Valid Ground for Financial Creditors to Challenge the Insolvency Proceedings
In a very recent development under Insolvency and Bankruptcy Code of India (IBC), NCLAT held that a Financial Creditor cannot challenge the admission of Insolvency petition made by other Financial Creditors on the ground that it has a claim superior than the claim of other Financial Creditors.
The NCLAT dismissed an appeal which was filed by L&T Infrastructure against ICICI Bank on the basis of superior claims. What happened in this case was that an agreement was signed and executed between National Highway Authority of India (NHAI) and Gwalior Bypass Project Ltd. According to the terms of this agreement, Gwalior Bypass could not create any encumbrance, lien or any rights or benefits without the prior consent from NHAI in writing.
Gwalior Bypass had approached L&T Infrastructure Finance Company Ltd. to refinance a loan advanced by IDFC. L&T Infrastructure sanctioned certain credit facilities to Gwalior Bypass by way of non-convertible debentures. This was done after issuing no objection letter from NHAI. The ICICI Bank also, in the meantime, sanctioned some loan facilities to Gwalior Bypass which approximately amounted to Rs. 91.5 Crore.
ICICI Bank moved to NCLT and initiated an insolvency proceeding against Gwalior Bypass which was opposed by L&T. L&T claimed that this move of ICICI Bank disregarded its secured lender status with Gwalior Bypass and that ICICI Bank has acted in collusion with Gwalior Bypass.
The NCLAT held that L&T had no right to intervene and oppose the application filed by the ICICI Bank under Section 7 of IBC against Gwalior Bypass as it was not a member or shareholder of Gwalior Bypass. The NCLAT referred to Supreme Court’s judgment in the case of Innoventive Industries Ltd. Vs. ICICI Bank which laid down the following guidelines in order to accept an application under Section 7 of IBC-
- Whether the application is complete or not
- Whether there is a debt
- Whether the Debtor defaulted in payment
- Whether the amount is more than Rs. 1 Lakh
Following the judgment of the Supreme Court in the above case, the admission of application of ICICI Bank was valid as it met the guidelines provided by the Supreme Court in its judgment. The NCLAT concluded that L&T could not challenge the order of admission of insolvency proceedings by NCLAT merely on the ground that it has first charge on the assets of the Gwalior Bypass or it has superior claim over the claim of ICICI Bank. The NCLAT also said that L&T could file a separate claim on this issue before the Resolution Professional.
Therefore, it is concluded that a Financial Creditor cannot challenge the admission of insolvency proceedings before the adjudicating authority initiated by another Financial Creditor merely on the grounds that it has a superior claim.
-Ayushi Mishra