IBC

M. Suresh Kumar Reddy VS. Canara Bank (Case Summary )

Supreme Court in M Suresh Kumar Reddy Vs. Canara Bank & Ors  ( Civil Appeal NO. 7121 of 2022) has held that once NCLT is satisfied that the default has occurred, there is hardly any discretion left with NCLT to refuse admission of application under Section 7.

BRIEF FACTS

Syndicate Bank (subsequently merged with Canara Bank) filed Application for initiating CIRP against Kranthi Edifice Pvt. Ltd. under Section 7 of the Code. The application was admitted by the NCLT. An appeal was filed against admission, which was dismissed by the NCLAT.

SUBMISSION OF PARTIES

The Appellant submitted that Syndicate Bank was itself cause of default. Contracts have been granted from Telangana Government to the Corporate Debtor. Telangana Government requested Syndicate Bank to submit Bank Guarantees which was not submitted by Bank forcing the Corporate Debtor to commit default. The Appellant relying on Vidarbh Industries  Power Ltd. Vs. Axis Bank Ltd.  (Civil Appeal No 7121 of 2002) submitted that even if the Corporate Debtor has committed default, the NCLT was not under obligation to admit the application under Section 7.

The Respondent submitted that Vidarbh judgment was peculiar to its facts. It was submitted by the Respondent that judgment of the Supreme Court in E.S. Krishnamurthy and others v. Bharath HiTecch Builders Private Limited (2022) 3 SCC 161 holds the field. Once NCLT is satisfied that there exists a financial debt and default has occurred, the NCLT has to admit the Application under Section 7 of the Code.

VIDARBH JUDGMENT

It is pertinent to mention that in Vidarbh Industries  Power Ltd. Vs. Axis Bank Ltd.  (Civil Appeal No 7121 of 2002) the Supreme Court has held if application has been filed by Financial creditor for initiation of CIRP and Application is complete in all respects including the fact that default has occurred in payment of debt, NCLT has discretion to admit such application or not admit such application. On the other hand  if an application is filed under Section 9 by an operational creditor and application is complete in all respects, the NCLT is bound to admit such application.

This judgment has created some confusion and seemed to be going back to earlier regime when “default” was not sufficient for initiating winding up proceedings but court has discretion to judge whether the company is “insolvent” .before initiating winding up proceedings.

THE FINDINGS

The Supreme Court relied on judgments in “Innovative Industries Ltd   Vs. ICICI Bank & Another” and E. S. Krishanmurthy and Ors. Vs. Bharat Hi Tech builders Pvt. Ltd.   (Civil Appeal No. 7121 /2022)  and held that if default has occurred, there is hardly discretion left with the NCLT to refuse admission of application under Section 7.

The Supreme Court noted that review petition has been filed against Vidharbh judgment. In review order the Supreme Court has observed that the decision in that case was in setting of facts of the case. The decision in case of Vidarbh Industries can not be understood to be taking a view which is contradictory to views of the Supreme Court in Innoventive Industries and E. S. Krishanmurthy

Thus, this judgment has dispelled all the apprehensions regarding admission of an application  by Financial Creditors in event of default.

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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

Mukesh Kumar Suman

Mukesh Kumar Suman

Mukesh Kumar Suman is an advocate based at Delhi. He has rich experience in civil, criminal, commercial, arbitration and corporate insolvency matters. He regularly appears before District Courts, NCLT, NCLAT, High Court and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

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