Brief Overview:
A minority lender in a consortium is entitled to initiate independent insolvency proceedings – Hon’ble National Company Law Appellate Tribunal, New Delhi (“NCLAT”).
Technical Details:
1) The corporate debtor had availed financial assistance from a consortium of lenders (“Consortium”).
2) Upon default, a minority lender filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”).
3) Although a corporate debt restructuring (“CDR”) was being considered by the Consortium, the application for insolvency was admitted, commencing corporate insolvency resolution process (“CIRP”) of the corporate debtor.
4) The promoter opposed the admission stating that 90% of the Consortium was in support of the CDR, and the unilateral action by the minority lender was unjustified.
5) Further, CIRP was initiated while the CDR requirements of 75% of the creditors (by value) and 60% of creditors (by number) was being met.
Key Observations by the NCLAT:
The NCLAT upheld the admission of the CIRP, noting that:
1) There was an admitted debt and a clear default in repayment by the corporate debtor.
2) Each lender has an independent right to take measures for realization of debt, including initiation of CIRP and the consortium’s decision to explore CDR does not restrict individual lenders from taking separate legal action.
3) A lender holding a 2.47% share in the total debt is not barred from exercising its rights under the facility documents or initiating proceedings under the IBC provided it meets the minimum threshold prescribed under the IBC, i.e., INR 10,000,000 (Indian Rupees Ten Million only).
JC Takeaways:
1) Lenders with small exposure may opt for IBC as a mode of resolution dehors the CDR mechanism.
2) CDR negotiations are likely to account for the rights and interests of the minority lenders, given the availability of IBC even near finalization.
For further details, please see:
Apresh Garg v. Indian Bank (erstwhile Allahabad Bank) & Ors. (Company Appeal (AT) (Insolvency) No. 396 of 2024
Apresh Garg NCLAT Judgment.pdf
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