Consortium Member Can Independently File CIRP Plea Without Other Lenders' Consent Under IBC: NCLT Kolkata

The National Company Law Tribunal (NCLT) at Kolkata recently held that a financial creditor forming part of a consortium of lenders can independently initiate insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code without requiring consent from other consortium members, admitting a plea by Bank of India against Pallishree Ltd and triggering the corporate insolvency resolution process.

A coram of Judicial Member Labh Singh and Technical Member Rekha Kantilal Shah rejected the corporate debtor's objection that prior approval of Punjab National Bank, another consortium lender, was necessary, holding,

“Each Member of the Consortium/Financial Creditors can independently file an application under Section 7 of the IBC Code 2016 for initiating the Corporate Insolvency Resolution Process (CIRP) based on its own debt and default, independent of other consortium members. The right of the applicant Bank/Financial Creditor to initiate insolvency process is not restricted by consortium agreement entered Consortium Members. Therefore, this plea of the applicant that present application is not maintainable at law without consent of other Member of the Consortium is devoid of merits.”

The tribunal was dealing with a petition arising from credit facilities sanctioned on May 29, 2021, aggregating to Rs. 71.73 crore. After the corporate debtor defaulted, its account was classified as a non-performing asset on June 18, 2023.

The tribunal noted that the default stood at over Rs. 72.40 crore, while total dues exceeded Rs. 74.23 crore.

Despite issuance of a loan recall notice and a demand notice under the SARFAESI Act, the corporate debtor failed to clear the outstanding amounts.

Rejecting another defence, the tribunal clarified that the pendency of recovery proceedings before the Debt Recovery Tribunal does not bar initiation of insolvency proceedings under the IBC. It reiterated that the existence of financial debt and default is sufficient to trigger the corporate insolvency resolution process.

Finding that the application was complete and that default had been established, the tribunal admitted the plea, declared a moratorium under Section 14 of the Code, and appointed Neeraj Jain as the Interim Resolution Professional to take over the management of the corporate debtor.