Electrosteel Castings Ltd. Vs.
UV Asset Reconstruction
Company Ltd: A Case Analysis
Company Appeal (AT) (Insolvency) No. 159 of 2022
Introduction
This case analysis examines an appeal filed against a decision made by the National
Company Law Tribunal, Cuttack Bench. The tribunal had rejected a request to halt legal
proceedings in a matter concerning insolvency between two parties: Electrosteel Castings
Limited (the appellant) and UV Asset Reconstruction Company Limited (the respondent).
Brief Background
1. Electrosteel Castings Limited (ESL), the appellant, went through the Corporate Insolvency
Resolution Process (CIRP). This process was initiated by the State Bank of India under the
Insolvency and Bankruptcy Code, 2016.
2. As part of the CIRP, a resolution plan was approved. This plan involved converting ESL's
unsustainable debt into equity shares.
3. Later on, SREI executed a Deed of Assignment, transferring the debt owed by ESL to UV
Asset Reconstruction Company.
Facts
The following are key details about the case:
1. The respondent, UV Asset Reconstruction Company, began SARFAESI Act proceedings
against the appellant, Electrosteel Castings Limited.
2. This legal dispute has involved multiple forums, including the Madras High Court, DRT
Chennai, and even the Supreme Court.
3. Throughout these proceedings, Electrosteel Castings Limited raised concerns about:
The validity of the debt claimed by UV Asset Reconstruction Company
The legitimacy of the assignment agreement between SREI and UV Asset Reconstruction
Company.
Issues
In this appeal, several important matters are being examined:
1. Validity of debt and assignment agreement: The appellant is questioning whether the
claimed debt is indeed valid and if the assignment agreement between SREI and the
respondent holds legal weight.
2. Interplay between SARFAESI Act and Insolvency and Bankruptcy Code:There's a need to
understand how these two laws interact with each other in this particular case.
3. Interpretation of judgments and orders by different courts:Due to the involvement of
multiple courts, it's crucial to analyze how their previous decisions impact the current
situation.
4. Consideration of stay application in Section 7 proceedings:The issue of whether a stay
application should be taken into account during Section 7 proceedings is being deliberated
upon.
Relevant Rules:
Sections 7, 17, and 34 of the SARFAESI Act, the Insolvency and Bankruptcy Code, and the
legal principles of debt assignment and resolution plans.
Judgment:
This case is a detailed judgment from the National Company Law Appellate Tribunal,
Principal Bench, New Delhi, in Company Appeal (AT) (Insolvency) No. 159 of 2022. The
appeal arises from an order dated 03.02.2022 passed by the Adjudicating Authority (National
Company Law Tribunal), Cuttack Bench, Cuttack in IA No.139/CB/2021 in
CP(IB)No.16/CB/2021.
The parties involved in the appeal are:
- Electrosteel Castings Limited (Appellant)
- UV Asset Reconstruction Company Limited (Respondent)
The judgment was delivered on 9th March, 2022, by Justice Ashok Bhushan (Chairperson)
and Dr. Alok Srivastava (Member Technical).
The Appellant had filed an appeal against the order passed by the National Company Law
Tribunal, Cuttack Bench, rejecting IA No.139/CB/2021 filed by the Appellant. The Appellant
had sought a stay of the proceedings in CP(IB)No.16/CB/2021, which the Adjudicating
Authority had rejected.
The core issue in the appeal pertained to:
1. The existence of debt owed by the Appellant to the Respondent
2. The validity of the Assignment Agreement between SREI and the Respondent
The judgment details the legal arguments presented by both parties' counsels, including Shri
Kapil Sibal and Shri Ramji Srinivasan for the Appellant, and Shri Huzefa Ahmadi and Shri
Krishnendu Datta for the Respondent.
The Appellant's main argument was centered on the discharge of ESL's debt under a
Resolution Plan, which, according to the Appellant, rendered the Assignment Agreement with
the Respondent void and invalid due to the absence of any outstanding debt.
The Hon'ble Supreme Court's judgment dated 26th November, 2021, was instrumental in the
proceedings. The Supreme Court dismissed the Appellant's Appeal but granted liberty to file
an Application under Section 17 of the SARFAESI Act before the DRT Chennai. The Court
emphasized that the issue of debt and enforceability should be adjudicated by the DRT.
In its analysis, the Appellate Tribunal examined the legal submissions, including the
Appellant's plea to stay the Section 7 proceedings under the Insolvency and Bankruptcy Code
pending the determination of debt by the DRT. The Tribunal noted that the Adjudicating
Authority had rightly rejected the Appellant's request for a stay, as the issues were already
being addressed by another forum (DRT).
Analysis:
The judgment emphasized the importance of the DRT's role in adjudicating debt disputes
under SARFAESI Act, and the Adjudicating Authority's plenary jurisdiction in insolvency
matters. It clarified that the Supreme Court's judgment didn't impede the Section 7
application rights of the Respondent.
