M. SURESH KUMAR REDDY versus CANARA BANK & ORS. on 11 May 2023

[2023] 5 S.C.R. 387

M. SURESH KUMAR REDDY

v.

CANARA BANK & ORS.

(Civil Appeal No. 7121 of 2022)

MAY 11, 2023

[ABHAY S. OKA AND RAJESH BINDAL, JJ.]

Insolvency and Bankruptcy Code, 2016 – ss.3(12), 7, 14 –Scope of s.7 – ‘Default’ u/s.3(12) – Application filed by therespondent-Bank u/s.7 against corporate debtor, admitted by NCLT– Moratorium was declared for the purposes referred in s.14 –Challenged by appellant, a suspended Director of the CorporateDebtor – Appeal dismissed by NCLAT – Held: Once NCLT is satisfiedthat the default has occurred, there is hardly a discretion left with itto refuse admission of the application u/s.7 – Even the non--paymentof a part of debt when it becomes due and payable will amount todefault on the part of a Corporate Debtorò – In such a case, anorder of admission u/s.7 must follow – In the present case, the amountpayable by the Corporate Debtor also included the amountrepayable under fund-based credit facility of secured overdrafts –The facility granted to the Corporate Debtor was not confined toBank Guarantees – Corporate Debtor committed a default withinthe meaning of s.3(12) due to non-payment of the amounts due tothe Bank – Thus, even assuming that NCLT has the power to rejectthe application u/s.7 if there are good reasons to do so, in the instantcase, the conduct of the appellant was such that no such good reasonexisted on the basis of which NCLT could have denied admission ofthe application u/s.7 – Securitisation and Reconstruction ofFinancial Assets and Enforcement of Security Interest Act, 2002 –s.13(2).

Dismissing the appeal, the Court

HELD: 1. Once NCLT is satisfied that the default hasoccurred, there is hardly a discretion left with NCLT to refuseadmission of the application under Section 7. Thus, even the non-payment of a part of debt when it becomes due and payable willamount to default on the part of a Corporate Debtorò. In such acase, an order of admission under Section 7 of the IB Code must

387

A

B

CDEF

GH

Afollow. If the NCLT finds that there is a debt, but it has not becomedue and payable, the application under Section 7 can be rejected.Otherwise, there is no ground available to reject the application.[Para 10][397-C, E-F]

E.S. Krishnamurthy and others v. Bharath Hi TecchBBuilders Private Limited (2022) 3 SCC 161; InnoventiveIndustries Limited v. ICICI Bank and Another (2018) 1SCC 407 : [2017] 8 SCR 33 – relied on.

2. The decision in the case of Vidarbha Industries cannotbe read and understood as taking a view which is contrary to theCview taken in the cases of Innoventive Industries and E.S.Krishnamurthy The view taken in the case of InnoventiveIndustries still holds good. [Para 13][399-A-C]

Vidarbha Industries Power Limited v. Axis Bank Limited2022 (8) SCC 352 – referred to.

D

3. In this case, the amount payable by the Corporate Debtoralso included the amount repayable under fund-based credit facilityof secured overdrafts. The facility granted to the CorporateDebtor was not confined to Bank Guarantees. Moreover, ademand notice under Section 13(2) of the Securitisation andEReconstruction of Financial Assets and Enforcement of SecurityInterest Act, 2002 dated 29th August 2018 was issued by thefirst respondent. As the Corporate Debtor did not honour thesaid notice, the original application for recovery has been filedby the first respondent before the Debt Recovery Tribunal atHyderabad. Moreover, the Corporate Debtor acknowledged theFdebt on 5th May 2019 to the extent of Rs. 63,36,61,897.26.Moreover, the Balance Sheet as of 31.03.2019 of the CorporateDebtor reflects the said liability of the Corporate Debtor. It istrue that as far as Bank Guarantees are concerned, the ExecutiveEngineer of the Government of Telangana addressed letters toGthe Bank requesting the Bank to revalidate the Bank Guarantees.On 8th January 2020, the Government addressed a letter toSyndicate Bank to extend the seven Bank Guarantees mentionedtherein. The letter mentions that if the action of revalidation orextension of the Bank Guarantees is not taken, the Bank H

Guarantees be realized and the amount be paid by Demand Draftsto the State Government. Thus, Bank Guarantees were invokedby the State Government. In view of the said letter, on 9th January2020, the Corporate Debtor addressed a letter to the SyndicateBank mentioning that the issue relating to the pre-closure of thetwo contracts granted by the State Government was under theactive consideration of the State Government. The letter mentionsthat if the Bank Guarantees were not extended, the same arelikely to be encashed by the Government. Therefore, a requestwas made by the Corporate Debtor to the Bank to revalidate theBank Guarantees. However, the first respondent by a letter dated18th January 2021, specifically informed the Corporate Debtorthat the competent authority has not considered the proposal ofthe Corporate Debtor for extending Bank Guarantees andSecured Overdraft Facilities. By the same letter, the firstrespondent called upon the Corporate Debtor to clear theoutstanding immediately. Thus, there is no doubt that theCorporate Debtor committed a default within the meaning ofSection 3(12) of the IB Code due to non-payment of the amountsdue to the Bank. There are a large number of Guarantees issuedby the Bank. The interim order of the Telangana High Courtdoes not relate to all Bank Guarantees. Moreover, there is nofinding recorded in the interim order that the Corporate Debtoris not liable to pay the dues. The interim order only preventscoercive action against the Corporate Debtor. Even assumingthat NCLT has the power to reject the application under Section7 if there were good reasons to do so, in the facts of the case, theconduct of the appellant is such that no such good reason existedon the basis of which NCLT could have denied admission of theapplication under Section 7. [Paras 14-18][399-D-H; 400-A-D]

Case Law Reference

[2017] 8 SCR 33relied onPara 8

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7121of 2022.

From the Judgment and Order dated 05.08.2022 of the NationalCompany Law Appellate Tribunal at Chennai in Company Appeal (AT)(CH) (Insolvency) No. 315 of 2022.

ABC

DE

F

G

H

AKrishnan Venugopal, Sr. Adv., R. Anand Padmanabhan, GovindJethalia, Shashi Bhushan Kumar, Advs. for the Appellant.

Rajesh Kumar Gautam, Anant Gautam, Kartik Jindal, SumitSharma, Ms. Anani Achumi, Ms. Madhumita Bagchi, Dinesh Sharma,Kiran Kumar Patra, Advs. for the Respondents.BThe Judgment of the Court was delivered byABHAY S. OKA, J.

FACTUAL ASPECTS

1. The respondent-Bank filed an application under Section 7 ofCthe Insolvency and Bankruptcy Code, 2016 (for short, ‘the IB Code’)before the National Company Law Tribunal, Hyderabad, Telangana. Thesaid application was filed against a Corporate Debtor M/s Kranthi EdificePvt. Ltd. The present appellant claims to be a suspended Director of theCorporate Debtor. National Company Law Tribunal (for short, ‘NCLT’),Dby an Order dated 27[th] June 2022, admitted the application filed by therespondent-Bank and declared a moratorium for the purposes referredin Section 14 of the IB Code. The appellant claiming to be an aggrievedperson preferred an appeal against the said Order before the NationalCompany Law Appellate Tribunal (for short, ‘NCLAT’). By theimpugned judgment dated 5th August 2022, NCLAT has dismissed theEappeal.

