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JC - Legal Updates - RP not authorised to compel financial institution to continue non-fund-based facility during CIRP - NCLAT

Legal Updates

04 Feb 2022

RP not authorised to compel financial institution to continue non-fund-based facility during CIRP - NCLAT

Section 17 (1) (d) of the Insolvency and Bankruptcy Code, 2016 (“IB Code”) does not authorise Resolution Professional (“RP”) to compel the financial institution for maintaining the accounts of the corporate debtor (“CD”) to continue the non-fund based facility (“NFB facility”) comforted by Bank Guarantee.

The National Company Law Appellate Tribunal, New Delhi (“NCLAT”) made this observation vide its order dated 27th January 2022 in the matter of Union Bank of India (Erstwhile Corporation Bank) v. Mr. Dinkar T. Venkatsubramanian, Resolution Professional of Amtek Auto ltd. and Ors. while hearing an appeal filed by Union Bank of India (“Appellant”), a dissenting creditor. The Appeal was filed by the Appellant against the order passed by the NCLT dismissing its application under Section 60(5) of the IB Code, seeking modification of the Approved Resolution Plan to include the Appellant’s claim of ₹ 39,61,54,488 towards NFB facility, which had been denied by the RP.

The NCLAT held that on account of the instructions of the RP, the continuation of the NFB facility at an existing level as granted to the CD during the Corporate Insolvency Resolution Process (“CIRP”) would be considered as interim finance. The amount due under such a facility would undisputedly be part of the CIRP costs.

The NCLAT noted that the RP had failed to exercise its jurisdiction to seek sanction of the CoC and failed to make payment of the CIRP cost. The RP further erred by wrongly advising the CoC to deduct the said amounts from the amount payable to Appellant under the Approved Resolution Plan.

The NCLAT rejected the RP’s allegation that that the Appellant had acted in contravention of the mandate of Section 17 (1)(d) of the IB Code by withdrawing their NFB facility granted to the CD, despite the instructions given by the RP to continue the NFB facility until the implementation of the Approved Resolution Plan. 

The NCLAT, in this regard, observed that the phrase used in Sec. 17(1)(d) of the IB Code that financial institution “shall act on the instructions of the IRP” does not mean that it authorises IRP/RP to compel a financial institution for maintaining CD’s accounts to continue the NFB facility comforted by a bank guarantee. As such, it held that non-compliance with such instructions of RP cannot be considered a violation of Sec. 17(1)(d) of the IB Code.

order_view.php (nclat.gov.in)

For any further information, please contact Mr. Shubhabrata Chakraborti (shubhabrata.chakraborti@jclex.com) or Mr. Dhruv Malik (dhruv.malik@jclex.com).