Supreme Court Restores NCLT Order: Financial Creditor’s Claim Against Corporate Debtor Upheld

The case of SREI Equipment Finance Limited vs. Rajeev Anand & Ors. revolves around the application of Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The Supreme Court had to decide whether the National Company Law Appellate Tribunal (NCLAT) was correct in dismissing the financial creditor’s claim after the National Company Law Tribunal (NCLT) had admitted it.

The appellant, SREI Equipment Finance Limited, had filed a Section 7 application against the corporate debtor, claiming a debt of Rs. 18.86 crores. The NCLT admitted the application and initiated insolvency resolution proceedings, but the NCLAT set aside the order, stating that the claim was based on a document already rejected in a previous case. The Supreme Court overruled the NCLAT, restored the NCLT’s order, and allowed the insolvency proceedings to continue.

Background of the Case

The dispute arose over financial transactions dating back to 2008, which were later restructured into two loans:

• A loan of Rs. 18.86 crores under an agreement dated April 1, 2016.
• A second loan of Rs. 16.80 crores under an agreement dated June 24, 2016.
• The total amount outstanding was Rs. 38.39 crores, including interest.

The financial creditor filed a Section 7 application before the NCLT on March 16, 2017. However, the corporate debtor argued that the application was premature since the agreed installment payments had not matured. Based on this, the application was withdrawn with liberty to file a fresh one.

A fresh Section 7 application was filed on August 4, 2017, citing Rs. 21.41 crores as outstanding. The corporate debtor contested this, claiming that it had already repaid Rs. 65.60 crores from 2008 to date and that the alleged outstanding amount was incorrect.

Petitioner’s Arguments

The financial creditor, SREI Equipment Finance Limited, contended:

• The corporate debtor had admitted to the restructuring of Rs. 35.66 crores in its counter affidavit.
• The amount of Rs. 18.86 crores was separately disbursed on April 1, 2016, and was still outstanding.
• The NCLT correctly admitted the application based on the admission in the corporate debtor’s affidavit.
• The NCLAT erroneously held that documents from a withdrawn petition could not be relied upon.

Respondent’s Arguments

The corporate debtor countered:

• The financial creditor’s claim was based on a previously withdrawn petition.
• The alleged outstanding amount was already repaid through RTGS transfers.
• The NCLT relied on a supplementary affidavit that had been earlier rejected.
• The claim should be dismissed as being time-barred.

Supreme Court’s Key Observations

The Supreme Court analyzed the procedural and substantive aspects of the claim and made the following key observations:

“The documents relied upon by the NCLT were not rejected in the previous petition but were part of the corporate debtor’s own admissions. The NCLAT erred in disregarding these admissions.”

The Court further noted:

• The supplementary affidavit filed on August 3, 2018, clarified the corporate debtor’s outstanding liability.
• The NCLAT wrongly assumed that prior documents could not be considered in the fresh petition.
• The corporate debtor had admitted to owing Rs. 35.66 crores in its earlier proceedings.
• Estoppel applied, preventing the corporate debtor from contradicting its earlier admissions.

Legal Precedents Considered

The Supreme Court relied on several key precedents:

• Innoventive Industries Ltd. vs. ICICI Bank Ltd. (2018) 1 SCC 407: Confirmed that an admission of debt is sufficient for initiating insolvency resolution.
• Swiss Ribbons Pvt. Ltd. vs. Union of India (2019) 4 SCC 17: Explained the objectives of the IBC and emphasized speedy resolution.
• Asset Reconstruction Company (India) Ltd. vs. Bishal Jaiswal & Anr. (2021) 6 SCC 45: Held that financial creditors can rely on acknowledgments of debt to extend limitation periods.

Final Judgment

The Supreme Court set aside the NCLAT’s decision and restored the NCLT’s order:

“The resolution proceedings will continue from the stage at which they were interrupted. The financial creditor’s claim is valid, and the corporate debtor’s objections are without merit.”

Implications of the Judgment

This ruling has significant implications for insolvency proceedings:

• It confirms that financial creditors can rely on prior admissions made by corporate debtors.
• It prevents debtors from escaping liability by withdrawing earlier petitions.
• It ensures that insolvency proceedings are not delayed by technical objections.
• It upholds the principle that admitted debts should not be subject to unnecessary litigation.
• It reinforces the intent of the IBC to enable quick resolution of corporate debt disputes.

With this judgment, the Supreme Court has clarified the admissibility of past admissions in insolvency proceedings, ensuring that financial creditors have a clear legal pathway to recover dues under the IBC.

Petitioner Name: SREI Equipment Finance Limited.
Respondent Name: Rajeev Anand & Ors..
Judgment By: Justice Rohinton Fali Nariman, Justice Navin Sinha, Justice Indira Banerjee.
Place Of Incident: India (Corporate Insolvency Case).
Judgment Date: 08-09-2020.

Don’t miss out on the full details! Download the complete judgment in PDF format below and gain valuable insights instantly!

Download Judgment: SREI Equipment Finan vs Rajeev Anand & Ors. Supreme Court of India Judgment Dated 08-09-2020.pdf

Direct Downlaod Judgment: Direct downlaod this Judgment

See all petitions in Bankruptcy and Insolvency
See all petitions in Corporate Compliance
See all petitions in unfair trade practices
See all petitions in Judgment by Rohinton Fali Nariman
See all petitions in Judgment by Navin Sinha
See all petitions in Judgment by Indira Banerjee
See all petitions in allowed
See all petitions in supreme court of India judgments September 2020
See all petitions in 2020 judgments

See all posts in Corporate and Commercial Cases Category
See all allowed petitions in Corporate and Commercial Cases Category
See all Dismissed petitions in Corporate and Commercial Cases Category
See all partially allowed petitions in Corporate and Commercial Cases Category