National Asset Reconstruction Company Limited vs Haridwar Highways Project Limited

PER: MANNI SANKARIAH SHANMUGA SUNDARAM, MEMBER (J)

The present Company Application is filed by NATIONAL ASSET RECONSTRUCTION COMPANY LIMITED (ACTING IN ITS CAPACITY AS A TRUSTEE OF NARCL TRUST - 0010) (‘Applicant’) through its Senior Vice President /Authorised Representative Mr. Ekansh Kumar through its Power of Attorney Holder, India Debt Resolution Company Limited (hereinafter referred to as ''IDRCL") under Section 7 of the Insolvency and Bankruptcy Code, 2016 (for brevity ‘the Code’) read with rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (for brevity ‘the Rules’) with the following prayer with a prayer to trigger Corporate Insolvency Resolution Process in respect of Respondent Company HARIDWAR HIGHWAY PROJECT LIMITED (“Corporate Debtor”) for default in repayment of financial debt of INR 2386,51,75,911/- (Indian Rupees Two Thousand Three Hundred Eighty-Six Crore Fifty-One Lakh Seventy-Five Thousand Nine Hundred Eleven Only) which comprises of Principal Amount: INR 1021,39,84,859/- (Indian Rupees One Thousand Twenty-One Crore Thirty-Nine Lakh Eighty-Four Thousand Eight Hundred Fifty-Nine Only) and Interest Amount: INR 1365,11,91,052/- (Indian Rupees One Thousand Three Hundred Sixty-Five Crore Eleven Lakh Ninety-One Thousand Fifty-Two Only)

The Corporate Debtor i.e., HARIDWAR HIGHWAY PROJECT LIMITED having CIN: U45200DL2010PLC198587 is incorporated on 02.02.2010 under the provisions of the Companies Act, 1956 having its registered office situated at B-292, Chandra Kanta Comple~ Shop No. 2 & 3, Near Metro Pillar No. 161, New Ashok Nagar, New Delhi 110096. Since the registered office of the Corporate Debtor is in New Delhi, this Tribunal having territorial jurisdiction over the NCT of Delhi is the Adjudicating Authority in relation to the prayer for initiation of Corporate Insolvency Resolution Process in respect of respondent corporate debtor under sub-section (1) of Section 60 of the Code.

Briefly stated facts of the case as mentioned in the Company Application, which are relevant to the issue in question, are as follows:-

a. The Financial Creditor, National Asset Reconstruction Company Limited (acting as trustee of NARCL Trust-0010), has filed the present application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“Code”) through its Power of Attorney Holder, India Debt Resolution Company Limited (IDRCL), seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. IDRCL has been duly authorised under the Power of Attorney dated 02.04.2024 executed by the Financial Creditor, and the application has been signed by Mr. Pankaj Agnihotri, duly authorised by IDRCL vide Board Resolution dated 20.03.2023.

b. The Corporate Debtor entered into a Concession Agreement dated 24.02.2010 with the National Highways Authority of India (“NHAI”) for augmentation of the existing road from km 131 to km 211 on the Muzaffarnagar–Haridwar section of NH-58 in the States of Uttar Pradesh and Uttarakhand, by way of four-laning on a design, build, finance, operate, and transfer (DBFOT) basis (hereinafter referred to as the “Project”). The Project cost was initially estimated at INR 1100.60 crores, for which the Corporate Debtor approached Axis Bank Limited to part-finance the Project. The holding company of the Corporate Debtor was ERA Infra Engineering Limited (herein after referred as “ERA”).

c. Pursuant to the request of the Corporate Debtor, Axis Bank Limited sanctioned a term loan of INR 690.60 crores for part-financing the Project (hereinafter referred to as “Term Loan I”). To secure the said facility, the Corporate Debtor executed the following financing and security documents in favour of Axis Bank:

d. The Applicant submitted that, to further secure Term Loan I, ERA Infra Engineering Limited (ERA) executed a Deed of Pledge dated 31.07.2010, pledging 25,500 equity shares (representing 51% of the paid-up share capital) held by it in the Corporate Debtor. Additionally, M/s Open Joint Stock Company and ERA, as Sponsors of the Corporate Debtor, executed a Sponsors’ Undertaking dated 31.07.2010 in favour of the Security Trustee.

