Scroll Top

INNOVATIVE INDUSTRIES V/S ICICI BANK

Introduction

The case[1] Innovative Industries v. ICICI Bank highlights the importance of timely submission of claims by creditors and the need to disclose all details of securities held against the loan. The decision of the Supreme Court, in this case, has provided clarity on the power of the NCLT and NCLAT to extend the limitation period for filing a claim and the necessity of disclosing all details of securities held by the creditor. From the perspective of the IBBI exam, this case highlights the importance of understanding the role of the IRP, the process of submission and verification of claims by creditors, and the power of the NCLT and NCLAT in the CIRP. Additionally, this case emphasizes the need for creditors to disclose all details of securities held against the loan and for debtors to be aware of the limitation period for filing claims. The case of Innovative Industries v. ICICI Bank was an important ruling under the Insolvency and Bankruptcy Code, 2016 (IBC).

Background

Innovative Industries, a company engaged in the business of manufacturing and exporting steel products, had taken a loan of Rs. 4.26 crore from ICICI Bank in 2009[2]. However, Innovative Industries defaulted on the loan payments, and ICICI Bank declared the account as a non-performing asset (NPA) in 2013. In 2018, ICICI Bank issued a demand notice under Section 8[3] of the Insolvency and Bankruptcy Code, 2016 (IBC), seeking payment of the outstanding amount.

In response, Innovative Industries filed an application under Section 10[4] of the IBC to initiate corporate insolvency resolution proceedings (CIRP) before the National Company Law Tribunal (NCLT), Mumbai, in 2018. The NCLT admitted the application and appointed an interim resolution professional (IRP) to manage the affairs of the company during the resolution process.

Under the Insolvency and Bankruptcy Code, 2016 (IBC), creditors are required to submit their claims to the interim resolution professional (IRP) appointed by the National Company Law Tribunal (NCLT) during the corporate insolvency resolution process (CIRP). The IRP is responsible for verifying and collating the claims received from creditors and preparing a list of creditors and the amounts owed to them.

The IRP conducted the due diligence process and invited claims from creditors.

ICICI Bank had submitted its claim to the IRP for the outstanding debt owed by Innovative Industries.

Contentions

  • Innovative Industries, the corporate debtor, filed an application under Section 10[5] of the Insolvency and Bankruptcy Code, 2016 (IBC) seeking initiation of the corporate insolvency resolution process (CIRP).
  • The company contended that it was unable to pay its debts, and there was no likelihood of the situation improving in the near future.
  • During the course of the corporate insolvency resolution process (CIRP), Innovative Industries raised two objections against ICICI Bank’s claim;
    • Firstly, Innovative Industries contended that the debt owed to ICICI Bank was time-barred and therefore not recoverable.

The company argued that the limitation period for recovery of the debt had expired as the last payment towards the debt had been made in 2011, and the bank had not taken any steps to recover the dues within the prescribed limitation period.

  • Secondly, Innovative Industries objected to the claim submitted by ICICI Bank on the grounds that the bank had not disclosed the details of the securities held against the loan.

The company contended that it had not been informed about the details of the securities, and therefore, it could not make a proper assessment of the amount due and payable to the bank.

  • ICICI Bank, the secured creditor, opposed the application and argued that the debt owed by Innovative Industries was due and payable, and the company had defaulted on the loan payments.
  • ICICI Bank contended that the application for CIRP was not maintainable as the debt owed to the bank was not disputed, and the company was not insolvent.

