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M. Suresh Kumar Reddy vs. Canara Bank & Ors.

Civil Appeal · 2023 INSC 521Decided 11 May 2023
Civil Appeal No. 7121 of 2022
Abhay S. Oka · Rajesh Bindal

Background

Syndicate Bank (later merged into Canara Bank) had sanctioned an overdraft facility and bank guarantee limits to a corporate debtor, M/s Kranthi Edifice Pvt. Ltd. When the debtor defaulted, the Bank moved the NCLT under Section 7 of the IBC, which admitted the insolvency application and imposed a moratorium; the NCLAT upheld this. The suspended director of the corporate debtor appealed to the Supreme Court, arguing the default was actually caused by the Bank's refusal to extend certain bank guarantees despite requests from the Telangana Government.

Decision Breakdown

The Supreme Court held that once a financial debt and default are established, the NCLT is bound to admit a Section 7 application unless there are genuinely good reasons not to, clarifying that its earlier ruling in Vidarbha Industries was confined to its own peculiar facts and does not dilute the settled position from Innoventive Industries and E.S. Krishnamurthy. On facts, the Court found the debtor's liability included a separate secured overdraft facility (not just bank guarantees), the debtor had itself acknowledged the debt, and the Bank had formally rejected the debtor's request to extend the guarantees, so no good reason existed to deny admission. The appeal was dismissed with no order as to costs.

Lesson Learnt

A borrower cannot avoid insolvency proceedings by blaming a lender for not renewing facilities when the borrower has independently acknowledged the debt and other admitted defaults exist; once debt and default are proven, NCLT has very limited discretion to refuse admission under Section 7 of the IBC.

Official source (sci.gov.in)View Judgment (PDF)

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