IL&FS: NCLT Dismisses IFIN's Plea Seeking CIRP against Facilitator Re-lending Loans to Group Companies
Moneylife Digital Team 09 February 2023
After finding that the lender and the ultimate borrower are entities belonging to the Infrastructure Leasing & Financial Services Ltd (IL&FS) group, the Mumbai bench of the national company law tribunal (NCLT) dismissed an application filed by financial creditor IL&FS Financial Services Ltd (IFIN).
In the plea, IFIN was seeking to initiate a corporate insolvency resolution process (CIRP) against Avance Technologies Ltd (corporate debtor) under Section 7 of the Insolvency and Bankruptcy Code (IBC).
In an order passed last week, the bench of Manoj Kumar Dubey (member—technical) and Kishore Vemulapalli (member—judicial), says, "...the corporate debtor (Avance Technologies) in this case also acted as a facilitator for re-lending the amounts lent by the financial creditor to their own group companies for which the corporate debtor will be getting the difference margin of interest...we are of the considered view that this is a fit case for dismissal of (the) petition by exercising our judicial discretion as per law laid down by the Supreme Court in the Vidarbha Industries Power Ltd vs Axis Bank Ltd."
In the Vidarbha Industries Power case, the apex court inter alia held that ordinarily, the adjudicating authority (NCLT) would have to exercise its discretion to admit an application under Section 7 IBC and initiate CIRP on the satisfaction of the existence of a financial debt and default on the part of the corporate debtor in payment of the debt, unless there were good reasons not to admit the petition.
In the IFIN case, the bench observed that parties entered into a financial arrangement where IL&FS group transferred Rs150 crore to Avance Technologies, and the same sum was transferred to IL&FS Transportation Networks (ITNL), another subsidiary of IL&FS group.
IL&FS group, through IFIN, sanctioned a term loan facility to Avance Technologies and, after that, issued a recall letter demanding the outstanding dues. ITNL, being a guarantor to two entities, MP Border Checkpost Development Company Ltd (MP Border) and Srinagar Sonamarg Tunnelway Ltd (SSTL), issued an awareness letter to Avance Technologies, where ITNL undertook to repay the loans given to these two entities. 
However, due to an interim moratorium order issued by the national company law appellate tribunal (NCLAT), Avance Technologies had been precluded from recovering the amount from ITNL, MP Border and SSTL, the bench noted.
Observing that pursuant to NCLAT's order for restructuring IL&FS, all entities of the group are treated as a single entity and not restructured separately, the Mumbai bench noted that in this case, the financial creditor (IFIN) is treating one leg of the transaction in isolation as against the complete transaction where the lender and borrower are both from the IL&FS group.
"Since the respondent (Avance Technologies) cannot receive the amount from ITNL, MP Border and SSTL, there is no question of it being required to make payment of the amount to IFIN. Therefore, in light of the serious dispute relating to whether any default has been committed, the present case is not a fit case for initiating CIRP," NCLT says.
(CP(IB) No1184/MB-IV/2020  Date: 5 January 2023)
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