Prudent ARC Limited Vs Rbep Entertainment Private Limited (NCLT Mumbai)
National Company Law Tribunal (NCLT), Mumbai Bench, admitted a petition filed by Prudent ARC Limited under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) for initiating Corporate Insolvency Resolution Process (CIRP) against RBEP Entertainment Private Limited. The case originated from a loan of Rs. 40 crore granted by Central Bank of India (Original Lender) to RBEP Entertainment, which defaulted on repayment. The total outstanding amount, including interest, was Rs. 56.19 crore as of July 2022. The petition was initially filed by the Original Lender and subsequently substituted by Prudent ARC Limited through an assignment agreement.
The Corporate Debtor, engaged in film production, contested the application on several grounds. It argued that the date of default cited (29.11.2019) was incorrect, that authorization for filing the application was invalid, that the documents were insufficiently stamped under the Maharashtra Stamp Act, and that it faced financial hardship due to COVID-19. The Corporate Debtor also claimed the bank statements submitted were incomplete and non-compliant with Section 2-A of the Bankers’ Books Evidence Act, 1891, and RBI guidelines.
The NCLT examined each objection meticulously:
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Authorization to file the petition: The Tribunal confirmed that Mr. P.C. Khurana, Deputy General Manager of the Original Lender, had valid authority via a Power of Attorney dated 09.01.2017, enabling him to initiate legal proceedings, including the present application. The substitution of the Original Lender with Prudent ARC Limited as the Financial Creditor was also sanctioned without objection.
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Bankers’ Books Evidence Act compliance: The Financial Creditor produced complete bank statements (01.04.2018 to 17.05.2021) accompanied by certificates under Section 2-A of the BBE Act, fulfilling statutory requirements. The NCLT held that claims of non-compliance were unfounded.
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Insufficiently stamped loan documents: Citing the Supreme Court’s observations in In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899, the Tribunal noted that inadequate stamping is a technical deficiency and not a valid ground to reject a Section 7 application. The NCLT also relied on NCLAT precedent in Koncentric Investments Ltd. vs. Standard Chartered Bank and Hiren Meghji Bharani vs. Shankheshwar Properties Pvt. Ltd., holding that debt and default proved through other documentary evidence suffices for maintainability.
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Date of default: The Tribunal accepted the Financial Creditor’s position that the Corporate Debtor defaulted on 29.11.2019, as corroborated by the CRILC report maintained by RBI, even though certain internal accounting adjustments were made in 2020. NCLAT authority in Milind Kashiram Jadhav vs. State Bank of India reinforced that once a loan account is classified as a Non-Performing Asset (NPA), the creditor has the statutory right to initiate CIRP.
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Corporate Debtor’s inability to pay due to COVID-19: The Tribunal emphasized the Supreme Court ruling in Swiss Ribbons Pvt. Ltd. vs. Union of India (2019), highlighting that IBC focuses on the occurrence of default, not reasons for non-payment. The Corporate Debtor’s financial hardship or inability to repay does not prevent the initiation of CIRP under Section 7.
The Tribunal found that the Financial Creditor had sufficiently demonstrated existence of debt exceeding Rs. 1 crore and default in repayment, fulfilling all pre-requisites of Section 7(5)(a) of the Code. All procedural requirements, including Form-1 submissions and assignment agreements, were duly satisfied. Consequently, the petition was admitted, and the Tribunal declared moratorium under Section 14 of the Code.
Key directions under the moratorium included:
