Summary
The Court upheld admission of a bank’s insolvency application after finding financial debt and default. Vidarbha Industries was explained as turning on its particular facts, without displacing Innoventive Industries and E.S. Krishnamurthy. The debtor’s overdraft liability, acknowledgments and unpaid dues established default; requests to extend bank guarantees and a limited interim restraint on coercive action supplied no reason to refuse admission. The suspended director’s appeal was dismissed without costs.
Issues
- Whether Vidarbha Industries permitted refusal of section 7 admission despite established debt and default in this case.
- Whether refusal to extend bank guarantees or the High Court’s interim order defeated the basis for insolvency admission.
Provisions considered
- Section 7, particularly subsection (5), Insolvency and Bankruptcy Code, 2016Once debt and default are established, admission ordinarily follows upon satisfaction of statutory requirements, including completeness. Vidarbha was confined to its factual setting and did not overturn the governing Innoventive and E.S. Krishnamurthy approach. No good reason for refusing admission existed here even on the appellant’s alternative argument. (¶¶ 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19)
- Section 3(12), Insolvency and Bankruptcy Code, 2016Default includes non-payment of a due and payable part or instalment of a debt. The unpaid overdraft and other bank dues established default; the dispute was not limited to future or contingent bank-guarantee liability. (¶¶ 10, 14, 15, 16)
Held
- Following Innoventive Industries and E.S. Krishnamurthy, the Court held that there is hardly discretion to refuse admission once NCLT is satisfied of default, subject to statutory requirements such as completeness of the application. The debtor may show that the alleged debt is not due or payable in law or fact; merely disputing a due financial debt does not establish absence of default. (¶¶ 8, 9, 10)
- The review order in Vidarbha Industries clarified that its observations were made in the particular factual setting. That decision could not be read as taking a view contrary to Innoventive Industries and E.S. Krishnamurthy, which remained applicable. The Court did not formally overrule Vidarbha. (¶¶ 11, 12, 13)
- The credit facilities included secured overdrafts as well as bank guarantees. The bank’s demand, recovery proceedings, the debtor’s acknowledgment and its balance sheet supported the debt, and outstanding sums remained unpaid. Requests by the debtor and the State to extend guarantees did not erase the established default; the bank had expressly declined further extension and called for payment. (¶¶ 2, 3, 6, 14, 15, 16)
- The High Court’s interim order did not cover all guarantees, did not find that the debtor owed no dues and merely restrained coercive action. It did not undermine admission on the demonstrated default. Even assuming power to refuse admission for good reasons, the Court found no such reason in this debtor’s conduct and circumstances. (¶¶ 17, 18)
- The appeal was dismissed without costs, leaving NCLT’s admission of the bank’s section 7 application, affirmed by NCLAT, in place. (¶¶ 1, 19)
Result
Appeal dismissed without costs; admission of the bank’s section 7 insolvency application upheld.