Whether the NCLT is justified in admitting a Section 7 application where the Corporate Debtor holds an arbitral award in its favour that could potentially discharge its liabilities, particularly when the total admitted debt materially exceeds the realistically recoverable value of that award? In the matter of Vikram Sharma v. Canara Bank1 on April 10, 2026 the NCLAT reaffirmed the NCLT’s decision to admit the CIRP Proceedings against the Company. The Appellate Tribunal clarified that while the Supreme Court’s landmark ruling in Vidarbha Industries Power Ltd. v. Axis Bank Ltd.2 granted Adjudicating Authorities the discretion to stay proceedings, such discretion is not a safe harbor for Corporate Debtors whose financial health is beyond repair and whose liabilities eclipse their projected assets.
The SPV Stalemate: Navigating the Gap Between Arbitral Awards and Mounting Consortium Debt
The dispute originated from a project involving the four-laning of state highways in Maharashtra, for which Supreme Best Value Kolhapur (Shiroli) Sangli Tollways Pvt. Ltd. was incorporated as a Special Purpose Vehicle (SPV) in 2011. To finance the project, the Corporate Debtor secured a consortium loan of ₹247.50 crores, with Canara Bank eventually disbursing ₹85.80 crores. However, the project hit a stalemate when Supreme Best Value Kolhapur (Shiroli) Sangli Tollways Pvt. Ltd. failed to get a completion certificate for the Public Works Department (PWD) and the National Highways Authority of India (NHAI) took over the project in 2016. This left the Corporate Debtor in a precarious position; it defaulted on its repayments, leading its account to be declared a Non-Performing Asset (NPA) in July 2017. While the Corporate Debtor successfully secured an arbitral award of approximately ₹318.94 crores plus interest against the PWD in 2022, it remained embroiled in litigation as the PWD challenged the award while the Corporate Debtor sought its execution.
The core legal conflict arose when Canara Bank filed a Section 7 application under the Insolvency and Bankruptcy Code (IBC), claiming a default of over ₹346.83 crores as of October 2024. Upon which the NCLT admitted the company into CIRP. Dissatisfied with this decision the Appellant, a suspended director of the Corporate Debtor went to NCLAT and argued that the tribunal was bound by the Vidarbha Industries precedent to stay the insolvency proceedings because the amount claimed in the execution petition was significantly higher than the bank’s individual claim. The NCLAT, however, dismantled this narrative by examining the Corporate Debtor’s overall financial health and viability as mandated by the Supreme Court. The Tribunal noted that the Corporate Debtor’s total admitted debt to the Consortium of Lenders stood at a staggering ₹1113 crores, which is almost double the amount it hoped to recover through its execution proceedings.
In sustaining the NCLT’s admission of the insolvency petition, the NCLAT meticulously applied the principles from Vidarbha Industries Power Ltd. vs. Axis Bank Ltd., which held that the Adjudicating Authority must take into account all relevant facts and circumstances, including financial health. The Tribunal underscored that while Section 7(5)(a) of the IBC uses the word “may,” suggesting discretionary power, this discretion cannot be exercised arbitrarily or capriciously. The NCLAT identified that the debt owed was not just to Canara Bank but to a consortium, and because the total debt of ₹1113 crores far exceeded the awarded amount, there was no ground to exercise discretion in favor of the Corporate Debtor. Furthermore, as an SPV with no independent business or income source following the NHAI takeover, the Corporate Debtor was found to be neither financially sound nor commercially viable. The Tribunal further anchored its decision in the context of M. Suresh Kumar Reddy vs. Canara Bank3, which reinforces that when debt and default are proved, the Adjudicating Authority generally has to admit the Section 7 application.
Conclusion
Ultimately, the NCLAT concluded that the existence of an arbitral award is not a shield for a defunct Corporate Debtor when its liabilities remain insurmountable. By dismissing the appeal, the Tribunal reaffirmed that the IBC’s primary objective is the resolution of the Corporate Debtor following strict timelines. When a company exists only as an SPV with no operational business and liabilities that far exceed its potential legal recoveries, the discretionary stay finds no application. This judgment serves as a vital clarification that the discretion of the NCLT is a tool for equity, not a mechanism to indefinitely delay the resolution of a commercially unviable entity.
Citations
Expositor(s): Adv. Jahnobi Paul
