Insolvency plea against Coffee Day barred by limitation, lacked proper authorisation: NCLAT

The National Company Law Appellate Tribunal (NCLAT) in its judgment quashing the initiation of Corporate Insolvency Resolution Process (CIRP) against Coffee Day Enterprises Limited (Coffee Day/ CDEL), ruled that the application filed by IDBI Trusteeship Services Limited (IDBI) under Section 7 of the Insolvency and Bankruptcy Code (IBC) was barred by limitation and lacked proper authorisation..The judgment by Judicial Member Justice (retd) Sharad Kumar Sharma and Technical Member Jatindranath Swain said, “The ‘appeal’ would stand ‘allowed’, the ‘Impugned Order’ dated 08.08.2024, would hereby stand ‘quashed’, and consequentially the application preferred under ‘Section 7’ of the I & B Code, 2016, would hereby stand ‘rejected.".The case stemmed from a financial dispute between IDBI, acting on behalf of debenture holders, and Coffee Day over a default of ₹228 crore. IDBI had filed an application under Section 7 of the IBC seeking to initiate CIRP against Coffee Day, citing a default on non-convertible debentures (NCDs) issued by the company. The National Company Law Tribunal (NCLT) at Bengaluru had admitted the application on August 8, 2024, declaring a moratorium under Section 14 of the IBC..This led to the appeal before NCLAT.The NCLAT arrived at the following conclusions:Invalid Authorization: The tribunal found that Manohar Maddili, who filed the application on behalf of IDBI, did not hold a valid power of attorney at the time of filing. The authority granted to him had been superseded by a subsequent resolution and the application was therefore, filed without proper authorization.“Since the proceedings under Section 7 of I & B Code, 2016, itself was instituted on 07.09.2023, at that point of time Mr. Manohar Maddili, who had filed the supporting affidavit was not holding the valid authority to file an affidavit, which will itself vitiate the entire proceedings, since having been instituted by a person who was not competent to initiate the same,” the judgment said. Non-Compliance with Debenture Trust Deed: The tribunal held that IDBI failed to comply with the terms of the Debenture Trust Deed, which required a majority resolution from debenture holders before initiating insolvency proceedings. The absence of such a resolution rendered the application invalid..Barred by limitation: The tribunal ruled that the application was barred by limitation since the default occurred on September 30, 2019, and the application was filed on September 7, 2023, well beyond the three-year limitation period. The tribunal also held that the COVID-19-related extension of limitation periods did not apply as the default occurred before the pandemic.“Since the entire argument has been extended on the basis of the admitted date of default as to be 30.09.2019 which was not in dispute between the parties. The aspect of acknowledgement which is the subject matter of Section 18 of the Limitation Act becomes irrelevant in its applicability to the circumstances of the instant appeal,” the judgment said. .Malicious Proceedings: The NCLAT found that the proceedings were initiated with malicious intent, violating Section 65 of the IBC. The tribunal noted that the plea of malicious prosecution was raised by the appellant in written submissions, and the failure of the NCLT to consider this plea rendered its judgment perverse.“It would be a malicious proceeding and would be barred by Section 65 of the I & B Code, 2016. The plea of Section 65 of the I & B Code, 2016, since having been taken by the Appellant after the leave of the Tribunal and has not been considered, it would vitiate the proceedings,” the judgment said..Senior Advocates PS Raman and PH Arvindh Pandian along with advocates Arun C Mohan, Adithya Jain and S Madhusmitha represented Malavika Hegde, the Director of Coffee Day.Additionally, a team from Chandhiok & Mahajan, comprising Vandana Kohli and Lakshana Viravalli also appeared for Hegde..IDBI Trusteeship was represented by Senior Advocate R Parthasarathy and advocates TK Bhaskar, Arun Karthik Mohan, Suhrith Parathasarathy and Amritha Sathyajit..[Read Judgment]