Pendency of proceedings before debt recovery tribunal cannot affect the petition under section 7 of IBC

pending-proceedings-before-debt-recovery-tribunal-under-section-7-of-ibc

Status as on 03/06/2019

As per section 7 of IBC, a financial creditor may either by itself or jointly with other financial creditor may file an application for initiating corporate insolvency resolution process (‘CIRP’) against the corporate debtor if the following conditions are fulfilled:-

  1. There is debt amounting to be Rs. 1 Lakh or more;
  2. The corporate debtor makes default in repaying such loan within the time period agreed between the financial creditor and corporate debtor or reasonable time period.

Hence, if the above two conditions are fulfilled, the financial creditor is entitled to approach the National Company Law Tribunal to initiate the CIRP against the corporate debtor.

National Company Law Appellate Tribunal in the matter of Harkirat S. Bedi vs. Oriental Bank of Commerce held that even if some other recovery proceedings are pending or the amount of claim is disputed before any other tribunal or adjudicating body that will not be a reason for rejecting the petition filed under section 7.  Thus, once the debt (of Rs. 1 Lakh or more) and default are established then the NCLT is bound to initiate insolvency resolution process against the corporate debtor.

Brief Facts of the case

In this case the recovery proceedings were pending before the debt recovery tribunal and the amount claimed by the claimant was in dispute. Pursuant to the same the corporate debtor took the plea that the amount of debt was in dispute, thus no default could be established.

Observations

The Hon’ble National Company Law Appellate Tribunal in the light of Innoventive Industries Ltd. vs. ICICI laid down the objective and intention behind the Insolvency legislation according to which:-

  1. Once the debt comes into the picture and
  2. There is non-payment from the corporate debtor.

The Adjudicating Authority is bound to admit the insolvency application and commence the CIRP against the corporate debtor. Consequently, all other proceedings taking place before any other tribunal shall be stayed from the date of issuance of moratorium.

CONCLUSION

Inferring from the above decision and provision of IBC, we can easily point out that IBC proceedings are not alternative or substitute of any other recovery mechanism. Rather an IBC application has to be dealt independently which shall not be affected by any other recovery proceedings pending before any other tribunal.

Disclaimer –  Please note that the above view is based on personal interpretation and for general awareness. The readers are required to take opinion from the Top IBC professionals or Insolvency Professionals before relying on the article. For any clarifications, please write to us at ibc@centrik.in

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