In IBC Section 7 application, Corporate Debtor cannot take shelter under Section 186 of Companies Act 2013, in case Financial Creditor have advanced loan in breach of Sec. 186(2) to Corporate Debtor – EDCL Infrastructure Ltd. Vs. Urban Infraprojects Pvt. Ltd. – NCLT Kolkata Bench

Hon’ble NCLT Kolkata Bench holds that:

(i) Section 186(2) of the Companies Act, 2013, is a protection mechanism to the shareholders/ stakeholders of the Company (Financial Creditor in this case) so that the persons who are managing the company cannot and should not give loan in excess of limits prescribed which would be in excess of their capacity and could land the company in deep trouble should there be a default of the loan lent.
(ii) Therefore, aggrieved party in such violation under Section 186(2) of the Companies Act, 2013, would be the shareholder/stakeholders of the Financial Creditor and Regulators. It is not open for the Corporate Debtor to take shelter under such violations and refuse to repay money borrowed.
(iii) Even if any proceedings of arbitration is invoked, the Adjudicating Authority is to consider the application under Section 7 of the IBC independently and pass necessary order pertaining to admission or rejection of the application, consequence of which will befall on the proceedings under the Arbitration and Conciliation Act, 1996. It is further submitted that in the instant case, the proceedings under Section 7 of the IBC have been initiated by the Financial Creditor and no proceedings has been initiated by the Respondent herein in terms of the Arbitration and Conciliation Act, 1996.
(iv) Even if any proceedings initiated by the Respondent or any other party under the Arbitration and Conciliation Act, 1996, that would be treated as a separate and independent proceeding and no proceedings will vitiate or influence each other.

In IBC Section 7 application, Corporate Debtor cannot take shelter under Section 186 of Companies Act 2013, in case Financial Creditor have advanced loan in breach of Sec. 186(2) to Corporate Debtor – EDCL Infrastructure Ltd. Vs. Urban Infraprojects Pvt. Ltd. – NCLT Kolkata Bench Read Post »