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Indian Case Summary

E.S. Krishnamurthy vs M/S Bharath Hi Tech Builders Pvt. … on 14 December, 2021

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In the case of E.S. Krishnamurthy vs M/S Bharath Hi Tech Builders Pvt, the Supreme Court of India was called upon to adjudicate a dispute that arose from a judgment of the National Company Law Appellate Tribunal (NCLAT) dated 30 July 2020. The NCLAT upheld an order dated 28 February 2020 of the National Company Law Tribunal (NCLT) at its Bengaluru Bench.

Facts of the Case

The case originated from a petition instituted by the appellants under Section 7 of the Insolvency and Bankruptcy Code 2016 (IBC) for initiating the Corporate Insolvency Resolution Process (CIRP) in respect of the respondent, M/s Bharath Hi Tech Builders Pvt. Ltd. The NCLT declined to admit the petition and instead directed the respondent to settle the claims within three months. The NCLAT found no merit in the appeal against the NCLT’s order.

The issue at hand was whether, in terms of the provisions of the IBC, the Adjudicating Authority can dismiss the petition under Section 7 without applying its mind to the merits of the petition, simply on the basis that the corporate debtor has initiated the process of settlement with the financial creditors.

The case’s genesis arises from a Master Agreement to Sell, which was entered into between the respondent, IDBI Trusteeship Limited, and Karvy Realty (India) Limited on 22 June 2014, to raise an amount of Rs 50 crores for the development of 100 acres of agricultural land. The respondent was then required to pay interest at the rate of 25 per cent per annum compounded annually to the purchaser, under the Master Agreement.

Issues

The appellants claimed that they, along with several others, extended term loans to the respondent acting on the advice of the Facility Agent and its sister concern. It is alleged by the appellants that through the Loan Agreement, the respondent raised over Rs 15 crores from nearly 300 investors in the first tranche of loans.

The appellants argued that the Adjudicating Authority and Appellate Authority have acted beyond the scope of their jurisdiction in ‘directing’ the parties to settle with the respondent. They also claimed that the IBC envisages two classes of creditors – financial and operational creditors. However, through the impugned judgment, the Appellate Authority has created a sub-class within the class of financial creditors.

Court’s Observations

The court noted that the Adjudicating Authority decided to dispose of the petition based on the following factors: the respondent’s efforts to settle the dispute were bona fide, as evinced by the fact that they had already settled with 140 investors, including 13 petitioners before it; the settlement process was underway with 40 other petitioners; the procedure under the IBC was summary in nature, and could not be used to individually manage the case of each of the 83 petitioners before it; and initiation of CIRP in respect of the respondent would put in jeopardy the interests of home buyers and creditors, who have invested in the respondent’s project, which was in advanced stages of completion.

The NCLAT’s judgment and order dated 30 July 2020 has now been challenged before this Court by a variety of individuals – some of whom were original petitioners before the NCLT and went in appeal before the NCLAT, some who joined the appeal before the NCLAT directly, some who were original petitioners before the NCLT but did not join the appeal before the NCLAT and others who have joined the cause before this Court for the first time.

The case is still ongoing, and the final judgment is yet to be delivered.