NCLAT New Delhi Upholds CIRP Against Simbhaoli Sugar, Holds Farmers' Claims Must Be Considered

The New Delhi Bench of the National Company Law Appellate Tribunal (NCLAT) on 13 July upheld the admission of Corporate Insolvency Resolution Process (CIRP) against Simbhaoli Sugar Limited, holding that the insolvency proceedings were initiated independently of the Reserve Bank of India (RBI) circular later struck down by the Supreme Court.

Officiating Chairperson Justice Yogesh Khanna and Technical Member Ajai Das Mehrotra dismissed appeals filed against the order of the Allahabad Bench of the National Company Law Tribunal (NCLT), which had admitted the CIRP application against the sugar company. The Bench observed:

“We find no infirmity in the order of the Ld. NCLT regarding admission of the Corporate Debtor into CIRP.

..We are conscious of the concerns of sugarcane farmers and are of the view that the Resolution Professional should duly consider their claims in accordance with law while undertaking the resolution of the Corporate Debtor.”

The appeals were filed by suspended director Gursimran Kaur Mann and farmers represented by Surender Pal Singh Mangat, challenging the NCLT Allahabad order dated 11 July 2024. The NCLT had admitted the Section 7 petition (application by a financial creditor to initiate CIRP) filed by Oriental Bank of Commerce (now Punjab National Bank) against Simbhaoli Sugar Limited.

Simbhaoli Sugar Limited, established in 1933, had availed credit facilities of Rs. 110 crore from Oriental Bank of Commerce in 2016. The company defaulted on repayment, following which the account was classified as a non-performing asset (NPA) on 30 November 2016. The bank issued legal notices and recall notices in October and November 2017, respectively, and initiated recovery proceedings before the Debt Recovery Tribunal.

On 5 September 2018, Oriental Bank of Commerce filed a Section 7 petition before the NCLT Allahabad. The NCLT admitted the petition after finding that debt and default had been established, leading to the initiation of CIRP.

The suspended director argued that the company's debt was under consideration for restructuring by the Joint Lenders' Forum (JLF). It was contended that the insolvency proceedings were triggered by the RBI circular dated 12 February 2018, which was subsequently set aside by the Supreme Court in Dharani Sugars and Chemicals Ltd. v. Union of India.

The farmers argued that their statutory dues under the Uttar Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1953 should receive priority. They relied on Section 17 of the Act, which requires payment of cane price to farmers within the prescribed period and provides for interest in case of delay.

The respondents submitted that the Section 7 proceedings were initiated independently of the RBI circular, as the loan recall and recovery proceedings had commenced before the circular was issued. They argued that the existence of debt and default was established and that the restructuring proposal had no bearing on admission of the insolvency petition.

The Bench noted that the loan recall, legal notices and Debt Recovery Tribunal proceedings had taken place before the RBI circular. It further observed that the One Time Settlement proposal of Simbhaoli Sugar Limited was never approved by the Joint Lenders' Forum.

Further, the Tribunal held that the Section 7 proceedings were independent of the RBI circular and therefore the Supreme Court's decision in Dharani Sugars had no application. It also directed the Resolution Professional to consider the claims of sugarcane farmers in accordance with law during the resolution process.

Accordingly, the NCLAT upheld the admission of CIRP against Simbhaoli Sugar Limited and disposed of the farmers' appeal.

For Appellants: Advocates Akash Jain and Abhipsa Sahu

For Respondents: Senior Advocate Gopal Jain with Advocates Divyam Agarwal, Mayank Ratnaparkhe, Priya Chauhan for SBI.

For IRP: Advocate Shivam Shukla for R- 3, 4, 5. Advocates Anant Merathia and A. Goel