M. SURESH KUMAR REDDY versus CANARA BANK & ORS.

Citation: [2023] 5 S.C.R. 387 · Decided: 11-05-2023 · Supreme Court of India · Bench: ABHAY S. OKA · Disposal: Dismissed

Cited by 1 judgment(s) · cites 1 · see the full citation network in Lexace

Judgment (excerpt)

A
B
C
D
E
F
G
H
387
[2023] 5 S.C.R. 387
387
M. SURESH KUMAR REDDY
v.
CANARA BANK & ORS.
(Civil Appeal No. 7121 of 2022)
MAY 11, 2023
[ABHAY S. OKA AND RAJESH BINDAL, JJ.]
Insolvency and Bankruptcy Code, 2016 – ss.3(12), 7, 14 –
Scope of s.7 – ‘Default’ u/s.3(12) – Application filed by the
respondent-Bank u/s.7 against corporate debtor, admitted by NCLT
– Moratorium was declared for the purposes referred in s.14 –
Challenged by appellant, a suspended Director of the Corporate
Debtor – Appeal dismissed by NCLAT – Held: Once NCLT is satisfied
that the default has occurred, there is hardly a discretion left with it
to refuse admission of the application u/s.7 – Even the non--payment
of a part of debt when it becomes due and payable will amount to
default on the part of a Corporate Debtorò – In such a case, an
order of admission u/s.7 must follow – In the present case, the amount
payable by the Corporate Debtor also included the amount
repayable under fund-based credit facility of secured overdrafts –
The facility granted to the Corporate Debtor was not confined to
Bank Guarantees – Corporate Debtor committed a default within
the meaning of s.3(12) due to non-payment of the amounts due to
the Bank – Thus, even assuming that NCLT has the power to reject
the application u/s.7 if there are good reasons to do so, in the instant
case, the conduct of the appellant was such that no such good reason
existed on the basis of which NCLT could have denied admission of
the application u/s.7 – Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 –
s.13(2).
Dismissing the appeal, the Court
HELD: 1. Once NCLT is satisfied that the default has
occurred, there is hardly a discretion left with NCLT to refuse
admission of the application under Section 7. Thus, even the non-
payment of a part of debt when it becomes due and payable will
amount to default on the part of a Corporate Debtorò. In such a
case, an order of admission under Section 7 of the IB Code must
A
B
C
D
E
F
G
H
388
SUPREME COURT REPORTS
[2023] 5 S.C.R.
follow. If the NCLT finds that there is a debt, but it has not become
due and payable, the application under Section 7 can be rejected.
Otherwise, there is no ground available to reject the application.
[Para 10][397-C, E-F]
E.S. Krishnamurthy and others v. Bharath Hi Tecch
Builders Private Limited (2022) 3 SCC 161; Innoventive
Industries Limited v. ICICI Bank and Another (2018) 1
SCC 407 : [2017] 8 SCR 33 – relied on.
2. The decision in the case of Vidarbha Industries cannot
be read and understood as taking a view which is contrary to the
view taken in the cases of Innoventive Industries and E.S.
Krishnamurthy The view taken in the case of Innoventive
Industries still holds good. [Para 13][399-A-C]
Vidarbha Industries Power Limited v. Axis Bank Limited
2022 (8) SCC 352 – referred to.
3. In this case, the amount payable by the Corporate Debtor
also included the amount repayable under fund-based credit facility
of secured overdrafts. The facility granted to the Corporate
Debtor was not confined to Bank Guarantees. Moreover, a
demand notice under Section 13(2) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 dated 29th August 2018 was issued by the
first respondent. As the Corporate Debtor did not honour the
said notice, the original application for recovery has been filed
by the first respondent before the Debt Recovery Tribunal at
Hyderabad. Moreover, the Corporate Debtor acknowledged the
debt on 5th May 2019 to the extent of Rs. 63,36,61,897.26.
Moreover, the Balance Sheet as of 31.03.2019 of the Corporate
Debtor reflects the said liability of the Corporate Debtor. It is
true that as far as Bank Guarantees are concerned, the Executive
Engineer of the Government of Telangana addressed letters to
the Bank requesting the Bank to revalidate the Bank Guarantees.
On 8th January 2020, the Government addressed a letter to
Syndicate Bank to extend the seven Bank Guarantees mentioned
therein. The letter mentions that if the action of revalidation or
extension of the Bank Guarantees is not taken, the Bank
A
B
C
D
E
F
G
H
389
Guarantees be realized and the amount be paid by Demand Drafts
to the State Government. Thus, Bank Guarantees were invoked
by the State Government. In view of the said letter, on 9th January
2020, the Corporate Debtor addressed a letter to the Syndicate
Bank mentioning that the issue relating to the pre-closure 

Excerpt shown. Read the full judgment & AI analysis in Lexace.