The National Company Law Tribunal (NCLT) has dismissed JM Financial Asset Reconstruction’s application to intervene in an insolvency resolution application filed by Bank of Baroda against Arch Pharmalabs.
In its application, JM Financial ARC had sought the tribunal’s intervention to include it as a necessary party since it has acquired 97% of Arch Pharmalabs’ debt and has credit exposure of over ₹9,500 crore.
“One cannot be unmindful of the fact that admittedly the corporate debtor (Arch Pharmalabs) owes a sum of ₹130 crore to the respondent (Bank of Baroda),” observed a division bench of judicial member Kuldip Kumar Kareer and technical member Anil Raj Chellan in its order of May 15.
“Even if the same may be a meagre amount when compared with the outstanding dues of the intervener, which are stated to be to the tune of ₹9,500 crore, the intervener cannot be allowed to usurp the legitimate rights of the other financial creditors to pursue the remedies available under the law,” said the bench.
Before the tribunal’s order, JM Financial ARC argued that it is helping Arch Pharmalabs to revive and if the company is admitted under the corporate insolvency resolution process (CIRP), it will have an “extremely negative impact” on the business operations of the pharmaceutical company.
“It is a settled law that while deciding the application, NCLT is only required to look at debt and default. Hence, legally speaking, no financial creditor can protest against admission of Section 7 application filed by another financial creditor unless it is a case of fraudulent initiation, which can be brought to the attention of NCLT by any party,” said Pooja Mahajan, managing partner of Chandiok & Mahajan Advocates.
Jyoti A Singh, founder of law firm AJA Legal, said the Insolvency and Bankruptcy Code (IBC) in its present form does not recognise the right of any other party except the petitioner and respondent to intervene or make submissions at the pre-admission stage.
“The only way to tackle these scenarios would be to amend IBC in such cases where the requisite majority of proposed COC (committee of creditors) should have a right to intervene in case they are of the view the CIRP is not the way forward for the valid reasons which will be tested before the NCLT,” added Singh.
JM Financial ARC also argued there was a restructuring agreement between it and Arch Pharmalabs in December 2017, under which the dues of the company were restructured at ₹1,400 crore and JMFARCL in its capacity as lender also granted additional facility of ₹200 crore twice in December 2017 and May 2021.
Source: Economic Times