M. Suresh Kumar Reddy Vs. Canara Bank & Ors

Case Number: Civil Appeal No. 7121 of 2022
Judges Name: Hon’ble Judges Mr. Justice Abhay Shreeniwas Oka J, Mr. Justice Rajesh Bindal J
Order dated: 11.05.2023

Facts of the case: 

  1. The bank (respondent) filed an application under section 7 of the IBC, 2016 before NCLT, Hyderabad. The appellant claimed to be a suspended director of the corporate debtor and filed an application in NCLT, against the corporate debtor M/s Kranthi Edifice Pvt. Ltd. The appellant admitted the application filed by the respondent Bank and declared a moratorium for the purposes referred to in Section 14 of the IB Code. The appellant claiming to be an aggrieved person preferred an appeal against the said Order before the NCLAT.  By the impugned judgment dated 5.8.2022, NCLAT has dismissed the appeal.
  2. Canara Bank is the successor of Syndicate Bank. During their merge, a letter of sanction dated 2nd April 2016 was issued by Syndicate Bank that credit facilities were sanctioned to the Corporate Debtor till 28th February   2017.   A   Secured Overdraft   Facility of   Rs.12 crores were granted by the Syndicate   Bank, apart from sanctioning the   Bank Guarantee limit of Rs.110 crores.
  3. The syndicate Bank in the application under section 7, stated that as of 19th November 2019, the liability if the corporate debtor over secured overdraft was Rs. 74,52,87,564.93. The liability of the Corporate   Debtor towards outstanding   Bank   Guarantees was Rs.19,16,20,100.
  4. On 21.10.2022, the learned counsel of the appellant stated that they proposed for settlement under the One Time Settlement Scheme and a sum of Rs. 6 crores were also deposited to the first respondent. Eventually, the respondent turned down the proposal, so the appeal is taken up for hearing.

Supreme Court observed/held as follows:

  • The court looked into cases like Innoventive Industries Ltd. V ICICI Bank & Another, E.S. Krishnamurthy & others and Vidharbha Industries case for the scope and applicability of section 7 of IBC 2016. 
  • Based on these 3 cases, if NCLT is satisfied that the default has occurred, almost no discretion is left with NCLT to refuse an application under section 7 of IBC. 
  • If NCLT finds that there is a debt, but it has not become due and payable, the application under section 7 can be rejected.
  • In the present case, the amount payable by the corporate debtor also includes the amount repayable for the secured overdrafts. 
  • A demand notice under section 13(2) of the SARFAESI Act was issued by the first respondent and it was not honoured.
  • Thus, an application of recovery was filed in Debt Recovery Tribunal, Hyderabad.
  • Based on the letters exchanged between the government and the bank about the bank guarantees extension secured overdrafts, it is clear that the Corporate Debtor committed a default in payments under section 3(12) of IBC.
  • The interim order of the Telangana High Court does not state that the corporate debtor is not liable to pay the dues but only prevents coercive action against them.
  • So, NCLT did not have reason to reject the application under section 7. 
  • Thus, Supreme Court dismissed the appeal stating that there is no merit.

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