Introduction

The case of Mr. Aseem Srivastav v. ICICI Bank Limited and Kotak Mahindra Bank Limited v. ICICI Bank Limited adjudicated by the National Company Law Appellate Tribunal (NCLAT) on November 29, 2021, underscores significant developments in the application of the Insolvency and Bankruptcy Code (IBC), 2016. The appeals were filed against the NCLT's decision to admit applications under Section 7 of the IBC, initiating the Corporate Insolvency Resolution Process (CIRP) against Mc Nally Sayaji Engineering Limited, the corporate debtor.

The key issues revolved around the maintainability of the Section 7 application, the legitimacy of the claimed debts, the potential misjoinder of causes of action, and the applicability of Section 10A of the IBC, which imposes restrictions on initiating insolvency proceedings for certain defaults.

Summary of the Judgment

The NCLAT dismissed both appeals filed by Mr. Aseem Srivastav and Kotak Mahindra Bank Limited, thereby upholding the NCLT's decision to admit the Section 7 applications filed by ICICI Bank Limited. The tribunal found that the debt claimed by ICICI Bank was valid, maintaining that the cause of action accrued based on the classification of the corporate debtor's account as a Non-Performing Asset (NPA) on March 31, 2019. The arguments regarding misjoinder of causes of action and the applicability of Section 10A were not upheld.

Analysis

Precedents Cited

The appellants referenced several prior judgments to bolster their arguments:

• International Road Dynamics South Asia Pvt. Ltd. Vs. Reliance Infrastructure Limited – Highlighted that separate causes of action arising from different agreements with distinct dates of default should not be clubbed together.
• Bank of India vs. Coastal Oil Gas Infrastructure Pvt. Ltd. – Addressed discrepancies in the application related to the date of default.
• Ramesh Kymal vs. M/s Siemens Gamesa Renewable Power Pvt. Ltd. – Discussed the implications of repayment schedules on the debt's validity.
• Babulal Vardharaji Gurjar vs. Veer Gurjar Aluminium Industries Pvt. Ltd. and B.K Educational Services Pvt. Ltd. vs. Parag Gupta – Dealt with the limitation periods applicable to insolvency applications.
• Swiss Ribbons Pvt. Ltd. Vs. Union of India – Clarified the distinction between acknowledgment of debt and acknowledgment of default.
• Dena Bank vs. C. ShivaKumar Reddy and Anr. – Emphasized the equitable treatment of creditors under the IBC.
• Gaurav Hargovind Bhai Dave vs. Asset Reconstruction Company (India) Limited & Anr. – Addressed the date of default as the date of NPA classification.

The tribunal critically analyzed these precedents, distinguishing between applications under Section 7 and Section 9 of the IBC, and reaffirmed the applicability of Section 7 in the present context.

Legal Reasoning

The NCLAT's legal reasoning centered on several key points:

• Misjoinder of Causes of Action: The tribunal observed that Section 7 of the IBC allows for joint applications by multiple financial creditors, thereby permitting the consolidation of different causes of action arising from various loan agreements with distinct default dates. This contrasted with Section 9, where such misjoinder could render an application defective.
• Validity of Debt: The court determined that the debts claimed by ICICI Bank were indeed due and payable, citing the definitions under Section 3(12) of the IBC. Even though some installments were not yet due at the time of the Section 7 application, the overall default justified the initiation of CIRP.
• Limitation Period: The tribunal held that the Section 7 application was filed within the permissible three-year period from the date of acknowledgment of debt (October 26, 2018), thereby dismissing arguments related to the statute of limitations.
• Applicability of Section 10A: Since the defaults occurred before the enactment of Section 10A, the provisions limiting applications for recent defaults did not apply to this case.
• Restructuring Proposals: The court noted that the existence of ongoing restructuring negotiations did not obligate the adjudicating authority to defer the Section 7 application. The responsibility lay with the creditors to collectively decide on pursuing insolvency or restructuring.
• Locus Standi: Regarding Kotak Mahindra Bank's appeal, the tribunal concluded that the bank lacked the necessary locus standi, as it did not fall within the definition of an "aggrieved person" under Section 61(1) of the IBC.

Impact

This judgment reinforces the robustness of Section 7 of the IBC in facilitating swift insolvency proceedings against corporate debtors in default. By allowing the consolidation of multiple debts with varying default dates under a single application, the tribunal ensures that financial creditors can efficiently address corporate insolvencies without being hampered by procedural technicalities.

The ruling also emphasizes the importance of timely acknowledgment of debt and adherence to limitation periods, providing clear guidelines for creditors seeking to initiate CIRP. Additionally, it underscores that individual creditors cannot unilaterally block insolvency proceedings if a majority or the appropriate parties deem it necessary.

Moreover, the dismissal of the locus standi claim sets a precedent that only specific entities fitting the statutory definition can challenge insolvency applications, thereby streamlining judicial processes.

Complex Concepts Simplified

Corporate Insolvency Resolution Process (CIRP)

CIRP is a process initiated under the IBC to resolve the insolvency of a corporate debtor. It involves stakeholders coming together to formulate a plan to restructure debts or, if unsuccessful, liquidate the company's assets.

Section 7 of the IBC

Section 7 allows financial creditors to file an application to initiate CIRP against a corporate debtor upon the occurrence of a default. A default typically involves non-payment of a debt when it becomes due.

Misjoinder of Causes of Action

This refers to the incorrect or improper grouping of multiple legal claims or reasons for a lawsuit into a single case, which can potentially render the case invalid.

Section 10A of the IBC

Section 10A imposes restrictions on filing insolvency applications for defaults occurring after a specific date. It serves as a safeguard against frivolous or opportunistic insolvency proceedings.

Locus Standi

Locus standi refers to the right or capacity to bring an action or to appear in a court. In this context, it pertains to whether Kotak Mahindra Bank had the standing to challenge the NCLT's decision.

Conclusion

The NCLAT's judgment in Mr. Aseem Srivastav v. ICICI Bank Limited and Kotak Mahindra Bank Limited v. ICICI Bank Limited reaffirms the efficacy of the IBC's Section 7 in addressing corporate insolvencies. By upholding the initiation of CIRP against Mc Nally Sayaji Engineering Limited, the tribunal has reinforced the framework that ensures timely and structured resolution of corporate debts.

This decision underscores the judiciary's commitment to equitable treatment of creditors and the primacy of legal provisions over procedural objections. It provides clarity on the admissibility of insolvency applications involving multiple debts and varying default dates, thereby facilitating smoother insolvency processes in the future.

For legal practitioners and financial institutions, this judgment serves as a pivotal reference point for navigating insolvency proceedings, emphasizing the importance of compliance with statutory requirements and the strategic consolidation of claims to strengthen insolvency applications.