21 June 2021

Insolvency – Value of security or recoverability of debt not material for not triggering CIRP

The National Company Law Tribunal (NCLT), Mumbai has held that in a Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, only the debt and default need to be looked in to and that the value of the security would have no bearing on the legal requirement, which when satisfied would trigger the Corporate Insolvency Resolution Process (CIRP).

The Corporate defaulter had plead that assets mortgaged and or hypothecated to the financial creditor were of a very high value and hence, the dues were secured by the said assets.

Rejecting this ground against petition under IBC, the NCLT held that the value of the security and the recoverability of the debt would not obliterate the fact of default. It noted that there was no dispute that there was default in payment of the financial debt.

The NCLT in the case Piramal Capital and Housing Finance Ltd. v. SK Elite Industries (India) Ltd. also held that a suit filed before the High Court against the guarantors of the debtors does not prohibit the creditor from initiating CIRP against the debtors.

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