Mere Pendency Of Arbitration Does Not Constitute Realizable Asset Or Extinguish Liability: NCLT Chandigarh

The National Company Law Tribunal (NCLT) at Chandigarh recently held that mere pendency of arbitration cannot be a ground to defer insolvency proceedings once debt and default are established.

A bench of Judicial Member Khetrabasi Biswal and Technical Member Kaushalendra Kumar Singh while admitting a Tollways company to CIRP observed, “Mere pendency of arbitration does not constitute a realizable asset or extinguish an admitted financial liability. In contrast, the Financial Creditor has established a debt of ₹ 283.95 crores as on 31.10.2024, well above the statutory threshold, and default stands proved. Accordingly, the pending arbitration proceedings do not furnish a valid ground to defer or reject admission of the present application.”

The bench admitted Supreme Ahmednagar Karmala Tembhurni Tollways Private Limited to the Corporate Insolvency Resolution Process on a petition filed by Canara Bank. The tribunal held that the financial creditor had proved the existence of debt and default above the threshold under the Insolvency and Bankruptcy Code.

It said, “We are of the considered view that there exists financial debt which is payable and defaulted by the respondent. The debt is more than the threshold limit of Rs. 1 crore as per Section 4 of the IBC. This application is filed within limitation and is defect-free; and as such it is a fit case to be admitted under section 7 of the Code.”

According to the bank, the company had availed itself of credit facilities as part of a consortium lending arrangement for a road project. The borrower defaulted in repayment in December 2015, and the account was later classified as a non-performing asset.

The bank claimed a default of about Rs 283.95 crore and relied on a revival letter and balance sheet entries to show that the claim was within limitation.

The company opposed the plea, arguing that the claim was time-barred and that its liability had ceased after the lenders proposed the substitution of another concessionaire. It also said its repayment depended on arbitration claims arising from the road project and that interest could not be charged after the account became a non-performing asset.

Rejecting the limitation objection, the tribunal said, “Since the acknowledgment is within 3 years, as per Section 18 of the Limitation Act of 1963, a fresh period of limitation shall be computed from the time when the acknowledgment was signed. Each of the aforesaid acknowledgments, therefore, extends the period of limitation. Accordingly, the present Application, filed on 27.11.2024, is well within limitation.”

The bench also held that no substitution agreement had been executed and the borrower continued to remain liable. On the reliance placed on RBI circulars, the tribunal said the guidelines relate to accounting norms and “It does not, in any manner, provide for waiver or extinguishment of contractual interest payable by a borrower under the loan documents. Accordingly, the contention based on the RBI Master Circular is found to be devoid of merit"

Finding that the debt and default stood proved, the tribunal admitted the company into insolvency, declared moratorium, and appointed Rajesh Jhunjhunwala as interim resolution professional.

The bank was directed to deposit Rs 4 lakh towards the initial cost of the insolvency process.