2. The first respondent, Canara Bank is the successor of SyndicateBank, which made application under Section 7 of the IB Code to NCLT.Syndicate Bank was merged into the first respondent-Canara Bank. Aletter of sanction dated 2[nd] April 2016 was issued by Syndicate Bank byFwhich credit facilities were sanctioned to the Corporate Debtor for one-year valid up to 28[th] February 2017. A Secured Overdraft Facility of Rs.12 crores was granted by the Syndicate Bank, apart from sanctioningthe Bank Guarantee limit of Rs. 110 crores. Thus, the facilities grantedby the Syndicate Bank to the Corporate Debtor were fund-based(Overdraft Facility) and non-fund-based (Bank Guarantees).G

3. In the application under Section 7 of the IB Code, the SyndicateBank stated that as on 30[th] November 2019, the liability of the corporatedebtor under the Secured Overdraft Facility was Rs.74,52,87,564.93.The liability of the Corporate Debtor towards outstanding BankGuarantees was Rs.19,16,20,100.H

4. On 21[st] October 2022, this Court while issuing notice, recordeda statement of the learned senior counsel appearing for the appellantthat a proposal for settlement under a One-Time Settlement Schemehas been submitted to the first respondent-Bank and a sum of Rs.6crores has been deposited with the first respondent-Bank. Eventually,the said proposal was turned down by the first respondent-Bank.Therefore, the present appeal was taken up for hearing.

SUBMISSIONS

5. The learned Senior Counsel appearing for the appellantsubmitted that repeated efforts were made to have one-time settlementof the dues payable to the first respondent. But the said request was notacceded to. He relied upon a decision of this Court in the case of VidarbhaIndustries Power Limited v. Axis Bank Limited[1]. He submitted thateven assuming that the existence of financial debt and default on thepart of the Corporate Debtor was established, the NCLT was not underan obligation to admit the application under Section 7. For good reasons,NCLT could have refused to admit the application under Section 7 ofthe IB Code. He also fairly pointed out the Order dated 22[nd] September2022 passed by this Court in a Review Petition seeking a review of thedecision in the case of Vidarbha Industries[1].

6. He invited our attention to the correspondence between theGovernment of Telangana and the Syndicate Bank. There were contractsgranted by the Telangana Government to the Corporate Debtor. Heinvited our attention to a letter dated 5[th] November 2018 addressed bythe Executive Engineer on behalf of the Government of Telanganarequesting the Bank to extend the Bank Guarantees furnished by thesaid Bank on the request of the Corporate Debtor. Similarly, by a letterdated 7[th] August 2019, the Government of Telangana requested theSyndicate Bank to extend 29 Bank Guarantees mentioned in the saidletter. He pointed out that the Corporate Debtor addressed a letter to theBank on 9[th] January 2020 by which a request was made to extend theBank Guarantees. He also invited the attention of the Court to a letterdated 8[th] January 2020 addressed by the Government of Telangana tothe Bank requesting the Bank to extend the seven Bank Guaranteesmentioned therein. He submitted that notwithstanding the requests madeby the State Government, Syndicate Bank did not extend the Bank A

B

C

D

E

F

G

AGuarantees. Thus, in a sense, the failure of the Bank to extend the BankGuarantees forced the Corporate Debtor to commit default. He submittedthat the Bank is responsible for triggering the default. The learned counselinvited our attention to the interim order dated 24[th] April 2020 passed bythe learned Single Judge of the Telangana High Court by which the firstrespondent-Bank was restrained from taking coercive steps pursuant toBletters of invocation of Bank Guarantees including handing over ofDemand Drafts to the State Government. He urged that in the teeth ofthis order, NCLT ought not to have admitted the application under Section7.

7. Learned counsel appearing for the first respondent-Bank firstlyCpointed out that the decision in the case of Vidarbha Industries[1] is inpeculiar facts of that case, as is explained by the same Bench whiledisposing of the Review Petition. He submitted that the decision of thisCourt in the case of E.S. Krishnamurthy and others v. Bharath Hi-Tecch Builders Private Limited[2] still holds the field. He, therefore,Dsubmitted that once NCLT is satisfied that there is a financial debt and adefault has occurred, it is bound to admit an application under Section 7.He submitted that the request made by the Corporate Debtor forextension of the Bank Guarantees was specifically rejected ascommunicated by the first respondent by a letter dated 18[th] January2021 addressed to the Corporate Debtor. He would, therefore, submitEthat there is no error committed by NCLT in admitting application underSection 7.

