Financial Creditor can file for corporate insolvency resolution process

By | May 6, 2017
(Last Updated On: May 6, 2017)

Bench : National Company Law Tribunal (NCLT), Mumbai Bench, Mumbai

Financial Creditor M/s. Edelweiss Asset Reconstruction Co. Ltd.

Corporate Debtor M/s. Murli Industries Ltd.

Amount of Default 1365.40 Cr.

Date of Order 05-04-2017

Relevant Section Section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudication Authority) Rules, 2016 – Initiation of corporate Insolvency resolution process by Financial Creditor

Facts of the Case 

The corporate debtor entered into a master reconstructing agreement with Bank of Baroda (Monitoring Institution) and other Lender Banks. The agreement says that the corporate debtor has requested the lenders for various financial assistance for setting up/implementation of the project and for other requirement for its operations. The lenders sanctioned the term loan and working capital facilities to the corporate debtor and the corporate debtor from time to time created security by way of hypothecation of its moveable assets and/or mortgage of its immovable properties. The corporate debtor requested the lenders for debt restructuring as the project under implementation has come under strain due to various internal or external reasons. Hence the lenders and the corporate debtors agreed to enter into master restructuring agreements to give effect to the corporate debts restructuring package.

Bank of Baroda which is a lead bank under consortium arrangement issued a notice to the corporate debtor u/s. 13 (2) of the SARFAESI Act for recovery of Rs. 1365.40 crores due to the consortium banks. Bank of Baroda has also issued a possession notice stating that it has taken symbolic possession of the property owned by the corporate debtor u/s. 13 (4) of the SARFAESI Act read with Rule 9 of security Interest (Enforcement) Rules 2002. Further, auditor’s report has stated that the company has defaulted in repayment of dues to financial institutions and banks amounting to Rs. 1896.65 crores.

The Edelweiss Asset Reconstruction Company Limited in its capacity as financial creditor filed this petition for initiation of corporate insolvency resolution process.

 Decision of the Tribunal

This petition clearly reveals that there is a debt as defined in Section 3 (11) of the Code and also there is default in this case within the meaning of Section 3 (12) of the Code. Further, Section 5 (7) clearly provides that an assignee of a financial debt is also a financial creditor and hence the petition is well within the ambit of Section 7 of the Code.

The Tribunal therefore admitted the petition and appointed an interim resolution professional.

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