The case discussed is a legal judgment from the National Company Law Appellate Tribunal
regarding a case between Electrosteel Castings Limited (the Appellant) and UV Asset
Reconstruction Company Limited (the Respondent). The case revolves around the rejection
of the Appellant's application for a stay of proceedings under Section 7 of the Insolvency and
Bankruptcy Code, 2016 (IBC). The judgment was authored by Justice Ashok Bhushan and
Dr. Alok Srivastava on 9th March 2022.
The judgment outlines the background of the case where Electrosteel Castings Limited
executed a Deed of Undertaking, Warranty, and Indemnity with the State Bank of India,
resulting in a Corporate Insolvency Resolution Process (CIRP) initiated against ESL, leading
to a Resolution Plan approved by Vedanta Limited. Subsequently, SREI assigned the debt due
by ESL to UV Asset Reconstruction Company, which initiated proceedings under the
SARFAESI Act, 2002 against ESL.
The Appellant filed various applications before the Madras High Court and Debt Recovery
Tribunal (DRT) Chennai, with subsequent appeals made to the Supreme Court. The Hon'ble
Supreme Court granted liberty to the Appellant to file an Application under Section 17 of the
SARFAESI Act before DRT Chennai. After multiple legal proceedings, the Appellant filed an
IA seeking a stay of the proceedings under Section 7 of the IBC, which was rejected by the
Adjudicating Authority.
The judgment analyzes the arguments presented by the counsel for the Appellant, including
the contention that the entire debt of ESL was discharged under the Resolution Plan, thus
questioning the validity of the debt assigned to the Respondent. However, the Adjudicating
Authority rejected the IA, stating that the issues raised by the Appellant should be addressed
during the Section 7 proceedings. Ultimately, the National Company Law Appellate Tribunal
dismissed the Appeal, upholding the decision of the Adjudicating Authority.
The judgment thoroughly examines the submissions made by both parties, referencing the
proceedings before various courts and the orders passed. It discusses the implications of the
Hon'ble Supreme Court's judgment and clarifies that the Appellant's contentions regarding the
debt's discharge and the validity of the Assignment Agreement should be raised before the
Adjudicating Authority during the Section 7 proceedings.
The case provides detailed insights into the legal proceedings, interpretations of relevant
laws, and the rationale behind the Tribunal's decision. It highlights the importance of
allowing the Adjudicating Authority to consider all arguments and issues raised by the parties
before reaching a final decision. The judgment emphasizes the need to follow due legal
process and address disputes within the appropriate legal framework.
Hencethe case serves as a comprehensive analysis of a complex legal case involving
insolvency and debt recovery proceedings. It showcases the Tribunal's careful examination of
the facts, legal arguments, and previous judgments to arrive at a reasoned decision. The
judgment underscores the significance of legal procedures and the role of adjudicating bodies
in resolving disputes within the established legal framework.
Important Concepts and Case Laws:
1. Insolvency and Bankruptcy Code (IBC): The IBC is a comprehensive legislation that
consolidates and amends the laws relating to reorganization and insolvency resolution of
corporate persons, partnership firms, and individuals in India. The document mentions that a
Corporate Insolvency Resolution Process (CIRP) was initiated against ESL under the IBC.
2. SARFAESI Act: The SARFAESI Act is a significant piece of legislation that empowers
banks and financial institutions to recover their non-performing assets without the
intervention of the court. The document refers to proceedings initiated under the SARFAESI
Act by UV Asset Reconstruction Company Limited against the Appellant.
3. Deed of Assignment: A deed of assignment is a legal document that transfers the rights and
interests in a property or debt from one party to another. The document mentions a Deed of
Assignment executed by SREI in favor of UV Asset Reconstruction Company Limited,
assigning the debt due from ESL to UV Asset Reconstruction Company Limited.
4. Adjudicating Authority: The Adjudicating Authority referred to in the document is the
National Company Law Tribunal (NCLT), Cuttack Bench, which plays a crucial role in
adjudicating matters related to insolvency and company law.
5. Financial Creditor: The concept of a financial creditor is important in insolvency
proceedings. The document discusses the status of UV Asset Reconstruction Company
Limited as a financial creditor of the Appellant and the legal implications of this status.
6. Resolution Plan: A resolution plan is a proposal submitted by resolution applicants for
insolvency resolution of a corporate debtor under the IBC. The document mentions the
submission and approval of a resolution plan by Vedanta Limited in the case.
7. Default and Debt: The document delves into the crucial issues of default and debt,
including arguments surrounding the discharge of ESL's debt through a resolution plan, the
validity of the Assignment Agreement, and the existence of any enforceable debt payable by
the Appellant to the Respondent.
8. Jurisdiction and Legal Interpretation: The document presents a detailed legal analysis of
the jurisdiction of different tribunals, the interpretation of legal provisions such as Section 34
of the SARFAESI Act, and the interplay between various legal principles in the context of the
case.
Conclusion:
The case highlighted the complexities in debt resolution and assignment agreements within
the context of insolvency proceedings. It underscored the need for careful legal interpretation,
adherence to statutory processes, and the significant role of specialized forums like DRTs in
resolving such disputes.