OUR VIEW

8. We have given careful consideration to the submissions. ThisCourt in the case of Innoventive Industries Limited v. ICICI BankFand Another[3]has explained the scope of Section 7. Paragraph nos.28to 30 of the said decision read thus:- “28. When it comes to a financial creditor triggering the process,Section 7 becomes relevant. Under the Explanation to SectionG7(1), a default is in respect of a financial debt owed to any financialcreditor of the corporate debtor — it need not be a debt owed tothe applicant financial creditor. Under Section 7(2), an applicationis to be made under sub-section (1) in such form and manner as is 2 (2022) 3 SCC 161H3 (2018) 1 SCC 407

prescribed, which takes us to the Insolvency and Bankruptcy(Application to Adjudicating Authority) Rules, 2016. Under Rule4, the application is made by a financial creditor in Form 1accompanied by documents and records required therein. Form 1is a detailed form in 5 parts, which requires particulars of theapplicant in Part I, particulars of the corporate debtor in Part II,particulars of the proposed interim resolution professional in PartIII, particulars of the financial debt in Part IV and documents,records and evidence of default in Part V. Under Rule 4(3), theapplicant is to dispatch a copy of the application filed with theadjudicating authority by registered post or speed post to theregistered office of the corporate debtor. The speed, within whichthe adjudicating authority is to ascertain the existence of a defaultfrom the records of the information utility or on the basis of evidencefurnished by the financial creditor, is important. This it must dowithin 14 days of the receipt of the application. It is at the stage ofSection 7(5), where the adjudicating authority is to be satisfiedthat a default has occurred, that the corporate debtor is entitled topoint out that a default has not occurred in the sense that the“debt”, which may also include a disputed claim, is not due. Adebt may not be due if it is not payable in law or in fact. Themoment the adjudicating authority is satisfied that a defaulthas occurred, the application must be admitted unless it isincomplete, in which case it may give notice to the applicantto rectify the defect within 7 days of receipt of a notice fromthe adjudicating authority. Under sub-section (7), theadjudicating authority shall then communicate the order passed tothe financial creditor and corporate debtor within 7 days ofadmission or rejection of such application, as the case may be.

29. The scheme of Section 7 stands in contrast with the schemeunder Section 8 where an operational creditor is, on the occurrenceof a default, to first deliver a demand notice of the unpaid debt tothe operational debtor in the manner provided in Section 8(1) ofthe Code. Under Section 8(2), the corporate debtor can, within aperiod of 10 days of receipt of the demand notice or copy of theinvoice mentioned in sub-section (1), bring to the notice of theoperational creditor the existence of a dispute or the record of thependency of a suit or arbitration proceedings, which is pre-existing—i.e. before such notice or invoice was received by the AB

C

D

E

F

G

H

corporate debtor. The moment there is existence of such a dispute,the operational creditor gets out of the clutches of the Code.

A

30. On the other hand, as we have seen, in the case of acorporate debtor who commits a default of a financial debt,the adjudicating authority has merely to see the records ofBthe information utility or other evidence produced by thefinancial creditor to satisfy itself that a default has occurred.It is of no matter that the debt is disputed so long as thedebt is “due” i.e. payable unless interdicted by some lawor has not yet become due in the sense that it is payable atsome future date. It is only when this is proved to theCsatisfaction of the adjudicating authority that theadjudicating authority may reject an application and nototherwise.”

