In the recent judgement of L&T Infrastructure Finance Company Private Limited v. Gwalior Bypass Project Limited and Others (decided on August 19, 2019), the National Company Law Appellate Tribunal (“NCLAT”) has reaffirmed the two orders passed by the National Company Law Tribunal (“NCLT”) dated May 29, 2019 and has held that a financial creditor cannot intervene or oppose an admission of application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”).

FACTS
Gwalior Bypass Project Limited (“Corporate Debtor”), a special purpose vehicle was to construct, develop, finance and operate the Gwalior Bypass on NH-75 in Madhya Pradesh. As per the regulations of the National Highway Authority of India (“NHAI”), a project for the interest of the public is to receive a ring-fenced financing in order to protect the special purpose vehicles assets from being encumbered. Therefore, in the concession agreement executed between NHAI and the Corporate Debtor (“Agreement”), the Corporate Debtor was barred from creating any encumbrance, lien, rights or benefits on any of its assets, unless the NHAI had consented to the same. The Corporate Debtor issued to L&T Infrastructure Finance Company Limited (“Appellant”) pursuant to its sanction letter, secured, rated, redeemable, non-convertible debentures aggregating to INR 260 crores. Thereafter, a modified sanction letter was executed wherein the Appellant subscribed to non-convertible debentures aggregating to INR 241.55 crores. It is pertinent to note that the NHAI had issued no objection letters for both the sanction letters. Further, a debenture trust deed (“Deed”) was executed between the Corporate Debtor and IL&FS (“Trustees”).

During such period, ICICI Bank had also sanctioned a loan of INR 91.5 crore to the Corporate Debtor. On the default of the Corporate Debtor to repay the principal amount along with the interest to ICICI Bank, an application was filed by ICICI Bank to NCLT for the admission of the corporate insolvency resolution process (“CIRP”). The NCLT admitted the same on May 29, 2019.

The Appellant therefore filed an application for intervention/impleadment before the NCLT. However, the NCLT dismissed the case. Thereafter, the matter was referred to the NCLAT.

ISSUE
Whether a financial creditor has the right to intervene and oppose admission of an application under Section 7 of the IBC?

ARGUMENTS
The Appellant argued that as per the Deed, the Corporate Debtor was barred from performing any acts which would either hinder or delay the payment of the debt of the Appellant. The Appellant further argued that in accordance with the Agreement, no prior approval of NHAI had been obtained by the Corporate Debtor. Moreover, the Appellant submitted that the impugned order had the effect of relegating the rights and interest of the Appellant to that of a minority financial creditor wherein its voting share has been reduced to 38.76% and that of ICICI Bank is 61.24%. The Appellant thus believes that its sole, senior and secured lender status has been disregarded. Further, the Appellant argued that by applying the provisions of the IBC, ICICI Bank had indirectly manipulated the voting share in collusion with the Corporate Debtor.

FINDINGS OF THE NCLAT
NCLAT has relied on the judgement of the Hon’ble apex Court in the case of Innoventive Industries Limited v. ICICI Bank [(2018) 1 SCC 407] which held that when the default takes place, in the sense that a debt becomes due and is not paid, IBC is triggered the moment default is of INR 1 lakh or more. The Court further went on to state that within a period of 14 days, the adjudicating authority is to be satisfied that a default in the repayment of the debt has occurred. Within these 14 days, the corporate debtor shall have a right to point out that no default has occurred.

Once the adjudicating authority is satisfied of the fact that a default in debt has occurred, it is to admit the application, unless the same is incomplete. The NCLAT therefore observed that an adjudicating authority is required to verify if the application is complete; if the corporate debtor is in fault for non-payment of a debt; and the amount of such a debt is INR 1 lakh or more.

Further, in accordance with the decision of NCLAT in the case of Innoventive Industries Limited v. ICICI Bank (decided on May 15, 2017), the Corporate Debtor may raise an application stating that there is no debt payable in law or that no default has been committed. The Corporate Debtor may also take a plea that the applicant is not a financial creditor or an operational creditor. It is therefore inferred that only a corporate debtor has the right to object to an application with regards to the CIRP and no financial creditor shall have such right to object on the application of another financial creditor.

DECISION OF THE NCLAT
Since the Appellant is a financial creditor of the Corporate Debtor and is neither a member nor a shareholder of the Corporate Debtor, it has no right to intervene or oppose the admission of the application by ICICI Bank against the Corporate Debtor. The appeal was accordingly dismissed.

Vaish Associates Advocates View
Section 7(1) of the IBC states that “a financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government may file an application for initiating CIRP against a corporate debtor before the Adjudicating Authority when a default has occurred.” Therefore, it is provided that any financial creditor shall be allowed to file an application for CIRP when a default in the repayment of a debt has occurred.

Further, in accordance with the principles of equity and natural justice and as stated in Sree Metalinks Limited and Another v. Union of India [(2017) 203 CompCas 442], NCLT may provide the corporate debtor with a reasonable opportunity to defend itself. However, no such right has been provided to a financial creditor. This judgement therefore accentuates that other than a corporate debtor, no other person, including a financial creditor shall be allowed to intervene or oppose an application for the admission of a CIRP of another financial creditor.

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