HYDERABAD: The National Company Law Tribunal (NCLT) has ordered insolvency resolution process against a company in probably the first such case in India where the petitioner that approached the bankruptcy court alleging payment default is a firm that had earlier provided it services on insolvency resolution.
The NCLT’s Hyderabad bench has ordered the proceedings at Sri Yadadri Life Sciences (SYLS) for the alleged default in payments to Adroit Financial Services (AFS) for advice given on insolvency resolution and services towards capital structuring and settlement of debt through a one-time settlement (OTS) with its lender.
SYLS entered into an agreement with AFS after its sole financial creditor, State Bank of India, initiated auction process against it under the Sarfaesi Act in May 2018. AFS advised SYLS on the initiation of proceedings under Section 10 of the Insolvency and Bankruptcy Code (IBC). Under Section 10 of the IBC, a defaulting company has the right to approach the adjudicating authority to declare it insolvent, giving protection from creditors. Sections 7 and 9 of the IBC allow the creditors of a defaulting company to move against it for rendering the firm insolvent.
After SBINSE 3.25 % gave the company another opportunity for an OTS of debt, SYLS asked AFS to withdraw the insolvency petition. AFS then obtained orders from the NCLT for the withdrawal of the case in September 2018.
Later, AFS moved the NCLT Hyderabad bench claiming that SYLS had defaulted on an invoice of ?12.98 lakh raised in September 2018 for the professional services rendered to it. It filed the petition under Section 9 of the IBC. Citing an agreement entered into with AFS in March 2018 to arrange finances to meet the liability under the OTS, SYLS argued that AFS had failed to render services as agreed upon, resulting in failure of the first deal with SBI. It also pointed to a dispute over the financial services rendered by AFS. The NCLT bench comprising judicial member Ratakonda Murali and technical member Narender Kumar Bhola observed that SYLS had availed of the services of AFS for insolvency petition through a May 2018 agreement and defaulted on the payment.
The tribunal observed that the March 2018 agreement over arranging finances had no connection to the May 2018 agreement for insolvency services. “The amount payable to the operational creditor falls under the definition of ‘operational debt’ as it refers to the payment for the services rendered to the corporate debtor,” the bench observed, while admitting the petition after noting that “there is debt and default of operational debt”.
The tribunal on Monday also appointed G Madhusudhan Rao as the corporate resolution professional.