Canara Bank Limited Vs HK Toll Road Private Limited (NCLT Mumbai)
Financial Viability and Prospective NHAI recoveries were no basis to call the Insolvency Plea malicious: NCLT Mumbai
Conclusion: An application filed by HK Toll Road Private Limited was dismissed alleging that the insolvency proceedings initiated by Canara Bank were malicious and intended solely for debt recovery holding that the existence of financial debt and default could not be disregarded merely because the corporate debtor claims future recoveries from the National Highways Authority of India (NHAI).
Held: In the instant case, the corporate debtor had moved an interlocutory application contending that the Section 7 petition filed by Canara Bank amounted to an abuse of the insolvency framework. It argued that its inability to service debt arose only after NHAI unilaterally terminated the concession agreement governing the Hosur Krishnagiri highway project. According to the company the project remained financially viable and would have continued generating sufficient toll revenue to meet its debt obligations had the concession not been terminated. HK Toll Road further submitted that arbitration proceedings against NHAI were pending and that it had substantial claims towards termination payments. The company asserted that it was entitled to recover amounts far exceeding the alleged default and that a favourable outcome in the pending litigation before the Supreme Court and arbitral tribunal would enable complete repayment of lenders. It therefore sought dismissal of the insolvency petition and requested the Tribunal to hold that the proceedings had been initiated with mala fide intent. The Canara Bank strongly opposed the application stating that the allegation of malicious intent was entirely unfounded. The lender submitted that the corporate debtor had admittedly defaulted on repayment obligations since December 2023 and that the insolvency petition was filed only after the occurrence of a clear and continuing default. The bank further contended that issues relating to commercial viability, future claims, or possible recoveries from third parties could not override the statutory scheme of the Insolvency and Bankruptcy Code, 2016. Tribunal observed that the corporate debtor had failed to establish any fraudulent or malicious intent behind the filing of the insolvency petition. The Bench held that the pendency of arbitration proceedings, potential termination compensation, and expectations of future recovery from NHAI do not render a creditor’s insolvency action mala fide when debt and default stand established.