9. The view taken in the case of Innoventive Industries[3] hasbeen followed by this Court in the case of E.S. Krishnamurthy andothers[2]. Paragraph nos.32 to 34 of the said decision read thus:

D

32. In Innoventive industries [Innoventive IndustriesLtd. v. ICICI Bank, (2018) 1 SCC 407, paras 28 and 30 : (2018) 1ESCC (Civ) 356], a two-Judge Bench of this Court hasexplained the ambit of Section 7 IBC, and held that theadjudicating authority only has to determine whether a“default” has occurred i.e. whether the “debt” (which maystill be disputed) was due and remained unpaid. If theadjudicating authority is of the opinion that a “default” hasFoccurred, it has to admit the application unless it isincomplete. Speaking through Rohinton F. Nariman, J., the Courthas observed: (SCC pp. 438-39, paras 28 & 30)

E

“28. When it comes to a financial creditor triggering the process,Section 7 becomes relevant. Under the Explanation to Section7(1), a default is in respect of a financial debt owed to [Ed. :The word between two asterisks has been emphasised inoriginal.] any [Ed. : The word between two asterisks has beenemphasised in original.] financial creditor of the corporate debtor— it need not be a debt owed to the applicant financial creditor.Under Section 7(2), an application is to be made under sub- G

H

section (1) in such form and manner as is prescribed, whichtakes us to the Insolvency and Bankruptcy (Application toAdjudicating Authority) Rules, 2016. Under Rule 4, theapplication is made by a financial creditor in Form 1accompanied by documents and records required therein.Form 1 is a detailed form in 5 parts, which requires particularsof the applicant in Part I, particulars of the corporate debtor inPart II, particulars of the proposed interim resolutionprofessional in Part III, particulars of the financial debt in PartIV and documents, records and evidence of default in Part V.Under Rule 4(3), the applicant is to dispatch a copy of theapplication filed with the adjudicating authority by registeredpost or speed post to the registered office of the corporatedebtor. The speed, within which the adjudicating authority is toascertain the existence of a default from the records of theinformation utility or on the basis of evidence furnished by thefinancial creditor, is important. This it must do within 14 daysof the receipt of the application. It is at the stage of Section7(5), where the adjudicating authority is to be satisfiedthat a default has occurred, that the corporate debtor isentitled to point out that a default has not occurred in thesense that the “debt”, which may also include a disputedclaim, is not due. A debt may not be due if it is not payablein law or in fact. The moment the adjudicating authority issatisfied that a default has occurred, the application mustbe admitted unless it is incomplete, in which case it maygive notice to the applicant to rectify the defect within 7days of receipt of a notice from the adjudicating authority.Under sub-section (7), the adjudicating authority shall thencommunicate the order passed to the financial creditor andcorporate debtor within 7 days of admission or rejection ofsuch application, as the case may be.

30. On the other hand, as we have seen, in the case of acorporate debtor who commits a default of a financial debt,the adjudicating authority has merely to see the records ofthe information utility or other evidence produced by thefinancial creditor to satisfy itself that a default has occurred.

AB

C

D

E

F

G

H

A

AIt is of no matter that the debt is disputed so long as thedebt is “due” i.e. payable unless interdicted by some lawor has not yet become due in the sense that it is payable atsome future date. It is only when this is proved to thesatisfaction of the adjudicating authority that theadjudicating authority may reject an application and notB”otherwise.

33. In the present case, the adjudicating authority noted that ithad listed the petition for admission on diverse dates and hadadjourned it, inter alia, to allow the parties to explore the possibilityof a settlement. Evidently, no settlement was arrived at by all theoriginal petitioners who had instituted the proceedings. Theadjudicating authority noticed that joint consent terms dated 12-2-2020 had been filed before it. But it is common ground that theseconsent terms did not cover all the original petitioners who werebefore the adjudicating authority. The adjudicating authority wasapprised of the fact that the claims of 140 investors had been fullysettled by the respondent. The respondent also noted that of theclaims of the original petitioners who have moved the adjudicatingauthority, only 13 have been settled while, according to it “40 arein the process of settlement and 39 are pending settlements”.Eventually, the adjudicating authority did not entertain the petition C

D

E

on the ground that the procedure under IBC is summary, and itcannot manage or decide upon each and every claim of theindividual homebuyers. The adjudicating authority also held thatsince the process of settlement was progressing “in allseriousness”, instead of examining all the individual claims, it wouldFdispose of the petition by directing the respondent to settle all theremaining claims “seriously” within a definite time-frame. Thepetition was accordingly disposed of by directing the respondentto settle the remaining claims no later than within three months,and that if any of the remaining original petitioners were aggrievedby the settlement process, they would be at liberty to approachGthe adjudicating authority again in accordance with law. Theadjudicating authority’s decision was also upheld by the appellateauthority, who supported its conclusions.

