SC puts in abeyance CIRP of Vidarbha Industries Power on ground of existence of arbitral award

The Supreme Court ordered keeping in abeyance the Corporate Insolvency Resolution Process (CIRP) against Vidarbha Industries Power Limited on the ground that existence of a favourable award of Rs 1,730 crore. The court was hearing an appeal by the Maharashtra-based power generating company against initiation of Corporate Insolvency Resolution Process (CIRP).

The court in its order said that the Adjudicating Authority has to consider the grounds made out by a corporate debtor against admission of an insolvency application, and that mere existence of default does not make a case for initiation of CIRP.

The Supreme Court took cognisance of the fact that the appellant had opposed its admission into CIRP on the ground of existence of an award or a decree in favour of it, and that the awarded amount of Rs 1,730 crore exceeds the amount of the debt.

The court said that the adjudicating authority would have to exercise its discretion under section 7(5)(a) to keep the admission of the application of the financial creditor in abeyance, unless there is good reason not to do so.

The Supreme Court in its order on 12 July 2022 said: “The Adjudicating Authority (NCLT) has simply brushed aside the case of the Appellant that an amount of Rs.1,730 Crores was realizable by the Appellant in terms of the order passed by APTEL in favour of the Appellant, with the cursory observation that disputes if any between the Appellant and the recipient of electricity or between the Appellant and the Electricity Regulatory Commission were inconsequential.”

The court further said that it is clearly of the view that the Adjudicating Authority (NCLT) as also the Appellate Tribunal (NCLAT) fell in error in holding that once it was found that a debt existed and a Corporate Debtor was in default in payment of the debt there would be no option to the Adjudicating Authority (NCLT) but to admit the petition under Section 7 of the IBC.

Brief of the case

Axis Bank had moved an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 against Vidarbha Industries Power Limited on 15 January 2020.

Vidarbha Industries Power Ltd filed a miscellaneous application against Axis Bank’s application sometime in February 2020, seeking stay of proceedings under Section 7 of the IBC in the NCLT. It cited that it has got a favourable award of Rs 1,730 crore against Maharashtra Electricity Regulatory Commission (MERC), and that the MERC had appealed at Supreme Court against the award. Vidarbha Industries said that as long as the appeal was pending in the Court, CIRP proceedings must be halted.

However, NCLT dismissed the plea in an order on 29 January 2021.

After that Vidarbha Industries Power filed an appeal before the NCLAT, against the aforesaid order dated 29 January 2021. The said appeal was dismissed in an order dated 2 March 2021.

In the order the NCLAT said: “On consideration of the issues raised in this Appeal we are of the considered opinion that the Appellant has no justification in stalling the process and seeking stay of CIRP, which in essence has manifested in blocking the passing of order of admission of Application of Respondent under Section 7 of I&B Code. There is no merit in appeal as we find no legal infirmity in the impugned order. The Adjudicating Authority is conscious of the mandate of law and the course it has to take as per I&B provisions, which practically stands stalled. This is impermissible. The flow of legal process cannot be permitted to be thwarted on considerations which are anterior to the mandate of Section 7(4) & (5) of I&B Code. The Appeal being devoid of merit is dismissed. However, we do not propose to impose any costs.”

This forced the company to move to Supreme Court where the Counsel of Vidarbha Industries Power argued that it had applied for stay of the proceedings before NCLT, Mumbai in extraordinary circumstances, where it had not been able to pay the dues of Axis Bank only because an appeal filed by MERC against an order dated 3rd November 2016 passed by APTEL in favour of the Appellant, was pending in this Court.

“Since the aforesaid appeal is pending in this Court, the Appellant is unable to realize a sum of Rs 1,730 Crores, which is due and payable to the 9 Appellant, in terms of the order of APTEL,” the counsel argued.

The court concurred with the argument and set aside the orders of NCLT and NCLAT.

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