e. Pursuant to certain observations raised by NHAI, the Term Loan I Documents were amended as follows:

The Applicant further submitted that the charge/mortgage created in respect of Term Loan I was duly registered with the Registrar of Companies (RoC) under Section 132 of the Companies Act, 1956, vide Certificate of Registration of Mortgage dated 11.10.2010.

f. As per the Term Loan I Documents (as amended), Axis Bank was entitled to assign or transfer, in whole or in part, its participation in Term Loan I to other lenders on identical terms and conditions. The Corporate Debtor, vide Board Resolution dated 11.12.2010, consented to such amendments and agreed to create corresponding securities in favour of the new lenders. This was further ratified by ERA Infra Engineering Limited (ERA), as Sponsor, vide Resolution dated 13.11.2010. Pursuant thereto, Axis Bank invited Punjab National Bank (PNB), Bank of India (BOI), Indian Overseas Bank (IOB), Union Bank of India (UBI), India Infrastructure Finance Company Ltd. (IIFCL), and UCO Bank (UCO) (hereinafter collectively referred to as the “Lenders”) to participate in part-financing the Project under Term Loan I, which the Lenders accepted in the agreed proportions.

g. Repayment of Term Loan I was structured in quarterly instalments commencing from the financial year ending 31.03.2016 and concluding in the financial year ending 31.03.2027, along with applicable interest. Out of the total sanctioned amount, INR 577.23 crores was disbursed to the Corporate Debtor by the lenders. A Deed of Guarantee dated 14.12.2010 was executed by Mr. Hem Singh Bharana, Promoter-Director of the Corporate Debtor (the “Personal Guarantor”), in favour of the Security Trustee, whereby he undertook joint and several liability with the Corporate Debtor for repayment of the dues. Additionally, an Inter-Creditor Agreement dated 14.12.2010 was executed among the lenders, the Security Trustee, and the Lenders Agent. The Corporate Debtor further executed Balance and Security Confirmation Letters dated 06.06.2012 and 29.06.2013, acknowledging its liability towards Term Loan I.

h. Due to operational and financial stress, the Corporate Debtor’s account was classified as SMA-2 under the Joint Lenders’ Forum (JLF) Circular issued by the Reserve Bank of India (RBI). Consequently, the lenders constituted a Joint Lenders’ Forum (JLF) and formulated a Corrective Action Plan (CAP) in accordance with the said Circular. Pursuant to the JLF meeting held on 25.09.2014, the CAP was approved for restructuring Term Loan I. Considering the escalation of the Project cost from INR 1100.60 crores to INR 1563.55 crores, the lenders also sanctioned an additional facility of INR 290.48 crores (hereinafter referred to as “Term Loan II”) to the Corporate Debtor, in the agreed proportion among the lenders.

j. Under the Master Restructuring Agreement dated 26.02.2015, Term Loan I and Term Loan II became repayable in 44 structured quarterly instalments, commencing on 30.06.2018 and concluding on 31.03.2029, as per the repayment schedule set out in Schedule III of the said Agreement. Pursuant to certain modifications suggested by NHAI, the Restructuring Documents were further amended as follows (collectively referred to as the “Amended Restructuring Documents”):

The Corporate Debtor, vide Balance and Security Confirmation Letter dated 23.12.2016, duly acknowledged its liability towards Term Loan II.

k. Owing to delays in commissioning of the Project, the Project cost escalated by INR 81.70 crores, of which INR 51.26 crores was financed by the lenders through an additional Rupee Term Loan Facility dated 09.02.2017 (hereinafter referred to as “Term Loan III”). Under this facility, Axis Bank, Bank of India (BOI), Union Bank of India (UBI), and UCO Bank (UCO) agreed to provide INR 28.61 crores, while the balance was to be contributed by other participating lenders.

l. In connection therewith, the Corporate Debtor and ERA executed the following authorisations and resolutions:

m. Subsequently, the following documents were executed for the grant and security of Term Loan III (collectively referred to as the “Term Loan III Documents”):

