Pending OTS Proposal Doesn't Bar Filing of Section 7 Application: NCLAT
Pending OTS Proposal Doesn't Bar Filing of Section 7 Application: NCLAT
Introduction
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench has held that an One Time Settlement (OTS) proposal submitted by the corporate debtor and approved by one consortium member subject to approval by all members cannot bar the filing of an application under Section 7 of the Insolvency and Bankruptcy Code (IBC) merely because the OTS is pending consideration before other lenders.
Factual Background
The corporate debtor submitted an OTS proposal, which was discussed in the joint lenders' meetings of the consortium banks. Although one consortium member approved the proposal, it was subject to approval by all members. Before the decision of the higher authorities, the financial creditor, Canara Bank, filed an insolvency petition under Section 7 of the IBC.
Procedural Background
The National Company Law Tribunal (NCLT) admitted the application under Section 7 of the IBC, and the corporate debtor appealed against the order.
Issues
1. Effect of Pending OTS Proposal: Whether a pending OTS proposal can bar the filing of an application under Section 7 of the IBC.
2. Statutory Right of Financial Creditor: Whether the statutory right of a financial creditor under Section 7 of the IBC can be curtailed by an inter-se agreement between the creditors.
Reasoning & Analysis
The bench of Justice Rakesh Kumar Jain, Justice Mohd Faiz Alam Khan and Mr. Naresh Salecha (Technical Member) observed that the decision of the consortium of banks to forward the OTS proposal to their higher authorities may not amount to acceptance of the same. It held that the consortium agreement is an agreement of ease and convenience for internal management, and it would not stand in the way of any application under Section 7 of the IBC. The tribunal also observed that the statutory right of a financial creditor under Section 7 of the IBC cannot be curtailed by an inter-se agreement between the creditors.
Decision
The NCLAT dismissed the appeal, holding that the application under Section 7 of the IBC was maintainable despite the pending OTS proposal.
Implications
The decision clarifies that a pending OTS proposal does not necessarily bar the filing of an application under Section 7 of the IBC. It also highlights the statutory right of financial creditors to initiate insolvency proceedings.
Conclusion
The NCLAT's judgment in this case provides clarity on the effect of pending OTS proposals on insolvency proceedings and the statutory rights of financial creditors. The decision is significant for financial creditors, corporate debtors, and consortium members.
In this case the appellant was represented by Mr. Gaurav Mitra, Ms. Lavanya Pathak, Ms. Ankita Bajpai, Ms. Vatsala Kak and Mr. Sagar Thakkar, Advocates. Meanwhile the respondent was represented by Mr. Abhishek Naik, Ms. Gulafsha Kureshi, Ms. Katyayani, Ms. Deepsikha Mishra, Mr. Falak Zaidi and Mr. Mojahid Karim Khan, for R-1 along with Mr. Santosh Kumar Root & Ms. Dharna Veragi, for R-3.
