Discretion Vested Upon NCLT U/S 7(5)(A) IBC Cannot Be Used To Impel Financial Creditor To Consider Settlement: NCLT Chennai
Pranav B Prem
The National Company Law Tribunal (NCLT), Division Bench, Chennai, comprising Sanjiv Jain (Judicial Member) and Venkataraman Subramaniam (Technical Member), has admitted a petition filed by Punjab National Bank (PNB) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) against Aban Offshore Limited. The Tribunal clarified that although a certain degree of discretion is vested in the adjudicating authority under Section 7(5)(a), this discretion cannot be used to compel a financial creditor to accept or even consider a settlement proposal made by the corporate debtor.
The dispute arose after Aban Offshore, a leading offshore drilling company incorporated in 1986, defaulted on substantial credit facilities sanctioned by PNB. The corporate debtor had mortgaged nearly 1,000 acres of land in Tirunelveli District and created charges on rigs owned by its subsidiary, Aban Holdings Private Limited, as security for the loans. However, the account was classified as a Non-Performing Asset (NPA) on May 2, 2017. By August 15, 2024, the total outstanding dues had mounted to ₹1,062.86 crore. While the company floated several one-time settlement (OTS) proposals—including a final offer of ₹123 crore in May 2024—PNB rejected them on the ground that the amounts were grossly inadequate in comparison to the debt due. Multiple e-auctions under the SARFAESI Act also failed as no bidders came forward.
Before the Tribunal, the corporate debtor argued that PNB had acted in isolation after pulling out from a consortium of lenders and had failed to disclose key facts, including the possession of the secured land and the repayments already made. It was urged that the petition was being used as a recovery tool, contrary to the object of the IBC. The debtor placed reliance on Supreme Court rulings such as Mobilox Innovations v. Kirusa Software and Vidarbha Industries Power Ltd. v. Axis Bank Ltd. to contend that the Code was not designed for recovery but for resolving insolvency where an entity was genuinely incapable of paying its debts. Stressing that the fall in global crude oil prices had led to temporary financial stress, the debtor sought to persuade the Tribunal to consider its OTS proposal, pointing out that the offer was higher than the reserve price of assets in the failed auctions.
PNB, on the other hand, argued that the debtor’s acknowledgments of liability through balance confirmations spanning 2011–2020 and repeated OTS offers clearly attracted Section 18 of the Limitation Act, thereby keeping the petition within limitation. The bank contended that a debtor could not force a creditor to accept a settlement, relying on precedents such as Bijnor Urban Cooperative Bank Ltd. v. Meenal Agarwal and E.S. Krishnamurthy v. Bharath Hi-Tecch Builders, in which the Supreme Court categorically held that no court or tribunal could compel a financial creditor to accept an OTS proposal. It further emphasized that both the existence of financial debt and default were undisputed and sufficient to trigger CIRP under the Code.
After examining the records, the Tribunal found that there was ample documentary evidence in the form of sanction letters, loan agreements, mortgage deeds, balance confirmations, and OTS letters to prove both the existence of debt and default. It rejected the debtor’s contention that disputes about the quantum of debt or solvency were relevant, citing earlier rulings such as Innoventive Industries Ltd. v. ICICI Bank and Asset Reconstruction India Ltd. v. Tulip Star Hotels Ltd. The Bench also clarified that the Supreme Court’s ruling in Vidarbha Industries was rendered in very specific circumstances and could not be stretched into a general principle that would allow tribunals to compel settlements or defer admission of insolvency petitions.
In light of these findings, the NCLT admitted the Section 7 application and initiated the Corporate Insolvency Resolution Process (CIRP) against Aban Offshore Limited. Headway Resolution and Insolvency Services Pvt. Ltd. was appointed as Interim Resolution Professional (IRP). A moratorium under Section 14 of the IBC was declared, prohibiting continuation of pending proceedings, transfer or disposal of assets, enforcement of security interests, and recovery actions by owners or lessors.
Concluding the matter, the Tribunal observed that while some discretion under Section 7(5)(a) exists, it must be exercised cautiously and never in a manner that forces a financial creditor to consider or accept a debtor’s settlement offer. It held that the law does not empower the Tribunal to defer or dismiss insolvency petitions merely because the debtor is solvent, profitable, or willing to propose an OTS. The petition was accordingly admitted and the CIRP ordered.
Cause Title: Punjab National Bank V. Aban Offshore Ltd
Case No: CP(IB)/203/CHE/2024
Coram: Sanjiv Jain (Judicial Member), Venkataraman Subramaniam (Technical Member)