Deeds of Personal Guarantee dated 14.03.2017 and 03.04.2017 executed by the Personal Guarantor (Mr. Hem Singh Bharana); and

n. The Applicant stated that Term Loan III was repayable in quarterly instalments commencing on 30.06.2019 and concluding on 31.03.2020, along with applicable interest. The Corporate Debtor also executed Balance and Security Confirmation Letters dated 11.09.2017, acknowledging its liability, and duly registered the charge for Term Loan III with the Registrar of Companies (RoC) on 04.10.2017. Subsequently, PNB, IOB, and IIFCL sanctioned the remaining portion of Term Loan III amounting to INR 22.65 crores, for which the following documents were executed:

Meanwhile, the Corporate Debtor, vide letter dated 12.09.2017, confirmed that NHAI had released a grant of INR 210 crores, and ERA, as promoter, had infused equity of INR 286.85 crores. However, due to financial distress and other constraints, the required additional equity infusion was not made, leading to the invocation of the Strategic Debt Restructuring (SDR) in the account.

o. Despite repeated extensions, the Corporate Debtor failed to achieve the Commercial Operation Date (COD) and other key Project milestones. Subsequently, NHAI, vide letter dated 25.07.2018, indicated its intention to terminate the Concession Agreement inter alia against the Corporate Debtor and ERA, while affording the lenders an opportunity to represent their intent to substitute the Corporate Debtor under the Substitution Agreement. Pursuant thereto, by letter dated 06.08.2018, Axis Bank informed NHAI and the Corporate Debtor that the lenders had decided to substitute the Corporate Debtor with a nominated entity, and the process for identifying a suitable substitute was initiated.

During the tenure of the Concession Agreement, the Corporate Debtor failed to maintain financial discipline, and despite repeated reminders, its account remained irregular. Mis-utilisation and diversion of funds by the Corporate Debtor, its promoters, directors, and sponsors prevented achievement of the COD and commencement of toll collections, which were essential for repayment of the Term Loans. Consequently, as the Corporate Debtor was unable to regularize its account and discharge its dues, its account was classified as a Non-Performing Asset (NPA) w.e.f. 24.02.2017 in accordance with RBI guidelines, and the lenders subsequently issued recall notices to the Corporate Debtor, as detailed below:

p. The Applicant submitted that the Corporate Debtor has remained in default, with its account continuing to be irregular. Accordingly, events of default under Clause 7.1.1 of the Common Rupee Term Loan Agreement (Term Loan I), Clause 6.1(a) & (b) of the Master Restructuring Agreement (Term Loan II), and Clause 7.1(a) & (b) of the Common Rupee Loan Agreement (Term Loan III) have occurred and subsist, and the accounts were classified as NPA w.e.f. 24.02.2017. Due to the continuing default, the lenders filed an application before the Debts Recovery Tribunal, New Delhi (Transfer Application No. 276 of 2022) against the Corporate Debtor and its promoter, which is pending for adjudication

q. Further, the Applicant submitted that the Corporate Debtor, by letter dated 23.09.2021, acknowledged its liability under Term Loans I, II, and III. Its annual financial statements for 2019–2022 which have been annexed as Annexure P-32 in VOLUME IX (pg. 1597-1692) also reflect this liability, constituting an acknowledgment under Section 18 of the Limitation Act, 1963. The present application is thus filed within the limitation period.

r. Pursuant to the Assignment Agreement dated 28.03.2024, Term Loans I, II, and III were assigned to National Asset Reconstruction Company Limited (NARCL), which has stepped into the lenders’ shoes. The outstanding amount as on 30.04.2023, assigned to the Financial Creditor, was INR 2,028,17,80,099/- (inclusive of interest).

s. NARCL, in its capacity as a financial creditor under Section 5(7) of the Code, has filed the present application, the debt constituting financial debt under Section 5(8). The total outstanding as on 08.08.2024 is INR 2,386,51,75,911/-, comprising:

