The National Company Law Appellate Tribunal (NCLAT), New Delhi, dismissed an appeal filed by the ex-director of Frost International Ltd., upholding the order of the National Company Law Tribunal (NCLT), Mumbai admitting the company into Corporate Insolvency Resolution Process (CIRP) on an application filed by Bank of India. The Bench comprising Judicial Member Justice Mohammad Faiz Alam Khan and Technical Member Naresh Salecha held that the bank could not be faulted for not considering restructuring proposals when no resolution plan had been submitted under the RBI Prudential Framework dated 7 June 2019.
The appeal arose from the NCLT order dated 9 February 2023 admitting a Section 7 application filed by Bank of India against Frost International Ltd. The financial creditor had extended various credit facilities aggregating ₹756.75 crore to the corporate debtor. Default occurred on 12 April 2018 and the account was classified as non-performing asset with effect from 30 June 2018. The total amount claimed in default exceeded ₹872 crore.
Before the Appellate Tribunal, the ex-director argued that the corporate debtor was a commercially viable entity and that the bank had acted unfairly by refusing to entertain restructuring proposals. It was contended that the bank had violated the RBI Prudential Framework for Resolution of Stressed Assets dated 7 June 2019 by not allowing restructuring under an inter-creditor arrangement. Reliance was also placed on the Supreme Court’s decision in Vidarbha Industries Power Ltd. v. Axis Bank Ltd. to argue that admission of insolvency proceedings is not automatic even when default is established.
The Bank of India opposed the appeal and submitted that the debt and default stood clearly established and had been repeatedly acknowledged by the corporate debtor. The bank contended that the company had failed to submit any resolution plan under the RBI framework and therefore could not allege unfairness on the part of the lender. It was further submitted that the CIRP had already progressed substantially and that a resolution plan had been approved by the Committee of Creditors.
The Tribunal found that the debt and default were undisputed and that the corporate debtor had acknowledged its liability in several documents including revival letters and audited financial statements. It held that once the existence of financial debt and default is established, admission of an application under Section 7 is justified. Rejecting the argument regarding restructuring under RBI guidelines, the Tribunal observed that the corporate debtor had not submitted any resolution plan under the RBI framework. The Bench stated:“We wonder if the Corporate Debtor has not even submitted the Resolution Plan in terms of extant RBI guidelines of 07.06.2019, how the Appellant can at this stage accuse the Respondent No. 1 for not considering the same.
The Tribunal further held that the RBI framework gives lenders flexibility to initiate insolvency proceedings and does not make restructuring mandatory. It observed that the decision whether to accept or reject a restructuring proposal is a commercial decision of the lenders which cannot be questioned in insolvency proceedings. The Bench also rejected reliance on the Vidarbha Industries decision, holding that the corporate debtor had failed to demonstrate financial viability or availability of funds sufficient to discharge its liabilities. The Tribunal noted that no concrete material had been placed on record to establish that the corporate debtor could overcome its financial distress.
Referring to the Supreme Court’s recent decision in Power Trust v. Bhuvan Madan, the Tribunal reiterated that the scope of inquiry at the stage of admission under Section 7 is limited to the existence of financial debt and default. Once these requirements are satisfied, there is little scope for refusing admission of insolvency proceedings. Finding no infirmity in the NCLT’s order admitting the insolvency application, the Tribunal dismissed the appeal and allowed the Corporate Insolvency Resolution Process against Frost International Ltd. to continue.
Cause Title: Uday J. Desai v. Bank of India & Anr.
Case Number: Comp. App. (AT) (Ins) No. 187 of 2023
Coram: Judicial Member Justice Mohammad Faiz Alam Khan and Technical Member Naresh Salecha