NCLAT Decision

The National Company Law Appellate Tribunal (NCLAT) did not make a decision on the merits of the objections raised by Innovative Industries regarding the time-barred nature of the debt owed to ICICI Bank and the failure of the bank to disclose the details of the securities held against the loan. This is because, during the course of the corporate insolvency resolution process (CIRP), Innovative Industries had paid off the entire outstanding debt owed to ICICI Bank, and the CIRP proceedings were terminated by the National Company Law Tribunal (NCLT) as a result. However, the NCLAT did make some observations on the issue of time-barred claims in the context of the Insolvency and Bankruptcy Code, 2016 (IBC). The NCLAT observed that the IBC does not extend the limitation period for recovery of debts, and therefore, the limitation period applicable under the Limitation Act, 1963[6], would continue to apply. The NCLAT also noted that creditors are required to disclose the details of the securities held against the loan while submitting their claims to the interim resolution professional (IRP), failing which the claim may be rejected by the IRP.

Supreme Court Decision

The bank then approached the Supreme Court, which set aside the NCLAT’s order and allowed the claim of ICICI Bank. The Supreme Court held that the NCLAT had erred in not considering the claim of ICICI Bank on the ground that it was time-barred. The Court noted that Section 238A of the Insolvency and Bankruptcy Code, 2016 (IBC)[7] empowers the National Company Law Tribunal (NCLT) to extend the limitation period for filing a claim under certain circumstances. In this case, the Supreme Court found that the NCLT had extended the limitation period for filing a claim by ICICI Bank, and therefore, the claim was not time-barred. The Supreme Court also held that creditors are required to disclose the details of the securities held against the loan while submitting their claims to the interim resolution professional (IRP). However, the Court noted that non-disclosure of such details does not render the claim inadmissible or invalid. The Court observed that such non-disclosure may lead to the claim being subject to challenge by the debtor or other creditors, but it does not automatically disallow the claim. The decision also underscored the importance of a fair and transparent corporate insolvency resolution process that takes into account the interests of both debtors and creditors. The ruling provides protection to corporate debtors against unwarranted insolvency proceedings and reinforces the importance of proper documentation and settlement of debts under the IBC.

Analysis

The case of Innovative Industries v. ICICI Bank is significant in several ways for understanding the role of the interim resolution professional (IRP), the process of submission and verification of claims by creditors, and the power of the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) in the corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC). Some of the key takeaways from the case are:

  1. The importance of the role of the interim resolution professional (IRP) in overseeing the CIRP and ensuring that the interests of all stakeholders are protected.
  2. The need for creditors to disclose all details of securities held against the loan while submitting their claims to the IRP, as failure to disclose such details may affect the outcome of the CIRP.
  3. The power of the National Company Law Tribunal (NCLT) to extend the limitation period for filing claims under the IBC.
  4. The importance of debtors being aware of the limitation period for filing claims and their rights and obligations under the law.
  5. The significance of a fair and transparent corporate insolvency resolution process that takes into account the interests of both debtors and creditors.

While the IBC provides a process for resolving corporate insolvencies, it is important for debtors to be aware of their rights and obligations under the law and to take steps to protect their interests.

Conclusion

In conclusion, the case of Innovative Industries v. ICICI Bank has significant implications for the understanding of the role of the IRP, the process of submission and verification of claims by creditors, and the power of the NCLT and NCLAT in the CIRP. The case underscores the importance of a fair and transparent corporate insolvency resolution process that takes into account the interests of all stakeholders and highlights the importance of creditors disclosing all details of securities held against the loan while submitting their claims. The case is relevant for the Insolvency and Bankruptcy Board of India (IBBI) exam as it provides an understanding of the various aspects of the CIRP and the powers and functions of the IRP, NCLT, and NCLAT under the IBC. It also highlights the importance of transparency, fairness, and adherence to legal provisions in the corporate insolvency resolution process.

Author(s) Name: Dr.Jagadeeswari CS (Sri Balaji College of Law, Bangalore)

References:

[1] Innovative Industries v ICICI Bank [2021] UKSC 20.

[2] Ibid

[3] Insolvency and Bankruptcy Code, 2016 (IBC), s. 8

[4] Insolvency and Bankruptcy Code, 2016 (IBC), s. 10

[5] Ibid

[6] The Limitation Act, 1963

[7] Insolvency and Bankruptcy Code, 2016, s. 238A