Principal: INR 1,021,39,84,859/-

Submissions of the Ld. Counsel appearing for the Respondent/Corporate Debtor are:

a. The Answering Respondent, Haridwar Highways Private Limited, is a Special Purpose Vehicle (SPV) incorporated on 02.02.2010 under the Companies Act, 1956. Its promoter, Era Infra Engineering Ltd. (EIEL), incorporated on 03.12.1990, is an engineering, procurement, and construction company operating on the Build-Operate-Transfer (BOT) model across India. In 2006– 2007, EIEL diversified into the highway and railway sectors.

b. The National Highway Authority of India (NHAI) issued a tender for the four-laning of the Muzaffarnagar–Haridwar section of NH-58 (km 131–211) on a Design-Build-Finance-Operate-Transfer (DBFOT) basis, with the Project cost initially estimated at Rs. 1,100.60 crores. Subsequently, NHAI issued a Request for Qualification (RFQ), wherein Clause 2.2.6 required any successful bidder to incorporate a Special Purpose Vehicle (SPV) in the form of a Limited Liability Company for executing the Project.

c. Subsequently, EIEL and SIBMOST (a Russian company) participated in the Project bid as a consortium, which was accepted by NHAI based on EIEL’s experience, vide Letter of Award dated 29.12.2009. Accordingly, the Answering Respondent (HHPL) was incorporated by EIEL on 02.02.2010, in compliance with Clause 2.2.6 of the RFQ, solely to execute the Project and fulfill EIEL’s contractual obligations. Upon incorporation, HHPL entered into a Concession Agreement dated 24.02.2010 with NHAI for the Project, initially estimated at Rs. 1,100.60 crores.

d. The Respondent submitted that Pursuant to the Concession Agreement, the Answering Respondent (“HHPL”) entered into an EPC Agreement dated 14.06.2010 with EIEL for the design, construction, and maintenance of the Project, making EIEL the EPC Contractor. EIEL infused Rs. 3,70,000/- as primary equity in HHPL and, through its wholly-owned subsidiary Era Infrastructure (India) Limited, invested an additional Rs. 43.03 crores via preferential shares. A Performance Bank Guarantee of Rs. 37.70 crores was also submitted to NHAI by EIEL.

e. To complete the Project, HHPL, through EIEL, approached Axis Bank, which sanctioned Rs. 690.60 crores (Term Loan I) via a Common Rupee Term Loan Agreement dated 31.07.2010, amended on 21.08.2010. Axis Bank had the right to assign its participation to other banks, and accordingly, Punjab National Bank, Bank of India, Indian Overseas Bank, Union Bank of India, IIFCL, and UCO Bank (collectively, “Lenders”) joined in part-financing Term Loan I.

f. As the Project cost escalated from Rs. 1,100.60 crores to Rs. 1,563.55 crores, the Lenders sanctioned an additional Term Loan II of Rs. 290.48 crores, formalized through a Master Restructuring Agreement dated 26.02.2015. As per HHPL’s balance sheet for FY 2023-24, EIEL claims Rs. 1,549.77 crores, which remains unpaid as on 31.03.2024.

g. The Respondent submitted that NHAI failed to provide 80% of the required land in a free and unencumbered state, causing further project delays. Consequently, the Project cost increased by Rs. 81.70 crores, and the Lenders sanctioned an additional Term Loan III of Rs. 51.24 crores on 09.02.2017.

h. The Respondent further submitted that along with other securities, Era Infrastructure (India) Ltd., EIEL’s master SPV, executed a Corporate Guarantee dated 29.06.2016 in favor of Bank of India to secure its credit facility to the Answering Respondent. Despite facing delays beyond its control, the Answering Respondent was adversely affected when NHAI terminated the Concession Agreement on 25.07.2018. Subsequently, the consortium of Lenders—Axis Bank, Bank of India, Punjab National Bank, IIFCL, Indian Overseas Bank, and UCO Bank—assigned their debt to the Applicant via a Joint Assignment Agreement dated 28.03.2024, prompting the filing of the present application.

j. The Lenders, whose debt has been assigned to the Applicant and who were part of EIEL’s CoC, assented to EIEL’s Resolution Plan. Having stepped into the Lenders’ shoes, the Applicant was aware that SPV proceeds would be used to resolve EIEL, leaving SPVs with no remaining assets. Accordingly, a Sharing of Arbitral Proceeds Agreement (“SAP Agreement”) dated 05.09.2024 was executed between EIEL, the assenting financial creditors (including the Applicant, NARCL, and SA Infra), stipulating that proceeds from the Answering Respondent’s arbitrations would be applied toward the claims of financial creditors in EIEL’s CIRP.

k. The Respondent submitted that the Resolution Plan expressly included the claims of EIEL’s SPVs, including the Answering Respondent, providing that arbitral proceeds from its disputes would be used to settle EIEL’s claims. Pursuant thereto, a Sharing of Arbitral Proceeds Agreement (“SAP Agreement”) dated 05.09.2024 was executed between EIEL, the Applicant, and other financial creditors, agreeing that proceeds from the Answering Respondent’s arbitrations would be distributed among EIEL’s creditors. The Applicant acknowledged the intertwined structure of EIEL and its SPVs, including HHPL, as evidenced in the Flash Report submitted to the CDR Cell, which outlined the interdependency. By agreeing to utilize HHPL’s assets for repayment of EIEL’s debts, the Applicant waived its right to recover directly from the Answering Respondent. Accordingly, the Applicant, as assignee of the Lenders and participant in EIEL’s Resolution Plan, is bound by its terms and cannot pursue the same claims directly against the Answering Respondent.

l. The Respondent further submitted that the present Application fails to specify a clear date of default. The Applicant cites 24.02.2017, but the NeSL Record of Default notes the “Last Event of Default” as “Not Available” and as per settled law, debt and default are essential for a Section 7 application, and a specific date of default is mandatory. To support its contention the Respondent has relied upon the following Orders:

We have heard the Ld. Counsel on behalf of the Applicant/Financial creditor and further perused the averments made in the Application, Reply filed by the Corporate Debtor.

The matter was first listed on 27.11.2024, when notice was directed to be issued to the Respondent. On 09.12.2024, the Applicant sought time to file proof of service. Subsequently, on 12.12.2024, the learned counsel appearing for the Applicant submitted that the notice issued to the Respondent had been returned “unserved” and, accordingly, sought permission to effect substituted service through publication. Pursuant thereto, in compliance with the order dated 12.12.2024, the Applicant caused publication of notice in two daily newspapers on 15.01.2025 and filed the affidavit of service along with proof thereof. Despite such publication and repeated opportunities, none appeared on behalf of the Corporate Debtor, nor was any reply or affidavit filed. Accordingly, on 03.02.2025, when the matter was taken up for hearing, despite repeated calls, there was no appearance on behalf of the Respondent. Hence, the Corporate Debtor was proceeded against ex parte.

During the course of hearing of this matter, on 15.04.2025, the bench issued some clarification and noted that the date of default was stated as 24.02.2017, when the Corporate Debtor’s account was classified as NPA. As per RBI’s IRACP norms, an account is declared NPA only after 90 days of non-payment; hence, the actual default would have occurred earlier. Although the Corporate Debtor had acknowledged the debt on 23.09.2021, the precise date of default remained unclear. The NeSL Record of Default was “Deemed Authenticated” but did not mention the Last Event of Default. Accordingly, the Petitioner was directed to file an affidavit clarifying (i) the exact date of default with proof and (ii) the reason for the missing default date in the NeSL record. Accordingly, the Applicant filed an affidavit on in terms of Order dated 15.04.2025.

Meanwhile, the Corporate Debtor filed IA No. 903/2025, contending that it was unaware of the pendency of CP (IB) No. 777(ND)/2024 under Section 7 of the Code, as no notice was served. It first learned of the proceedings upon discovering the order dated 03.02.2025, which recorded its ex parte status. The Petition was initially listed on 27.11.2024, with notice directed to be served; however, as the notice was returned unserved, substituted service through newspaper publication was ordered on 12.12.2024. The Corporate Debtor submitted that its absence was unintentional and solely due to non-service of notice. Accordingly, vide order dated 11.08.2025, this Adjudicating Authority, in the interest of justice, equity, and adherence to the principle of audi alteram partem, deemed it appropriate to grant the Corporate Debtor an opportunity of hearing, subject to payment of costs of ₹5,00,000/- to be deposited in the Prime Minister’s National Relief Fund. Aggrieved by the said decision, the Respondent/ Corporate Debtor preferred an appeal, wherein Hon’ble NCLAT reduced the cost to Rs. 1 lakh and accordingly, the Respondent was permitted to deposit the cost by 24.08.2025 and file the reply by 25.08.2025, as per the previously fixed schedule.

The Applicant in Part IV of the Application has mentioned the date of default as 24.02.2017. In this backdrop, it is relevant to understand that the adjudicating authority under the present legislation has a very limited role to play while admitting or rejecting an application filed under section 7 of The Code. One of the important factor to be considered in an application under section 7 is the existence of debt and thereby non-payment of debt i.e. default (Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1). This is also evident from the bare language mentioned under Section 6 and 7 of The Code.

The Applicant stated in Part IV of the Section 7 application that the date of default was 24.02.2017, corresponding to the date on which the Corporate Debtor’s account was classified as NPA. Reliance was placed on the recall notices issued by the lenders, informing the Corporate Debtor that its account had been classified as NPA with effect from 24.02.2017 in accordance with the RBI guidelines. The recall notices further recorded that despite repeated extensions, the Corporate Debtor failed to achieve the Commercial Operation Date (COD) and other project milestones and also defaulted in servicing its term loan obligations. Even after such intimation, the Corporate Debtor did not rectify the default, and the account continued to remain NPA.

To support its contention the Applicant has placed its reliance on the judgment in Milind Kashiram Jadhav v. State Bank of India & Anr., [Company Appeal (AT) (Ins.) No. 1589 of 2023, decided on 25.04.2024], wherein it was held that the date of NPA classification constitutes a valid “date of default” for initiating proceedings under Section 7 of the IBC. The said view was subsequently upheld by the Hon’ble Supreme Court in Civil Appeal No. 7990 of 2024 vide order dated 02.08.2024.

As it has been settled by the Hon’ble Supreme Court in catena of judgments that the Limitation Act, 1963 is applicable to the proceedings under the Code, 2016 (B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633). The basic idea behind the application of the Limitation Act, 1963 is not to give life to time barred debts (Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1). The mentioning of Date of Default in the Form-1 under Part IV is only for the purposes of reckoning of the Limitation Period within which a Financial Creditor has to exercise his rights, so that a financial creditor does not sleep over his right. Section 238 A of the Code provides for the provision of the Limitation Act, 1963 to apply to proceedings before the Adjudicating Authority. Accordingly, the time period for filing the application u/s 7 of the Code is governed by Article 137 of the Schedule to the Limitation Act, 1963 which provides for exercising the right within period of 3 years, from the date when the right to apply accrues. Hence, the Financial Creditor has to file the application within 3 years from the date when the right to apply accrue i.e. the date of default (Dena Bank v. C. Shivakumar Reddy, (2021) 10 SCC 330). Relevant paragraphs are extracted below:

Further the dictum laid down in Dena Bank v. C. Shivakumar Reddy, (2021) 10 SCC 330) has also been followed by Hon’ble National Company Law Appellate Tribunal in Edelweiss Asset Reconstruction Co. Ltd. v. Perfect Engine Components (P) Ltd., 2022 SCC OnLine NCLAT 1622. The relevant paragraphs are extracted below:

In addition, the Corporate Debtor, vide its letter dated 23.09.2021, expressly acknowledged the subsisting debt and default in repayment of the financial liability. The Hon’ble Supreme Court in Laxmi Pat Surana v. Union Bank of India & Anr., Civil Appeal No. 2734 of 2020, has categorically held that an acknowledgment of debt in writing within the limitation period triggers a fresh limitation period under Section 18 of the Limitation Act, 1963. Accordingly, the present application cannot be said to be barred by limitation. Furthermore, the Corporate Debtor has consistently acknowledged the outstanding debt in its balance sheets for the financial years 2019, 2020, 2021, and 2022, which have been annexed as Annexure P-32 in VOLUME IX (pg. 1597-1692) thereby reaffirming the continuity of liability.

It has been settled by the catena of judgments that Section 18 of the Limitation Act is applicable to IBC proceeding. The Code does not exclude the application of Section 6, 14 or 18 or any other provision of Limitation Act to proceeding under IBC provided that the said acknowledgments are made before the expiry of 3 years. Once an acknowledgment is done, a fresh cause of action arises, thereby extending the limitation period.

We further take reliance from Judgement passed by Hon’ble Supreme Court in M. Suresh Kumar Reddy v. Canara Bank, (2023) 8 SCC 387)

In our considered view, given the subsequent acknowledgments of debt by the Corporate Debtor, the Application falls within the limitation period, and the Financial Creditor cannot be precluded from exercising its statutory rights.

Further, it is relevant to refer the definition of Financial Creditor as provided in Clause 5(7) of the Code, 2016. The definition of Financial Creditor is reproduced herein in verbatim: -

The Respondent has contended that it is merely a Special Purpose Vehicle (SPV) incorporated exclusively for executing specific contracts and projects under the operational and financial control of its parent company, EIEL. It is submitted that the Respondent, in its independent capacity, has no standalone assets, business operations, or going concern potential. In this regard, we note that reference has been made to the Resolution Plan approval order dated 11.06.2024 passed by this Adjudicating Authority in respect of EIEL, wherein it was expressly clarified that the Resolution Plan does not deal with any third-party collateral pertaining to any financial creditor, including dissenting financial creditors of EIEL. Further, the said Resolution Plan does not extend to or cover the debts owed by any of EIEL’s SPVs, including the present Corporate Debtor. Moreover, the SAP Agreement relied upon by the Respondent pertains to arbitral proceeds arising from the EPC Agreement, which are unrelated to the debt and default forming the subject matter of the present proceedings. It is also pertinent to note that, as per the SAP Agreement, the arbitral proceeds referred to in Schedule 2 relate to disputes and claims of EIEL against third parties, and the utilisation of such proceeds is earmarked solely for settlement of the creditors’ claims of EIEL, not its subsidiary SPVs.

In order to admit an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), the Hon’ble Adjudicating Authority must be satisfied that the statutory requirements for initiating the Corporate Insolvency Resolution Process (CIRP) are duly met. The first and foremost requirement is the existence of a financial debt as defined under Section 5(8) of the IBC. A financial debt refers to a debt that is disbursed against the consideration for the time value of money, which includes loans, bonds, debentures, or any other financial instruments specified under the provision. The applicant must establish that the Corporate Debtor had availed such financial debt and that the liability to repay the same has arisen. Then, there must be a “default” in repayment of the said financial debt, as defined under Section 3(12) of the IBC, which refers to non-payment of the whole or any part of the debt when it has become due and payable. Further, the application must be filed by a Financial Creditor in the prescribed form and manner, duly accompanied by requisite documents and affidavits under Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

Once the Adjudicating Authority is satisfied with the existence of a financial debt, the occurrence of default, and procedural compliance, it is bound to admit the petition. The Authority has limited discretion at this stage and cannot conduct a deeper enquiry into the merits or defences unless the application is incomplete or legally barred.

Applying the principles enunciated above to the facts of the present case, it is evident that all statutory requirements for admission under Section 7 of the Insolvency and Bankruptcy Code, 2016, stand fulfilled. The existence of a financial debt is clearly established through the Term Loan I, II, and III and other supporting documents filed by the Financial Creditor. These documents substantiate that a financial debt, as defined under Section 5(8) of the IBC, was duly disbursed to the Corporate Debtor.

On perusal of the documents, we find that the application, filed under Section 7 of the IBC by the Financial Creditor, is duly supported by all requisite documents. With no statutory bar to its admission, and in view of the undisputed financial debt, established default, and procedural compliance, the initiation of CIRP is warranted.

With regard to the existence of debt and default, on a perusal of Form – I and the documents annexed with the application, we are satisfied that the applicant clearly comes within the definition of Financial Creditor and the loan was disbursed to Corporate Debtor and there exists a debt and its default.

Thus, it is clear that when a default takes place i.e., the debt becomes due and is not paid, the Insolvency Resolution Process shall begin against the corporate debtor. Therefore, on the basis of discussion in the aforesaid paragraphs, we are satisfied that the present application is complete in all respects. The Applicant /financial creditor is entitled to move the application against the corporate debtor in view of outstanding financial debt in default above the pecuniary threshold limit as provided under Section 4 of the Code, 2016. As a sequel to the above discussion and in terms of Section 7(5)(a) of the Code, the present company application (C.P. No. (IB)- 777/(PB)/2024) stands admitted and the CIRP is hereby initiated against Haridwar Highway Projects Limited.

The applicant in Part-III of the application has proposed the name of Mr. Alok Kumar Agarwal as proposed Interim Resolution Professional, having Registration Number IBBI/IPA-001/IP-P00059/2017-2018/10137. Mr. Alok Kumar Agarwal, having registration number: IBBI/IPA-001/IP-P00059/2017-2018/10137 and email – [email protected] is appointed as an Interim Resolution Professional (IRP) for corporate debtor.

We also declare moratorium in terms of Section 14 of the Code. The necessary consequences of imposing the moratorium flows from the provisions of Section 14 (1) (a), (b), (c) & (d) of the Code. Thus, the following prohibitions are imposed:

It is made clear that the provisions of moratorium shall not apply to transactions which might be notified by the Central Government or the supply of the essential goods or services to the Corporate Debtor as may be specified, are not to be terminated or suspended or interrupted during the moratorium period. In addition, as per the Insolvency and Bankruptcy Code (Amendment) Act, 2018 which has come into force w.e.f. 06.06.2018, the provisions of moratorium shall not apply to the surety in a contract of guarantee to the corporate debtor in terms of Section 14 (3) (b) of the Code.

In pursuance of Section 13 (2) of the Code, we direct that public announcement shall be made by the Interim Resolution Professional immediately (within 3 days as prescribed by Explanation to Regulation 6(1) of the IBBI Regulations, 2016) with regard to admission of this application under Section 7 of the Insolvency & Bankruptcy Code, 2016.

We direct the Applicant/Financial Creditor to deposit a sum of Rs. 2,00,000/- (Two Lakh Rupees Only) with the Interim Resolution Professional namely Mr. Alok Kumar Agarwal to meet out the expenses to perform the functions assigned to him in accordance with Regulation 6 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Person) Regulations, 2016. The needful shall be done within three days from the date of receipt of this order by the Financial Creditor. The said amount, however, is subject to adjustment towards Resolution Process cost as per applicable rules.

The Interim Resolution Professional shall perform all his functions as contemplated, inter-alia, by Sections 15, 17, 18, 19, 20 & 21 of the Code and transact proceedings with utmost dedication, honesty and strictly in accordance with the provisions of the Code, Rules and Regulations.

It is further made clear that all the personnel connected with the Corporate Debtor, its promoters or any other person associated with the Management of the Corporate Debtor are under legal obligation under Section 19 of the Code to extend every assistance and cooperation to the Interim Resolution Professional as may be required by him in managing the day-to-day affairs of the ‘Corporate Debtor’. In case there is any violation committed by the ex-management or any tainted/illegal transaction by ex-directors or anyone else, the Interim Resolution Professional would be at liberty to make appropriate application to this Tribunal with a prayer for passing appropriate orders.

The Interim Resolution Professional shall be under duty to protect and preserve the value of the property of the ‘Corporate Debtor’ as a part of his obligation imposed by Section 20 of the Code and perform all his functions strictly in accordance with the provisions of the Code, Rules and Regulations.

In terms of section 7(7) of the Code, the Registry is hereby directed to communicate a copy of the order to the Financial Creditor, the Corporate Debtor, the Interim Resolution Professional and the Registrar of Companies, NCT of Delhi & Haryana at the earliest possible but not later than seven days from today.

Accordingly, the instant application filed under Section 7 of the Code, 2016 bearing CP (IB) No. 777(ND)/2024 stands admitted.