NCLAT Upholds Insolvency Proceedings Against Rana Kapoor-Linked Bliss Abode and Bliss House

The National Company Law Appellate Tribunal (NCLAT) in Delhi has upheld insolvency proceedings against two Rana Kapoor-linked companies. It held that the lender was entitled to treat the former Yes Bank promoter's arrest and the ensuing criminal investigations as a "material adverse effect" under the loan agreements, triggering its right to recall loans worth hundreds of crores.

The NCLAT upheld orders of the Delhi Bench of the National Company Law Tribunal (NCLT) admitting insolvency petitions against Bliss Abode Pvt. Ltd. and Bliss House Pvt. Ltd. It dismissed appeals filed by Bindu Kapoor, suspended director of the companies.

The bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra held that debt and default stood established and had continued since 2020.

The bench observed:

“Adjudicating authority has rightly come to conclusion that financial creditor has been able to prove the debt and default. It is relevant to notice that in last more than 6 years, no payments have been made by any of the corporate debtors despite outstanding debt which was communicated by loan recall notice dated 09.03.2020. Debt and default was proved that is continuing. .”

Bliss Abode Pvt. Ltd. had entered into multiple loan agreements with Indiabulls Housing Finance Ltd. involving borrowings of about Rs 375 crore. As security, properties were mortgaged and personal guarantees were executed by Rana Kapoor and his wife Bindu Kapoor.

On 9 March 2020, Indiabulls issued loan recall notices to Bliss Abode and Bliss House. The notices demanded repayment of Rs 388.42 crore from Bliss Abode and Rs 189.27 crore from Bliss House within five days.

Rana Kapoor was arrested on 8 March 2020. Criminal investigations against Rana Kapoor and related proceedings subsequently followed. The lender contended that these developments constituted a "material adverse effect" under Clause 12.1.8 of the loan agreements. The NCLAT held that the lender was entitled to invoke that contractual clause and recall the loans. No repayment was made.

A notice under Section 13(2) of the SARFAESI Act, 2002 was issued on 18 June 2020. The lender also initiated arbitration proceedings against Bliss Abode Private Ltd., RAB Enterprises (India) Pvt. Ltd., Rana Kapoor and Bindu Kapoor.

The arbitration proceedings culminated in awards dated 28 February 2023. In the case of Bliss Abode, the arbitral tribunal directed payment of Rs 453.75 crore with interest. The Section 7 application against Bliss House claimed an outstanding amount of Rs 258.74 crore.

The corporate debtors challenged the awards under Section 34 of the Arbitration and Conciliation Act before the Delhi High Court. However, no interim stay was granted.

Meanwhile, Indiabulls assigned the debt to JC Flowers Asset Reconstruction Pvt. Ltd. in March 2025. JC Flowers filed Section 7 applications later that year. It relied on the loan recall notices, continuing defaults and the arbitral awards.

Bindu Kapoor argued that the corporate debtors were discharging their liability to pay interest under the loan agreements. She contended that there was no payment default. She further argued that the financial creditor had unreasonably recalled the loans within hours of Rana Kapoor's arrest. According to her, the NCLT failed to consider that there was no default and that debt and default had not been crystallised.

It was also argued that the arbitral awards were under challenge in Section 34 proceedings and had not attained finality. Therefore, they could not form the basis of the Section 7 petitions.

JC Flowers countered that Rana Kapoor's arrest and the ongoing investigations had a material adverse effect on the repayment capacity of the obligors and justified invocation of the material adverse effect clause.

It argued that the recall was therefore valid. It further submitted that the arbitral awards crystallised liability and provided a fresh cause of action within limitation. It also argued that Section 7 is an independent remedy and that the pendency of execution proceedings or Section 34 challenges does not bar admission. According to JC Flowers, no payments had been made for more than six years, demonstrating continuing default.

The NCLAT observed that the loan recall notices were validly issued under contractual clauses permitting recall upon a material adverse effect. The tribunal held that Rana Kapoor's arrest and the ensuing criminal investigations entitled the lender to invoke the contractual provisions relating to a material adverse effect.

The bench further noted that the Section 7 applications were not founded solely on the arbitral awards. They were also based on the loan recall notices. Therefore, the pendency of Section 34 challenges did not negate debt and default.

The bench observed:

“The mere fact that corporate debtor is unable to pursue Section 34 application in which corporate debtor has challenged the arbitral award dated 28.02.2023 cannot be a ground to admit Section 7 application which was also founded on default which was committed by the corporate debtor on 14.03.2020 even much before the arbitral award was delivered.”

The tribunal also noted that the applications were within limitation. It held that the arbitral awards provided a fresh cause of action.

Accordingly, the bench dismissed both appeals.