The NCLAT upheld the dismissal of the Section 7 petition due to a lack of substantiating evidence and the existence of a binding arbitral award.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, reviewed multiple appeals and dismissed the Section 7 application. The Tribunal held that, in the absence of sufficient documentary evidence substantiating the existence of financial debt, an agreed interest rate, and default, a Section 7 application under the Insolvency and Bankruptcy Code, 2016, is not maintainable—particularly when disputes have been referred to arbitration, and an arbitral award has been rendered and remains binding.
The National Company Law Appellate Tribunal (NCLAT) adjudicated upon Company Appeal No. 790 of 2021, arising from the impugned order dated 16.04.2021 passed by the National Company Law Tribunal (NCLT), Kolkata Bench. The NCLT had dismissed Misc Application (IB) No. 381/KB/2020 in CP(IB) No. 1680 of 2018, wherein the Appellant sought revival of the main Company Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The dismissal was premised on the fact that a Memorandum of Settlement had been executed between the parties. Company Appeal No. 299 of 2023 arose from an order dated 13.01.2022, dismissing Misc Application No. 382/KB/2020, which sought revival of CP(IB) No. 34/KB/2019 in light of the settlement and reference to arbitration proceedings. The Appellants, aggrieved by the three impugned orders, preferred the present appeal before the NCLAT.
The Appellants contended that Pradeep Kumar Agarwal and Nutan Agarwal, as shareholders of Nutan Ispat and Power Pvt. Ltd., had entered into a Memorandum of Understanding (MoU) with the Khetan Group for the transfer of their shareholding for Rs. 45 crore, following the declaration of the Corporate Debtor's account as a Non-Performing Asset (NPA). Pending completion of the shareholding transfer, they infused Rs. 7.26 crore, either personally or through Indo Lahari Bio Power Pvt. Ltd., towards the operational and financial obligations of the Corporate Debtor. It was asserted that this infusion was made with the express understanding that the amount, along with interest, would be repaid upon the release of securities and guarantees, as stipulated in the MoU. Upon the Khetan Group's takeover of the Corporate Debtor in 2018, the Appellants demanded repayment of the infused sum with interest. The failure of repayment led to the filing of a Section 7 application for initiating the Corporate Insolvency Resolution Process (CIRP) on 24.10.2018, which was dismissed by the NCLT on 02.12.2019.
The Appellants argued that the Adjudicating Authority failed to acknowledge that Rs. 7.26 crore was advanced and was to be repaid with interest upon completion of the takeover. They emphasized that the financial debt and default were evident from bank statements, balance confirmation statements for FY 2017-18, and the classification of the sums as loans from related parties. Demand Notices issued on 12.09.2018 were also cited, which the Corporate Debtor failed to honour, amounting to a clear default.
For Appeals No. 790 of 2021 and 299 of 2023, the Appellants contended that the NCLT had erroneously dismissed their applications seeking revival of CP(IB) No. 1680 of 2020 and CP(IB) No. 34/KB/2019, despite the failure of the Memorandum of Settlement dated 21.09.2019. They highlighted that arbitral proceedings initiated pursuant to the settlement resulted in an award dated 15.11.2019, which was under challenge before the Hon’ble High Court of Chhattisgarh under Section 37 of the Arbitration and Conciliation Act, 1996.
The Respondents refuted the claims, asserting that under Clause 5.6 of the MoU, all liabilities of the Corporate Debtor prior to 31.07.2016 were to be borne by the Appellants. They argued that the transactions underlying the Section 7 application predated the MoU, making them non-recoverable from the Respondents. Further, they contended that the Appellants, being in control of the Corporate Debtor during the alleged debt creation, effectively sought recovery of amounts they owed themselves. The Khetan Group had already undertaken liabilities worth Rs. 52.06 crore and made additional payments in furtherance of the MoU.
The Respondents also emphasized that the dispute had been mutually referred to arbitration, rendering the Section 7 application infructuous. The arbitral award dated 15.11.2019 had been executed before the Commercial Court at Raipur, and the challenge under Section 34 of the Arbitration and Conciliation Act had been dismissed. Despite the Appellants' appeal under Section 37, no stay had been granted, making the arbitral award binding.
The NCLAT, after multiple hearings, observed that the Section 7 application lacked substantiating documents, including a loan agreement, agreed interest rate, and defined default. The Tribunal affirmed the Adjudicating Authority’s findings that neither debt nor default had been reasonably proved, leading to the dismissal of the appeal. Subsequently, the matter was reserved for judgment on 19.12.2024. However, during the intervening period, the parties engaged in discussions and entered into a Settlement Agreement on 15.01.2025, resolving their disputes amicably.
Mr. Gaurav Mitra, Mr. Kumarjit Banerjee, Ms. Sanchari Chakroborty, Mr. Devanshu Laling, Mr. Aadil Nausahad and Mr. Ishan Roy Chowdhury, Advocates represented the Appellants.
Mr. Joy Saha Sr. Advocate with Mr. Sidhartha Sharma, Mr. Arjun Asthana, Ms. Shalini Basu and Ms. Kriti Gera, Advocates appeared for the Respondent.
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