NCLT rejects insolvency plea against Simplex Infrastructure citing pending arbitration awards of Rs 554

The Kolkata bench of NCLT has given a big reprieve to EPC and construction company Simplex Infrastructure, when the tribunal rejected an insolvency plea against the company filed by Central Bank of India. The public sector bank had moved the insolvency plea after Simplex Infrastructure defaulted on a payment of Rs 105 crore.

While rejecting the insolvency application, the tribunal argued that the corporate debtor (Simplex Infrastructure) is undergoing a transient insolvency due to a financial failure and that it is a matter of time that it is able to liquidate arbitration awards and payoff the creditors in good time which is in any case not going to be short, even if the management of the enterprise is changed.

The tribunal was mindful of the fact that the total amount of the arbitration awards that have gone in the favour of the corporate debtor is Rs.554 crore (including interest).

The NCLT further observed that since the business model of the Simplex Infrastructure is not a faltered one – it works as a construction company on EPC and other form of contracts – the larger issue of the quality of the tender documents, the competition in the sector, the delay in the execution of the works due to various hinderances – both attributable to the owner and attributable to the Corporate Debtor and also various permutations thereof – remains unchanged even after the change of management through the resolution process.

The NCLT further said that since there are insignificant tangible assets with the corporate debtor, the financial assets of the corporate debtor which would be available to the new incumbent is again in the shape of the arbitration awards only.

“It is thus not certain that by what innovative thinking by the new incumbent, these awards can be decided in an early timespan. Till that time the value has to remain locked and the money that is stuck is not going to be released into the credit market any time soon than the prevailing trend of resolution of such arbitration cases,” argued the NCLT while dismissing the insolvency plea.

Vidarbha Industries Power vs Axis Bank

Both the counsel of the Simplex Infrastructure and the NCLT relied on the Supreme Court judgement in case of Vidarbha Industries Power Ltd, which stressed upon the discretionary power of NCLT.

The Supreme Court in that judgement had contended:

“The Adjudicating Authority (NCLT) has to consider the grounds made out by the Corporate Debtor against admission, on its own merits. For example, when admission is opposed on the ground of existence of an award or a decree in favour of the Corporate Debtor, and the Awarded/decretal amount exceeds the amount of the debt, the Adjudicating Authority would have to exercise its discretion under Section 7(5)(a) of the IBC to keep the admission of the application of the Financial Creditor in abeyance, unless there is good reason not to do so. The Adjudicating Authority may, for example, admit the application of the Financial Creditor, notwithstanding any award or decree, if the Award/Decreetal amount is incapable of realization. The example is only illustrative”.

The NCLT citing the Vidarbha judgement said it is mindful of the fact that the Vidarbha judgment which inter-alia notes as follows:

“Even though Section 7 (5)(a) of the IBC may confer discretionary power on the Adjudicating Authority, such discretionary power cannot be exercised arbitrarily or capriciously. If the facts and circumstances warrant exercise of discretion in a particular manner, discretion would have to be exercised in that manner.”

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