Inter-Creditor Agreement For Coordinated Action Does Not Bar Insolvency Plea By Single Lender: NCLT Hyderabad

“In view of the overriding effect of the IBC, the Inter-Creditor Agreement that has been entered between some of the consortium members, at no stretch of imagination, will come in the way of admission of the petition under Section 7 of IBC when debt and default is proved beyond doubt.”

The observations were made while dealing with a petition filed by State Bank of India against Madhucon Toll Highways Ltd, which had executed a corporate guarantee in respect of loans extended to the principal borrower, TN (DK) Expressways Ltd.

The financial facilities were sanctioned under a common loan agreement dated October 11, 2006 and later restructured under a master restructuring agreement dated March 30, 2013. On the same date, Madhucon Toll Highways executed a deed of corporate guarantee in favour of SBI.

The debtor opposed the petition on the ground that SBI had acted unilaterally in breach of the ICA and RBI guidelines requiring collective lender action. It was argued that coordinated steps prescribed under the ICA were mandatory and barred individual lenders from initiating insolvency proceedings.

Rejecting this argument, the tribunal held that the corporate debtor was not even a party to the ICA and, therefore could not rely upon inter se arrangements among lenders to defeat statutory remedies available to a financial creditor.

While declining to admit the application at this stage, the tribunal clarified that initiation of the Corporate Insolvency Resolution Process against the corporate guarantor would be inequitable when the ability of the principal borrower to discharge its liability is yet to be determined and no CIRP has been initiated in its case.

The tribunal gave the financial creditor liberty to file a fresh insolvency petition in accordance with law.

For Financial Creditor: Advocates Niharika Agarwal, Ravi Charan

For Corporate Debtor: Advocates KVS Madhumita, Rajashekar Rao Salvaji