Admittance of Corporate Insolvency Resolution Process under IBC despite Concurrent Proceedings and RBI Circulars – PFC v. SEUPPTCL

1. Introduction

The case of Power Finance Corporation Limited (PFC) v. South East U.P. Power Transmission Company Limited (SEUPPTCL) was adjudicated by the National Company Law Tribunal (NCLT) on July 16, 2020. The financial creditor, PFC, initiated the Corporate Insolvency Resolution Process (CIRP) against SEUPPTCL under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The core issues revolved around PFC's ability to declare SEUPPTCL insolvent amidst concurrent legal proceedings and challenges based on Reserve Bank of India (RBI) directives.

2. Summary of the Judgment

The NCLT, presided over by Member Rajesh Dayal Khare, admitted PFC's petition under Section 7 of the IBC, thereby initiating CIRP against SEUPPTCL. The tribunal found that SEUPPTCL had defaulted on its financial obligations as per the Rupee Term Loan Facility Agreement sanctioned by PFC and other lenders. Despite SEUPPTCL's objections citing delays attributed to UPPTCL and external circumstances, the tribunal held that the admission of the petition was justified based on established debt and evident default.

3. Analysis

3.1 Precedents Cited

The judgment extensively referenced key precedents to bolster its reasoning:

• Ankit Patni v. State Bank of India (2018): Affirmed that RBI circulars issued after the initiation of IBC proceedings do not have retrospective effect and cannot override the provisions of the IBC.
• Yes Bank v. Namoalloys (2018): Emphasized that IBC proceedings are independent and take precedence over other concurrent legal proceedings, reinforcing the tribunal's authority to admit petitions based solely on debt and default.
• Innoventive Industries v. ICICI Bank (2018): Clarified that the existence of default can be established through records of information utilities or other evidence provided by the financial creditor, even if the debtor disputes the debt.
• Karan Goel v. Pashupati Jewellers (2019): Reinforced the principle that upon satisfaction of default and established debt, the adjudicating authority must admit the IBC application.

3.2 Legal Reasoning

The tribunal's decision hinged on several legal principles:

• Establishment of Debt and Default: PFC successfully demonstrated the existence of a financial debt under the Rupee Term Loan Facility Agreement and SEUPPTCL's failure to meet repayment obligations, thereby constituting a default as defined under Section 3(12) of the IBC.
• Independence from Other Proceedings: Citing Yes Bank v. Namoalloys, the tribunal maintained that the presence of concurrent legal proceedings, such as those before the Uttar Pradesh Electricity Regulatory Commission, does not impede the admissibility of an IBC petition.
• Non-Retroactive Effect of RBI Circulars: Referencing Ankit Patni v. SBI, it was determined that RBI directives issued post the filing of the IBC petition do not influence the ongoing insolvency proceedings.
• Validity of Evidence: Following Innoventive Industries v. ICICI Bank, the tribunal accepted the evidence of default provided by PFC, even in the absence of additional documentation from information utilities.

3.3 Impact

This judgment reinforces the supremacy of the IBC framework in resolving insolvency matters, ensuring that financial creditors can initiate CIRP without being hindered by other legal challenges or post-filing regulatory directives. It underscores the tribunal's mandate to prioritize statutory rights under the IBC, thereby promoting a streamlined and efficient insolvency resolution mechanism. Future cases will likely cite this judgment to support the admissibility of IBC petitions under similar circumstances.

4. Complex Concepts Simplified

5. Conclusion

The NCLT's decision in PFC v. SEUPPTCL serves as a pivotal affirmation of the IBC's authority in insolvency matters. By upholding the admissibility of the CIRP despite the presence of other legal proceedings and challenges based on RBI circulars, the tribunal has reinforced the effectiveness of the IBC in resolving corporate insolvencies. This judgment not only provides clarity on the independence of IBC proceedings but also ensures that financial creditors retain their statutory rights to initiate resolution processes, thereby fostering a robust and reliable insolvency framework in India.