G

34. The adjudicating authority has clearly acted outside the termsof its jurisdiction under Section 7(5) IBC. The adjudicating H

authority is empowered only to verify whether a default hasoccurred or if a default has not occurred. Based upon itsdecision, the adjudicating authority must then either admitor reject an application, respectively. These are the only twocourses of action which are open to the adjudicating authority inaccordance with Section 7(5). The adjudicating authority cannotcompel a party to the proceedings before it to settle a dispute.”

10. Thus, once NCLT is satisfied that the default has occurred,there is hardly a discretion left with NCLT to refuse admission of theapplication under Section 7. Default is defined under sub-section 12 ofSection 3 of the IB Code which reads thus:

“3. Definitions: - In this Code, unless the context otherwiserequires,-

.. .. .. .. .. .. .. ..

(12) “default” means non-payment of debt when whole or anypart or instalment of the amount of debt has become due andpayable and is not [paid] by the debtor or the corporate debtor, asthe case may be;”

Thus, even the non-payment of a part of debt when it becomesdue and payable will amount to default on the part of a Corporate Debtor#.In such a case, an order of admission under Section 7 of the IB Codemust follow. If the NCLT finds that there is a debt, but it has not becomedue and payable, the application under Section 7 can be rejected.Otherwise, there is no ground available to reject the application.

11. Reliance is placed on the decision of this Court in the case ofVidarbha Industries[1] and in particular, what is held therein in paragraphnos. 86 to 89 which reads thus:-

“86. Even though Section 7(5)(a) IBC may confer discretionarypower on the adjudicating authority, such discretionary powercannot be exercised arbitrarily or capriciously. If the facts andcircumstances warrant exercise of discretion in a particular manner,discretion would have to be exercised in that manner.

87. Ordinarily, the adjudicating authority (NCLT) would haveto exercise its discretion to admit an application under A

B

C

D

E

F

G

H

ASection 7 IBC and initiate CIRP on satisfaction of theexistence of a financial debt and default on the part of thecorporate debtor in payment of the debt, unless there aregood reasons not to admit the petition.

88. The adjudicating authority (NCLT) has to consider the groundsBmade out by the corporate debtor against admission, on its ownmerits. For example, when admission is opposed on the ground ofexistence of an award or a decree in favour of the corporatedebtor, and the awarded/decretal amount exceeds the amount ofthe debt, the adjudicating authority would have to exercise itsdiscretion under Section 7(5)(a) IBC to keep the admission of theCapplication of the financial creditor in abeyance, unless there isgood reason not to do so. The adjudicating authority may, forexample, admit the application of the financial creditor,notwithstanding any award or decree, if the award/decretal amountis incapable of realisation. The example is only illustrative.

D89. In this case, the adjudicating authority (NCLT) has simplybrushed aside the case of the appellant that an amount of Rs 1730crores was realisable by the appellant in terms of the order passedby APTEL in favour of the appellant, with the cursory observationthat disputes if any between the appellant and the recipient ofEelectricity or between the appellant and the Electricity RegulatoryCommission were inconsequential.”

12. A Review Petition was filed by the Axis Bank Limited seekinga review of the decision of Vidarbha Industries[1] on the ground that theFattention of the Court was not invited to the case of E.S. Krishnamurthy[2].While disposing of Review Petition by Order dated 22[nd] September 2022,this Court held thus:

“The elucidation in paragraph 90 and other paragraphs weremade in the context of the case at hand. It is well settledGthat judgments and observations in judgments are not tobe read as provisions of statute. Judicial utterances and/orpronouncements are in the setting of the facts of a particularcase.

