NCLAT Refuses CIRP Deferment Despite Favourable Arbitral Award, Cites Higher Total Debt

The National Company Law Appellate Tribunal (NCLAT) on Friday upheld the admission of insolvency proceedings against a road project SPV, rejecting its plea to defer admission under Section 7 of the IBC on the ground that amounts claimed under an arbitral award exceeded the bank's claim.

A bench of Justice Ashok Bhushan and Barun Mitra held that this was not a fit case to apply the Supreme Court's ruling in Vidarbha Industries Power Ltd. v. Axis Bank Ltd., which allows the NCLT to delay admission in appropriate cases.

“Thus, the fact that the CD is not carrying any business and it was only a SPV to carry out the project is a relevant consideration and the overall financial health of the CD indicates that it has neither any business nor any finance. These factors were relevant factors to be considered to exercise its discretion as per the law laid down by the Hon'ble Supreme Court in Vidarbha Industries Power Ltd. Thus, in view of the fact that the CD was only a SPV and it has no other business or finance, present was not a case where the Adjudicating Authority could have exercised its discretion of keeping the proceeding in abeyance"

The appeal was filed by the suspended director of Supreme Best Value Kolhapur (Shiroli) Sangli Tollways Pvt. Ltd. against the NCLT Mumbai order admitting Canara Bank's Section 7 plea.

The company was set up as a special purpose vehicle to execute a highway project in Maharashtra. The project was not completed after the PWD did not issue a completion certificate and was later taken over by NHAI in 2016.

The SPV secured an arbitral award of about Rs. 318.94 crore against the PWD, which is under challenge before the Bombay High Court. Execution proceedings are also pending.

However, the company defaulted on loans. Canara Bank claimed Rs. 346.83 crore, while total dues to consortium lenders stood at about Rs. 1113 crore.

Before the tribunal, the appellant argued that since the amount claimed in execution of the arbitral award exceeded the bank's claim, the NCLT should have deferred admission of insolvency proceedings under the Vidarbha ruling.

Rejecting this, the NCLAT noted that the total debt was far higher than the amount claimed in execution. It also found that the SPV had no business or income after the project was taken over and was not financially viable.

In these circumstances, the tribunal held that the NCLT was right to admit the insolvency case and dismissed the appeal.