The National Company Law Appellate Tribunal (NCLAT) has dismissed a petition filed by Kotak Mahindra Bank along with a director of debt-ridden McNally Sayaji Engineering Ltd (MSEL) to set aside insolvency proceedings against the manufacturer of mineral processing equipment.
A two-member NCLAT bench upheld the orders of the Kolkata bench of the National Company Law Tribunal (NCLT), which had on February 11, 2021, admitted a plea by ICICI Bank and directed to initiate insolvency proceedings against MSEL.
The NCLT order was challenged by Kotak Mahindra Bank and a director of the suspended board of MSEL before the appellate insolvency tribunal NCLAT.
Kotak Mahindra Bank had contended that besides it, four other banks -- ICICI Bank, DBS, IDBI and SBI -- had advanced loans to MSEL and NCLT had failed to appreciate that more than 50 per cent members of the lenders' consortium had opposed initiation of corporate insolvency resolution process (CIRP), as they were considering restructuring of loan outside the IBC.
Restructuring of loans is more beneficial to the creditors as they will not have to take a haircut, Kotak Mahindra Bank had submitted. In the eventuality of a resolution plan being implemented or liquidation process being initiated, financial creditors, including Kotak Mahindra Bank, will have to take a haircut, it added.
Moreover, the appellant contended that the case was not maintainable as it was filed after the permissible period of three years after the default. However, ICICI Bank opposed both the petitions.
It said the account of MSEL was classified as NPA on March 31, 2019 and loan recall notice was issued on January 3, 2020 -- thus the application was filed within three years from the date of acknowledgement.
ICICI Bank further said Kotak Mahindra Bank's appeal was not maintainable and filed at the behest of MSEL. Moreover, Kotak Mahindra Bank has not raised any challenge to the existence of debt, default and completeness of the application filed by ICICI Bank. The CIRP is not adversarial to the interest of the corporate debtor or its creditors, it said.
The Insolvency and Bankruptcy Code (IBC) is a beneficial legislation for equal treatment to the creditors and to revive MSEL, submitted ICICI Bank. Rejecting the submissions of the appellant, the NCLAT said the Supreme Court has already held that the date on which a bank declares an account of corporate debtor as NPA is the date of default. In the present case, the MSEL account was classified as NPA on March 31, 2019.
NCLAT said Kotak Mahindra Bank has no valid ground to challenge the NCLT order and it was "convinced with the argument of Counsel for the Respondent No 1 (ICICI Bank) and hold that the Appellant has no locus standi" to file this appeal.
The appellant has "failed to point out any legal or factual flaw in the impugned order", it added.
"With the aforesaid discussion, we are of the view that no interference is called for in the impugned order. Thus, the Appeals are dismissed," said NCLAT.
On Kotak Mahindra Bank's plea to consider restructuring of debt outside the purview of IBC, the appellate tribunal said NCLT was aware of the proposal but the lenders'' consortium has not filed any application for deferment of the proceedings before it.
"There is no duty cast on the NCLT that no sooner NCLT gets information that outside the purview of IBC any restructuring proposal is under consideration before the consortium of lenders then...(it) should defer the proceedings for initiation of CIRP," it said. In the present case, MSEL has committed default and the application is complete, Therefore, NCLT has no option except to admit the plea to initiate the insolvency process, it said.