Introduction:
The National Company Law Tribunal (“NCLT”), New Delhi Bench, comprising Shri Ashok Kumar Bhardwaj (Judicial Member) and Shri Subrata Kumar Dash (Technical Member), recently delivered a significant judgment in the case titled ‘Sh. Suresh Kumar Verma & Ors. Vs. Eco Green Buildtech Private Limited’ regarding the initiation of the Corporate Insolvency Resolution Process (“CIRP”) against Eco Green Buildtech Private Limited (“CD”). The crux of the matter revolves around whether the CIRP should be triggered against CD, a recipient of financial assistance from the Special Window for Affordable and Mid-Income Housing Investment Fund (“SWAMIH Fund”).
Factual Background:
CD is currently involved in the development of the Sikka Kaamya Greens, a group housing project situated in Greater Noida West, Uttar Pradesh. A consortium of 189 applicants, representing financial creditors and comprising allottees of units within the Project, filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“the Code”), seeking the initiation of CIRP against CD.
Following the filing of the petition, SBICAP, acting as the fund manager of SWAMIH Investment Fund I, intervened in the proceedings, advocating for the dismissal of the petition. SBICAP contended that SWAMIH Investment Fund I, established under the auspices of the Ministry of Finance, Government of India, was designed to provide priority debt financing for the completion of stalled housing projects. SBICAP further asserted that CD had undergone a comprehensive evaluation, resulting in the provision of substantial financial assistance amounting to Rs. 2,07,00,00,000/- (Rupees Two Hundred Seven Crores Only), facilitated through debenture trust deeds and subscriptions.
Legal Analysis:
The NCLT deliberated on several crucial aspects:
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Objective of the Code: The Tribunal acknowledged the time-consuming nature of CIRP and expressed concerns regarding the uncertainty surrounding the revival of corporate debtors. It endorsed the infusion of external aid, orchestrated by the SWAMIH Fund, as a means to achieve the fundamental objective of the Code, i.e., the revival of CD.
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Financial Assistance to Corporate Debtor: The Tribunal noted historical instances wherein financial assistance had been extended to distressed companies under previous legislative frameworks. It emphasized the reliability of government-backed schemes like the SWAMIH Fund and highlighted that such assistance does not necessitate a change in management.
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Encouragement of Settlements: Drawing from judicial pronouncements, the Tribunal underscored the importance of fostering settlements to rehabilitate corporate debtors. It referenced past instances where insolvency proceedings were deferred to facilitate settlements and corporate restructuring.
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Precedents Referred:
The NCLT, citing precedents, has affirmed that the initiation of insolvency proceedings against a corporate debtor is not mandatory under all circumstances. The NCLT referenced a judgment by the Supreme Court in the case of E.S. Krishnamurthy & Ors. Vs. M/s. Bharath Hi-Tech Builders Pvt. Ltd. [Civil Appeal No. 3325 of 2020], wherein the Supreme Court highlighted the importance of promoting settlements to rehabilitate the corporate debtor rather than resorting to liquidation.
Additionally, the NCLT cited the case of State Bank of India Vs. M/s. Krishidhan Seeds Pvt. Ltd., CP(IB)-500 of 2018, where it refrained from immediately admitting the corporate debtor into the Corporate Insolvency Resolution Process (CIRP) upon recognizing the sincere efforts of the corporate debtor management to resolve the company’s financial difficulties.
Conclusion:
In its concluding remarks, the NCLT dismissed the company petition and granted SBICAP the opportunity to revive CD, ensuring the prompt delivery of units to the applicants within agreed timelines. Moreover, the Tribunal reiterated that should defaults persist beyond the specified timeframe, applicants retain the prerogative to petition for the revival of the company petition under Section 7 of the Code.
Legal Implications:
This judgment underscores the Tribunal’s inclination towards leveraging external financial assistance and settlement mechanisms to foster corporate revival, aligning with the overarching objectives of the Insolvency and Bankruptcy Code, 2016. It establishes a legal precedent wherein government-backed financial assistance schemes serve as viable alternatives to conventional insolvency proceedings, particularly in cases involving distressed real estate projects.
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