NCLT keeps in abeyance CRIP at Madhucon Projects for now

While keeping in abeyance the CIRP proceedings at Madhucon Projects, the Tribunal took into account the receivables of over Rs 216 crore against the alleged default of little over Rs 100 crore.

National Company Law Tribunal’s (NCLT) Hyderabad bench, while admitting that the Hyderabad-headquartered infrastructure firm Madhucon Projects Ltd (MPL) has defaulted on over Rs 100 crore of debt to Kolkata-based financial creditor Srei Equipment Finance Ltd (SEFL), has kept in abeyance the corporate insolvency resolution process (CIRP) for three months.

Towards this uncommon decision, the Tribunal has exercised its discretion on initiating CIRP proceedings at the infrastructure firm controlled by the family members of Baharat Rashtra Samithi (BRS) Lok Sabha Member Nama Nageswara Rao, as pronounced by the Supreme Court in Vidarbha Industries Power Vs Axis Bank.

While keeping in abeyance the CIRP proceedings for now against little over Rs 100 crore of dues, the NCLT bench comprising judicial member Dr Venkata Ramakrishna Badarinath Nandula and technical member Charan Singh, has taken into consideration receivables of over Rs 166 crore through a decree and nearly Rs 53 crore of an arbitral award in favour of Madhucon Projects.

However, the Tribunal has granted the liberty to the financial creditor SEFL to approach it if its dues continue to remain unpaid within three months from the date of the order, March 29.

Responding to the application filed by financial creditor SEFL on more than Rs 100 crore of dues, the corporate debtor MPL disputed the dates of default on the dues and contested the application's maintainability for CIRP. The corporate debtor also argued that the arbitration proceedings initiated by the financial creditor pertaining to the same claim were pending before the Arbitrator.

Even as the matter was being heard by the Tribunal, the banking regulator Reserve Bank of India superseded the board of the financial creditor SEFL upon initiation of CIRP against the financial creditor after the NCLT’s Kolkata bench admitted the petition and appointed the interim resolution professional.

The corporate debtor MPL argued that the adjudicating authority has powers to reject an application for CIRP using discretion as directed by the Supreme Court even if there is an existence of debt and default, aimed at achieving the overall objective of the Insolvency and Bankruptcy Code (IBC), which is the revival of the company and value maximization.

The Tribunal found that there was a financial debt of over Rs 1 crore due and payable by the corporate debtor to admit the application filed by the financial creditor to initiate CIRP proceedings as prescribed under Section 7 of the IBC, 2016.

However, keeping in view the directives of the Supreme Court in the case of Vidarbha Industries Power Vs Axis Bank for the Tribunals to exercise discretion in admitting applications under Section 7 of the IBC and initiate CIRP on the existence of financial debt and default, the NCLT’s Hyderabad bench decided to keep in abeyance the initiation of CIRP proceedings.

While keeping in abeyance the CIRP proceedings at Madhucon Projects, the Tribunal took into account the receivables of over Rs 216 crore against the alleged default of little over Rs 100 crore. While viewing that the existence of financial debt and default “only gave the financial creditor the right to apply for initiation of CIRP,” the adjudicating authority agreed with the argument of the corporate debtor that the default was much lesser than the amount it is entitled to and that “no justice would be served to admit the Section 7 application and to proceed with CIRP.”