Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Ashok Bhushan (Chairperson) and Arun Baroka (Technical Member), has held that the financial worth or valuation of a company is irrelevant for initiating insolvency proceedings if debt and default are duly established under the Insolvency and Bankruptcy Code, 2016 (IBC). The Tribunal was hearing an appeal filed by Ammeet Kamal Agarwal, suspended director of Supreme Transport Organisation Pvt. Ltd., challenging the order of the NCLT, which had admitted a Section 7 application filed by Axis Bank Ltd. against the corporate debtor for a claimed debt and default amounting to ₹16,95,95,909 as on March 16, 2023.

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Contentions of the Parties

The appellant, representing the suspended management of the corporate debtor, argued that although the financial creditor had sanctioned a loan of ₹24.90 crore, only ₹12.50 crore was actually disbursed. It was also contended that the corporate debtor had deposited the property documents with the bank; however, the bank later denied having possession of those original documents. The appellant further submitted that the Adjudicating Authority had erred in admitting the Section 7 application since the company’s overall worth was far greater than the default amount. It was urged that the NCLT ought to have considered this before admitting the case for insolvency.

On the other hand, Axis Bank, appearing through counsel, did not dispute the fact of partial disbursement but maintained that such a contention could not be a valid ground for opposing a Section 7 application when both debt and default stood established. The bank further submitted that the One-Time Settlement (OTS) proposal submitted by the corporate debtor during the pendency of proceedings before the NCLT clearly indicated an acknowledgment of debt and default.

Observations of the Tribunal

After examining the record and hearing the parties, the NCLAT noted that the argument regarding partial disbursement could not justify the rejection of a Section 7 application. The Tribunal observed that even though the loan was initially sanctioned for ₹24.90 crore, the sanction was subsequently revised to ₹12.50 crore, and the disbursement of that amount was not in dispute.

Regarding the claim of mortgage, the Bench observed that there was no registered mortgage deed on record. It stated that a mortgage by deposit of title deeds could only be recognized when the title documents were duly deposited, and in this case, the claim of such deposit had not been substantiated. However, the Tribunal clarified that it was not necessary to record any finding regarding the title or ownership of the property at this stage. Crucially, the Bench rejected the argument that the company’s financial worth could serve as a basis to oppose insolvency initiation, stating:“The submission of the Appellant that the worth of the Corporate Debtor is much more than the amount claimed may not be relevant for rejecting the application under Section 7 when debt and default of more than ₹1 crore is established.” The NCLAT further observed that the OTS proposal made by the corporate debtor during the Corporate Insolvency Resolution Process (CIRP) was, in itself, indicative of the acceptance of debt and default.

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Finding no error in the NCLT’s admission order, the NCLAT held that both debt and default had been duly established by Axis Bank. The Bench reiterated that under the IBC, once the existence of a financial debt and default exceeding ₹1 crore is proved, the Adjudicating Authority is bound to admit the application irrespective of the company’s financial condition or market value. The Tribunal further clarified that the issue regarding the sale of certain assets after the imposition of moratorium was not relevant to the appeal and could be considered separately by the Adjudicating Authority. Accordingly, the appeal was dismissed, and all pending interlocutory applications were disposed of.

Appearance

For Appellant: Mr. Krishna Sharma, Ms. Kaushambi, Advocates

For Respondent: Mr. Anuj P. Agarwala (for R1); S. Dixit, Karan Vir Khosla (for RP); Rishi Sood (Intervenor)

Cause Title: Ammeet Kamal Agarwal v. Axis Bank Ltd. & Anr.

Case No: Comp. App. (AT) (Ins.) No. 1216 of 2023

Coram: Justice Ashok Bhushan (Chairperson), Arun Baroka (Member-technical)