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

  • Blog|News|Insolvency and Bankruptcy Code|
  • 3 Min Read
  • By Taxmann
  • |
  • Last Updated on 5 July, 2023

Recent Posts

Blog, News, Account & Audit

Classification and Disclosure of Late Payment Interest in Financial Statements

Blog, News, GST & Customs

Appellate Authority Can’t Dismiss an Appeal on Maintainability Grounds If Alternative Remedy Has Been Directed by the Court | HC

Latest from Taxmann

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.

List of Cases Reviewed

List of Cases Referred to

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

Leave a Reply

Your email address will not be published. Required fields are marked *

«
»

Everything on Tax and Corporate Laws of India

To subscribe to our weekly newsletter please log in/register on Taxmann.com

Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied