NCLT gives nod to initiation of insolvency proceedings against GVK Energy

The National Company Law Tribunal (NCLT), Hyderabad Bench, on Wednesday initiated insolvency proceedings against GVK Energy Limited, a corporate guarantor for GVK Power (Goindwal Sahib) Ltd, following a petition filed by IDBI Bank under Section 7 of the Insolvency and Bankruptcy Code (IBC). The tribunal dismissed GVK Energy’s objections, ruling that the default exceeded ₹1,106 crore and that the corporate guarantee remained enforceable despite the resolution of the principal borrower.

Key Details of the Case
IDBI Bank, part of a lender consortium, had extended a term loan of ₹733.85 crore and working capital facilities of ₹153.75 crore to GVK Power for a thermal power project in Punjab. GVK Energy acted as a corporate guarantor for the debt. After GVK Power defaulted in 2016, its account was declared a non-performing asset (NPA) in 2018. Despite multiple demand notices, including a ₹989.66 crore recall in 2019, neither GVK Power nor GVK Energy cleared the dues.

In 2022, Axis Bank initiated insolvency against GVK Power, leading to a resolution plan approved in December 2023. IDBI Bank recovered ₹306.02 crore under the plan but pursued GVK Energy for the remaining ₹1,106.78 crore.

Tribunal’s Findings
The NCLT rejected GVK Energy’s claims that the debt was extinguished post-resolution. Citing Supreme Court precedents (Lalit Kumar Jain v. Union of India), the tribunal emphasized that a guarantor’s liability persists independently. It also dismissed GVK’s limitation defense, noting COVID-19-related extensions and revival letters (2020 and 2022) acknowledging the debt reset the timeline.

GVK Energy had argued insolvency was a “debt recovery tool,” but the tribunal upheld IDBI Bank’s right under IBC, stating, “Once default is proven, admission is mandatory.”

Moratorium and Next Steps
The tribunal appointed Venkata Chalam Varanasi as interim resolution professional and declared a moratorium, halting lawsuits, asset transfers, and recovery actions against GVK Energy. The Corporate Insolvency Resolution Process (CIRP) must conclude within 330 days.

Implications
GVK Energy, part of the infrastructure-focused GVK Group, faces operational restrictions during the moratorium. The case underscores lenders’ rights to pursue guarantors even after principal borrower resolution, reinforcing the IBC’s stringent stance on corporate guarantees.

Also See: Insolvency petition filed against Reliance Home Finance