding default of approximately ₹283.95 crore.
Procedural Background
Canara Bank filed an application under Section 7 of the IBC seeking initiation of CIRP. The corporate debtor opposed the petition on grounds of limitation, alleged substitution of concessionaire, and reliance on pending arbitration claims for recovery.
Issues
1. Whether pendency of arbitration proceedings can be a ground to defer insolvency proceedings.
2. Whether the application was within limitation under Section 18 of the Limitation Act, 1963.
3. Whether the existence of alleged substitution arrangements or RBI guidelines extinguishes liability.
Contentions of the Parties
The financial creditor contended that the debt and default were clearly established and supported by revival letters and balance sheet acknowledgments, bringing the claim within limitation.
The corporate debtor argued that the claim was time-barred, that its liability had ceased due to proposed substitution of another concessionaire, and that recovery depended on pending arbitration proceedings.
Reasoning and Analysis
The Tribunal held that pendency of arbitration does not create a realizable asset capable of offsetting an admitted liability, nor does it justify deferring insolvency proceedings. It observed that insolvency proceedings are triggered upon proof of debt and default, and cannot be postponed on speculative future recoveries.
On limitation, the Bench relied on Section 18 of the Limitation Act, holding that acknowledgments of debt through revival letters and balance sheet entries extended the limitation period, making the application timely. The Tribunal rejected the argument regarding substitution of concessionaire, noting that no binding agreement had been executed and the corporate debtor continued to remain liable.
It further held that RBI circulars relating to NPAs govern accounting norms and do not extinguish contractual liability or waive interest obligations. Finding that the financial debt exceeded the statutory threshold and default stood established, the Tribunal concluded that the application was complete and fit for admission.
Decision
The NCLT admitted the corporate debtor into CIRP, declared moratorium, and appointed Rajesh Jhunjhunwala as Interim Resolution Professional. The financial creditor was directed to deposit ₹4 lakh towards initial CIRP costs.
