Nakul Bharana vs Icici Bank Ltd

Mr. Nakul Bharana ...Appellant

Vs.

ICICI Bank Ltd. ...Respondent

Present: For Appellant: - Mr. Vijay K. Singh and Ms. Kanishka Prasad, Advocates.

For Respondent: -Mr. Yugank Goel and Ms. Shivani Rawat, Advocates.

O R D E R

10.07.2019─ 'ICICI Bank Limited' filed application under Section 7

of the Insolvency and Bankruptcy Code, 2016 ("I&B Code" for short)

against 'Gwalior Bypass Project Limited'- ('Corporate Debtor') which

having admitted by the Adjudicating Authority (National Company Law

Tribunal), Principal Bench, New Delhi on 29th May, 2019, the present

appeal has been preferred by the Promoter/ Shareholder.

2. Learned counsel appearing on behalf of the Appellant submitted

that the impugned order has been passed in complete disregard to the

provisions of Section 7 (5) (a) of the 'I&B Code', as per which the

admission of application under Section 7 is not contemplated in all cases

where default has occurred. The discretion vests with the Adjudicating

Contd/-...............

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Authority to admit or reject the application, even if the default has

occurred, keeping in mind the object of the 'I&B Code'. However, such

submissions cannot be accepted as it is not in dispute that the 'Corporate

Debtor' has failed to pay the debt and default occurred.

3. The Hon'ble Supreme Court in "Innoventive Industries Limited

v. ICICI Bank and Anr.─ 2017 SCC OnLine SC 1025" observed and

held:

"27. The scheme of the Code is to ensure

that when a default takes place, in the

sense that a debt becomes due and is not

paid, the insolvency resolution process

begins. Default is defined in Section 3(12) in

very wide terms as meaning non-payment

of a debt once it becomes due and payable,

which includes non-payment of even part

thereof or an instalment amount. For the

meaning of "debt", we have to go to Section

3(11), which in turn tells us that a debt

means a liability of obligation in respect of

a "claim" and for the meaning of "claim", we

have to go back to Section 3(6) which

Company Appeal (AT) (Insolvency) No. 701 of 2019 -3-

defines "claim" to mean a right to payment

even if it is disputed. The Code gets

triggered the moment default is of rupees

one lakh or more (Section 4). The corporate

insolvency resolution process may be

triggered by the corporate debtor itself or a

financial creditor or operational creditor. A

distinction is made by the Code between

debts owed to financial creditors and

operational creditors. A financial creditor

has been defined under Section 5(7) as a

person to whom a financial debt is owed

and a financial debt is defined in Section

5(8) to mean a debt which is disbursed

against consideration for the time value of

money. As opposed to this, an operational

creditor means a person to whom an

operational debt is owed and an

operational debt under Section 5(21) means

a claim in respect of provision of goods or

services.

Company Appeal (AT) (Insolvency) No. 701 of 2019 -4-

28. When it comes to a financial creditor

triggering the process, Section 7 becomes

relevant. Under the explanation to Section

7(1), a default is in respect of a financial debt

owed to any financial creditor of the corporate

debtor- it need not be a debt owed to the

applicant financial creditor. Under Section

7(2), an application is to be made under sub-

section (1) in such form and manner as is

prescribed, which takes us to the Insolvency

and Bankruptcy (Application to Adjudicating

Authority) Rules, 2016. Under Rule 4, the

application is made by a financial creditor in

Form 1 accompanied by documents and

records required therein. Form 1 is a detailed

form in 5 parts, which requires particulars of

the applicant in Part I, particulars of the

corporate debtor in Part II, particulars of the

proposed interim resolution professional in

part III, particulars of the financial debt in part

IV and documents, records and evidence of

Company Appeal (AT) (Insolvency) No. 701 of 2019 -5-

default in part V. Under Rule 4(3), the

applicant is to dispatch a copy of the

application filed with the adjudicating

authority by registered post or speed post to

the registered office of the corporate debtor.

The speed, within which the adjudicating

authority is to ascertain the existence of a

default from the records of the information

utility or on the basis of evidence furnished by

the financial creditor, is important. This it

must do within 14 days of the receipt of the

application. It is at the stage of Section 7(5),

where the adjudicating authority is to be

satisfied that a default has occurred, that the

corporate debtor is entitled to point out that a

default has not occurred in the sense that the

"debt", which may also include a disputed

claim, is not due. A debt may not be due if it

is not payable in law or in fact. The moment

the adjudicating authority is satisfied that a

default has occurred, the application must be

Company Appeal (AT) (Insolvency) No. 701 of 2019 -6-

admitted unless it is incomplete, in which case

it may give notice to the applicant to rectify the

defect within 7 days of receipt of a notice from

the adjudicating authority. Under sub-section

(7), the adjudicating authority shall then

communicate the order passed to the financial

creditor and corporate debtor within 7 days of

admission or rejection of such application, as

the case may be.

29. The scheme of Section 7 stands in

contrast with the scheme under Section 8

where an operational creditor is, on the

occurrence of a default, to first deliver a

demand notice of the unpaid debt to the

operational debtor in the manner provided

in Section 8(1) of the Code. Under Section

8(2), the corporate debtor can, within a

period of 10 days of receipt of the demand

notice or copy of the invoice mentioned of a

dispute or the record of the pendency of a

suit or arbitration proceedings, which is

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pre-existing- i.e. before such notice or

invoice was received by the corporate

debtor. The moment there is existence of

such a dispute, the operational creditor gets

out of the clutches of the Code."

4. In view of the aforesaid decision of the Hon'ble Supreme Court and

the fact that the Adjudicating Authority found that there is a debt and

default and the application filed by the 'Financial Creditor' was complete,

we find no infirmity in the impugned order of admission.

5. We observe that if the 'Financial Creditor' satisfies all the

requirements, the Adjudicating Authority has no discretion to reject the

application or defer it unless the 'Corporate Debtor' submits that they

intend to settle the claim. Only if such request is made to settle the claim,

the Adjudicating Authority may give one opportunity to the 'Corporate

Debtor' to do so instead of admitting the application.

6. The appeal is dismissed with aforesaid observations. No costs.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice A.I.S. Cheema) Member(Judicial)

(Kanthi Narahari) Member(Technical)

Ar/g Company Appeal (AT) (Insolvency) No. 701 of 2019