NCLAT dismisses plea challenging insolvency against Avantha Power

The National Company Law Appellate Tribunal (NCLAT) has set aside the petition filed against the initiation of corporate insolvency resolution process against Avantha Power and Infrastructure, which was a corporate guarantor for loans availed by Korba West Power Company.

The appellate tribunal dismissed the plea by Anil Bhargava, director of the suspended board of Avantha Power and Infrastructure Ltd (APIL), and said it was "fully in agreement with the reasons assigned" by the NCLT for admitting the insolvency plea.

The Ahmedabad Bench of the National Company Law Tribunal (NCLT) on August 16, 2021, had admitted an insolvency plea against APIL, over a petition filed by Axis Bank claiming a due of Rs 480.54 crore.

The loan pertained to Korba West Power Company Ltd (KWPCL), which was the principal borrower, and the funds were for setting up a 2x600 MW Thermal Power Plant in Chhattisgarh.

To part finance the project, KWPCL had availed loan facilities from a consortium of lenders led by Axis Bank.

This included loan facility aggregating to Rs 2,150 crore by entering into a Common Rupee Loan Facility Agreement dated June 24, 2009.

Besides, KWPCL also took additional facilities aggregating to Rs 193 crore and Rs 315.45 crore along with a working capital facility aggregating to Rs. 446.90 crore.

APIL acted as a corporate guarantor in respect of two out of the aforesaid four financial facilities.

However, KWPCL defaulted in loan repayment and approached NCLT under section 10 to get CIRP initiated against it.

KWPCL, had also listed about it committing default in repaying loan facilities for which APIL was the corporate guarantor.

Axis Bank issued loan recall and invocation to KWPCL and the corporate debtor -- APIL.

Axis Bank recalled the principal amount of Rs 2,459.80 crore being outstanding as on April 30, 2018.

While for AIPL, Axis Bank invoked both the guarantees under Incremental Debt and Rupee Loan Facility-II and raised a demand for Rs 480.54 crores being the amount allegedly outstanding.

This was opposed by AIPL before NCLT contending that there is no independent and separate default by it.

Moreover, default under both the facilities for which it stood as a guarantor is already being sought to be restructured.

Moreover, the NCLAT observed the deeds of guarantee were invoked by Axis Bank on June 5, 2018, prior to the order dated July 26, 2018, when NCLT had passed the order initiating insolvency proceedings against KWPCL under section 10 Petition and prior to the Resolution Plan of the Principal Borrower being approved.

Thus, in light of the settled position of law, since the default by the Corporate Debtor has duly quantified in the Section 7 Petition and since the same is above the minimum threshold of Rs. 1 crore, the Appellant's submission is contrary to law and cannot be a ground for any interference with the Impugned Order, said a NCLAT bench comprising Justice Anant Bijay Singh and Shreesha Merla.

Section 10 of IBC allows a debtor to initiate an insolvency resolution process against itself if it has committed any default.