To interpret words and provisions of a statute, it may becomeHnecessary for the Judges to embark upon lengthy discussions.

The words of Judges interpreting statutes are not to be interpretedas statutes.”

13. Thus, it was clarified by the order in review that the decisionin the case of Vidarbha Industries[1 ]was in the setting of facts of thecase before this Court. Hence, the decision in the case of VidarbhaIndustries[1 ]cannot be read and understood as taking a view which iscontrary to the view taken in the cases of Innoventive Industries[3 ]andE.S. Krishnamurthy[2]. The view taken in the case of InnoventiveIndustries[3 ]still holds good.

14. In this case, we must note that the amount payable by theCorporate Debtor also included the amount repayable under fund-basedcredit facility of secured overdrafts. The facility granted to the CorporateDebtor was not confined to Bank Guarantees.

15. Moreover, a demand notice under Section 13(2) of theSecuritisation and Reconstruction of Financial Assets and Enforcementof Security Interest Act, 2002 dated 29[th] August 2018 was issued by thefirst respondent. As the Corporate Debtor did not honour the said notice,the original application for recovery has been filed by the first respondentbefore the Debt Recovery Tribunal at Hyderabad. Moreover, theCorporate Debtor acknowledged the debt on 5[th] May 2019 to the extentof Rs. 63,36,61,897.26. Moreover, the Balance Sheet as of 31.03.2019of the Corporate Debtor reflects the said liability of the Corporate Debtor.

16. It is true that as far as Bank Guarantees are concerned, theExecutive Engineer of the Government of Telangana addressed lettersto the Bank requesting the Bank to revalidate the Bank Guarantees. On8[th] January 2020, the Government addressed a letter to Syndicate Bankto extend the seven Bank Guarantees mentioned therein. The lettermentions that if the action of revalidation or extension of the BankGuarantees is not taken, the Bank Guarantees be realized and the amountbe paid by Demand Drafts to the State Government. Thus, BankGuarantees were invoked by the State Government. In view of the saidletter, on 9[th] January 2020, the Corporate Debtor addressed a letter tothe Syndicate Bank mentioning that the issue relating to the pre-closureof the two contracts granted by the State Government was under theactive consideration of the State Government. The letter mentions thatif the Bank Guarantees were not extended, the same are likely to beencashed by the Government. Therefore, a request was made by the A

B

C

D

E

F

G

H

ACorporate Debtor to the Bank to revalidate the Bank Guarantees.However, the first respondent by a letter dated 18[th] January 2021,specifically informed the Corporate Debtor that the competent authorityhas not considered the proposal of the Corporate Debtor for extendingBank Guarantees and Secured Overdraft Facilities. By the same letter,the first respondent called upon the Corporate Debtor to clear theBoutstanding immediately. Thus, there is no doubt that the Corporate Debtorcommitted a default within the meaning of Section 3(12) of the IB Codedue to non-payment of the amounts due to the Bank.

17. There are a large number of Guarantees issued by the Bank.The interim order of the Telangana High Court does not relate to allCBank Guarantees. Moreover, there is no finding recorded in the interimorder that the Corporate Debtor is not liable to pay the dues. The interimorder only prevents coercive action against the Corporate Debtor.

18. Even assuming that NCLT has the power to reject theapplication under Section 7 if there were good reasons to do so, in theDfacts of the case, the conduct of the appellant is such that no such goodreason existed on the basis of which NCLT could have denied admissionof the application under Section 7.

19. Hence, we find that there is no merit in the appeal, and thesame is, accordingly, dismissed. There will be no order as to costs.

E

Divya Pandey

(Assisted by : Varun Dhond and Roopanshi Virang, LCRAs)

Appeal dismissed.

F

G

H