NCLT Chennai Admits IDBI Bank's Insolvency Pleas Against Orchid Pharma Promoter, Wife Over ₹256 Crore Debt

The National Company Law Tribunal (NCLT) at Chennai has admitted applications filed by IDBI Bank seeking initiation of personal insolvency resolution proceedings against K. Raghavendra Rao, the erstwhile Managing Director and promoter of Orchid Pharma Limited, and his wife, R. Vijayalakshmi, in relation to a debt of approximately ₹256.29 crore.

A coram of Judicial Member Jyoti Kumar Tripathi and Technical Member Ravichandran Ramasamy held:

“Upon consideration of the Applications, the Report of the Resolution Professional, the objections of the Personal Guarantors and the material available on record, we are satisfied that the Applications under Section 95(1) of the Code fulfil the statutory requirements for admission.”

The Bank had extended various credit facilities, including term loans and cash creditl facilities, to Orchid Pharma, for which the respondents had furnished personal guarantees. Following default in repayment, the Bank claimed that the outstanding debt stood at approximately ₹256.29 crore as on May 1, 2022.

Orchid Pharma was subsequently taken over by Dhanuka Laboratories Limited under a resolution plan approved by the Tribunal in June 2019 and upheld by the Supreme Court in February 2020.

The Resolution Professional appointed by the Tribunal submitted reports recommending admission of the Bank's applications.

However, the personal guarantors opposed the proceedings, contending that the claims were barred by limitation. They argued that the guarantees had not been renewed after March 27, 2017, and also disputed the amount claimed by the Bank, pointing out that it had already recovered approximately ₹62.68 crore through the resolution process and sale of pledged shares.

The guarantors also alleged that the RP had recommended acceptance of the applications without properly considering their explanations and objections.

The Tribunal observed that the RP's examination under Section 99 is not intended to be an adjudication of disputed contractual or other contentious issues.

“The fact that the Respondents dispute the debt, limitation, invocation of the guarantees and the quantum of the amount cannot, by itself, result in rejection of the Applications when the statutory requirements for admission are otherwise satisfied on the material available on record.” it held

On limitation, the Tribunal observed that whether the revival letter, subsequent correspondence, acknowledgments, payments or enforcement of securities had any effect on the limitation period required consideration of the entire factual matrix. It observed that the guarantors' objections were not sufficient to warrant outright rejection of the applications, particularly since the Resolution Professional had recommended their acceptance after examining the material on record.

Regarding the amounts already recovered by the Bank, the Tribunal held that such recoveries would have to be appropriately accounted for while determining the subsisting liability.

“Admission of the insolvency resolution process cannot be construed as a final adjudication that the entire amount claimed in the Applications continues to remain outstanding notwithstanding the recoveries already made.” it clarified

The Bench further held that as per section 128 of the Indian Contract Act, 1872, liability of a surety is co-extensive with that of the principal debtor in the event of a default.

Finding that the applications fulfilled the statutory requirements under Section 95(1) of the Insolvency and Bankruptcy Code, the Tribunal admitted the proceedings against both guarantors.

The Tribunal noted that no separate application seeking closure of the personal insolvency resolution process and commencement of bankruptcy proceedings had been filed. It therefore declined to directly commence bankruptcy proceedings without examining the statutory requirements applicable to such relief.

It directed the RPl to take necessary steps and file an appropriate application in accordance with the IBC and the applicable rules.

Accordingly, the Tribunal initiated the personal insolvency resolution process against both guarantors, declared a moratorium and appointed Tirumanavalan C.K as the Resolution Professional.

For Financial Creditor: Advocate Pranava Charan

For Personal Guarantor: Advocate Kotteswara Rao

For Resolution Professional: Advocate B Dhanaraj