The Supreme Court on Friday refused to interfere with the National Company Law Appellate Tribunal's (NCLAT) judgment upholding the initiation of corporate insolvency resolution proceedings (CIRP) against Rana Kapoor-linked Bliss Abode Pvt. Ltd. and Bliss House Pvt. Ltd.
It dismissed the appeals filed by suspended director Bindu Kapoor.
A bench of Justices Sanjay Kumar and Sanjeev Sachdeva declined to interfere with the NCLAT's decision upholding the admission of Section 7 applications filed by JC Flowers Asset Reconstruction Pvt. Ltd.
The insolvency proceedings arise from loan defaults running into hundreds of crores. One of the corporate debtors alone owed around ₹388 crore. The loans had originally been extended by Indiabulls Housing Finance Ltd. and were later assigned to JC Flowers ARC.
Appearing for Bindu Kapoor, Senior Advocate S. Niranjan Reddy argued that the insolvency proceedings were founded on loan recall notices issued on March 9, 2020. He submitted that the validity of those notices was itself under challenge. According to him, allowing CIRP to continue would render the pending Section 34 challenges to the arbitral awards meaningless.
Reddy submitted that immediately after Rana Kapoor's arrest in the Yes Bank money laundering case in March 2020, the lender invoked the "material adverse effect" clause in the loan agreements and recalled the loans. He argued that there had been no payment default by the borrowers at that stage.
He said the disputes were subsequently referred to arbitration, which culminated in arbitral awards in 2023. Those awards are currently under challenge before the Delhi High Court under Section 34 of the Arbitration and Conciliation Act.
Reddy further contended that after acquiring the debt from Indiabulls Housing Finance Ltd., JC Flowers ARC relied on the loan recall notices and the arbitral awards to initiate CIRP. This, he argued, was impermissible when the challenges to the awards were still pending.
"When Rana Kapoor was arrested in 2020, loan recall notice is issued on 9 March 2020 immediately... Matter will go to arbitration... award passed in 2023... Section 34 is pending... The moment asset reconstruction company takes over... they issue default notice and file Section 7," Reddy submitted.
The bench, however, was not persuaded.
Justice Sanjay Kumar observed that Bindu Kapoor had never challenged the loan recall notices when they were issued.
"You've not challenged the recall notices at any point of time. Those were issued in March 2020," Justice Kumar observed.
When Reddy argued that the lender itself had invoked arbitration after recalling the loans, the court noted that there was no stay on the arbitral awards despite the pendency of the Section 34 proceedings.
The court also highlighted the continuing default.
"Look at the extent of the defaults... after 9.3.2020, you've not paid a pie. How do you expect us to ignore that?" the bench remarked. It noted that nearly five years had passed since the recall notices were issued and no repayment had been made. It subsequenly refused to interfere with the NCLAT ruling.
Senior Advocate Abhishek Manu Singhvi appeared for the Resolution Professional.
Background
Bliss Abode Pvt Ltd and Bliss House Pvt Ltd had availed loans from Indiabulls Housing Finance Ltd backed by personal guarantees furnished by Bindu Kapoor and her husband, Rana Kapoor, the former Managing Director and CEO of Yes Bank. After Rana Kapoor's arrest by the Enforcement Directorate in March 2020 in connection with the Yes Bank money laundering case, the lender invoked the "material adverse effect" clause under the loan agreements, recalled the loans and demanded repayment.
When the dues remained unpaid, arbitral awards were passed in favour of the lender. The loans were subsequently assigned to JC Flowers Asset Reconstruction Pvt Ltd., which filed Section 7 applications under the Insolvency and Bankruptcy Code, leading to the commencement of CIRP against both companies.
The suspended director challenged the NCLT's admission orders before the NCLAT, contending that the loan recall was invalid, the arbitral awards were under challenge under Section 34 of the Arbitration and Conciliation Act, and that insolvency proceedings could not be initiated on the basis of awards that had not attained finality.
Rejecting the appeals, the NCLAT held that the loan recall notices had been validly issued under the contractual "material adverse effect" clause and that the Section 7 applications were founded on the continuing default following the recall notices, and not merely on the arbitral awards. It held that the pendency of Section 34 proceedings did not bar initiation of CIRP, upheld the NCLT's admission orders and dismissed both appeals.