The National Company Law Appellate Tribunal (NCLAT) has set aside an order passed by NCLT rejecting a plea filed by Punjab National Bank to initiate insolvency proceedings against Mittal Corp and directed it to decide afresh "expeditiously".
A three-member bench of the appellate tribunal observed that the Mumbai bench of the National Company Law Tribunal (NCLT) had dismissed PNB's plea on the basis of a circular issued by the Reserve Bank of India (RBI) on February 12, 2018, which was not applicable in this matter.
"We set aside the Impugned Order dated December 20, 2019 and remit the case to the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, with a direction to decide the Admission of the Application on merits as expeditiously as practicable," the NCLAT order said.
The appellate tribunal said there was no evidence suggesting that PNB had moved NCLT to initiate insolvency proceedings based on the said circular, under which it was not eligible to file as the default amount was less than Rs 2,000 crore.
"In the absence of any cogent evidence to show that the Appellant (PNB) has filed the Application only pursuant to the 'Circular' issued by Reserve Bank of India, which we hold at the outset, was not applicable to the facts of the instant case, it was not open to the Adjudicating Authority (NCLT) to reject the application on this ground," it said.
Earlier, on December 20, 2019, the NCLT had dismissed the plea filed by the bank under Section 7 of the Insolvency and Bankruptcy Code (IBC) to initiate insolvency proceedings against Mittal Corp.
This was challenged before the NCLAT by PNB.
The circular was issued by the RBI on February 12, 2018 mandating the banks to refer an account as NPA (non-performing asset) even for one day of default. Banks were to refer all such cases with over Rs 2,000 crore loans to the NCLT, if they failed to resolve the issue within 180 days of default.
The Supreme Court had quashed the circular on April 2, 2019 and termed it to be "ultra vires" in the Dharani Sugar case. Following this, the RBI had revised the circular, offering lenders a 30-day period to label an account an NPA, along with other modifications.
Mittal Corp had contended that the plea to initiate insolvency was filed by the bank following the circular, which was not applicable as its total debt payable to the consortium of lenders was Rs 1,077 crore, which was below Rs 2,000 crore limit.
Moreover, the Joint Lenders Forum (JLF) of the company has already started the process of restructuring of debt and the lenders had acquired 51 per cent stake through conversion of debt. They were also in discussions to offer this stake to some investors.
However, the appellate tribunal rejected it, saying the process was initiated by JLF prior to the issuance of the circular.
Mittal Corp had outstanding debt and dues of Rs 245 crore towards the erstwhile Oriental Bank of Commerce, which has been now merged with the Punjab National Bank (PNB).
Mittal Corp's total outstanding amount owed to its consortium of lenders is around Rs 1,077 crore.
After default, the JLF decided to classify the account as Special Mention Account (SMA) in terms of the guidelines issued by the RBI and sanctioned a restructuring package for the company.
A Master Restructuring Agreement was entered into between the PNB and Mittal Corp on March 30, 2015.
However, it did not adhere to the financial norms, as a result of which the strategic debt restructuring (SDR) scheme was invoked and the account was declared an NPA.