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National Company Law Appellate Tribunal has set aside an earlier order of the National Company Law Tribunal that admitted insolvency proceedings against Embassy Development, ruling that the application filed by Canara Bank was barred under Section 10A of the Insolvency and Bankruptcy Code (IBC). The tribunal held that the alleged default fell within the protected period introduced during the COVID-19 disruption, during which fresh insolvency proceedings were restricted. The case relates to a INR 200 crore claim linked to a corporate guarantee extended for a loan to Indiabulls Realtech. The appellate tribunal also criticised the lender’s approach, observing procedural lapses in filing the insolvency plea.
National Company Law Appellate Tribunal has set aside an order passed by the National Company Law Tribunal that had admitted insolvency proceedings against Embassy Development, holding that the application filed by Canara Bank was barred under provisions of Section 10A of the Insolvency and Bankruptcy Code. Advertisement
The Delhi bench of the NCLT had, in December of the previous year, directed the initiation of a corporate insolvency resolution process against Embassy Development following a plea by Canara Bank. The lender had claimed that the real estate firm owed approximately INR 200 crore as a corporate guarantor for a loan extended to Indiabulls Realtech, now known as Simar Thermal Power.
The NCLT order was subsequently challenged before the appellate tribunal by Rajesh Kaimal, a member of the suspended board of Embassy Development. Upon review, the NCLAT set aside the earlier ruling, stating that the default cited by the financial creditor fell within the period covered under Section 10A of the IBC.
Section 10A was introduced to bar the initiation of insolvency proceedings for defaults arising on or after March 25, 2020, for a specified duration, as part of measures taken to mitigate the economic impact of the COVID-19 pandemic. The appellate tribunal observed that the adjudicating authority had erred in not accepting the corporate debtor’s contention that the application was barred under the relevant provisions.
In its order, the NCLAT clarified that the date considered by the NCLT—September 28, 2017, when the loan account of the principal borrower was classified as a non-performing asset—was not relevant in determining the applicability of Section 10A. It stated that this date pertained to the borrower’s default and did not establish a default on the part of the corporate guarantor.
The tribunal further held that the insolvency application filed under Section 7 of the IBC was clearly barred under Section 10A. It also examined the sequence of events, noting that Canara Bank had issued a recall notice to the principal borrower in September 2020 and invoked the corporate guarantee subsequently.
In addition to setting aside the insolvency proceedings, the NCLAT made adverse observations regarding the conduct of the financial creditor. It noted that the bank had proceeded with the application without adequately examining key documents, including the deed of guarantee and related undertakings.
The tribunal stated that the lender had filed the application without due consideration of relevant facts and documents, describing the approach as lacking diligence. It further observed that none of the undertakings submitted could be interpreted as an explicit commitment by the corporate debtor to discharge the financial liabilities of the principal borrower.
The ruling effectively brings relief to Embassy Development, while also reiterating the applicability of Section 10A in cases where defaults fall within the specified protected period under the insolvency framework.
Source - PTI
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