The Supreme Court on Friday refused to interfere with a national company law appellate tribunal (NCLAT) order upholding the initiation of corporate insolvency resolution proceedings (CIRP) against Rana Kapoor-linked companies Bliss Abode Pvt Ltd and Bliss House Pvt Ltd, dealing a setback to suspended director Bindu Kapoor.
According to a report by LiveLawBiz, a bench of justice Sanjay Kumar and justice Sanjeev Sachdeva dismissed appeals filed by Ms Kapoor challenging the NCLAT judgement which upheld the admission of applications filed under Section 7 of the Insolvency and Bankruptcy Code (IBC) by JC Flowers Asset Reconstruction Pvt Ltd.
The insolvency proceedings stem from loan defaults totalling hundreds of crores of rupees. One of the corporate debtors alone allegedly owed around ₹388 crore. The loans were originally extended by Indiabulls Housing Finance Ltd before being assigned to JC Flowers Asset Reconstruction.
Appearing for Ms Kapoor, senior counsel S Niranjan Reddy argued that the insolvency proceedings were based on loan recall notices issued on 9 March 2020, the validity of which is under challenge. He contended that permitting the CIRP to continue would render pending petitions under Section 34 of the Arbitration and Conciliation Act, challenging the arbitral awards, ineffective.
According to the LiveLawBiz report, Mr Reddy submitted that immediately after Rana Kapoor, the former managing director and chief executive officer (MD&CEO) of Yes Bank, was arrested in the Yes Bank money laundering case in March 2020, the lender invoked the 'material adverse effect' clause contained in the loan agreements and recalled the loans. He argued that there had been no payment default by the borrowers at that stage.
The disputes were subsequently referred to arbitration, resulting in arbitral awards in 2023, which are under challenge before the Delhi High Court under Section 34 of the Arbitration and Conciliation Act.
Mr Reddy further argued that after acquiring the debt from Indiabulls Housing Finance, JC Flowers Asset Reconstruction relied on the loan recall notices and the arbitral awards to initiate insolvency proceedings, despite the awards being under judicial challenge.
According to the LiveLawBiz report, the Supreme Court was not persuaded by these submissions.
Justice Kumar observed that Ms Kapoor had never challenged the loan recall notices when they were issued in March 2020.
The bench also noted that, although the arbitral awards were under challenge, no stay had been granted against them.
The Court further noted the continuing default in repayment. According to the LiveLawBiz report, the Bench observed that no payment had been made after the loan recall notices were issued and that nearly five years had elapsed without any repayment. It subsequently declined to interfere with the NCLAT ruling.
According to the report, Bliss Abode and Bliss House had availed loans from Indiabulls Housing Finance backed by personal guarantees furnished by Ms Kapoor and her husband, Rana Kapoor.
Following Mr Kapoor's arrest by the directorate of enforcement (ED) in March 2020 in connection with the Yes Bank money laundering case, the lender invoked the 'material adverse effect' clause under the loan agreements, recalled the loans and demanded repayment.
After the dues allegedly remained unpaid, arbitral awards were passed in favour of the lender. The loans were later assigned to JC Flowers Asset Reconstruction, which initiated corporate insolvency resolution proceedings by filing applications under Section 7 of the IBC.
Ms Kapoor challenged the national company law tribunal's (NCLT's) admission orders before the NCLAT, contending that the loan recall was invalid, the arbitral awards had not attained finality because they were under challenge and insolvency proceedings could not be initiated on that basis.
The NCLAT, however, dismissed the appeals, holding that the loan recall notices had been validly issued under the contractual 'material adverse effect' clause and that the Section 7 applications were based on the continuing default following the recall notices, rather than solely on the arbitral awards.
It also held that the pendency of proceedings under Section 34 of the Arbitration and Conciliation Act did not bar the initiation of insolvency proceedings and upheld the NCLT's orders admitting the insolvency petitions.
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