NCLAT Approves Initiation of Insolvency Proceedings Against Birla Tyres

NCLAT Approves Initiation of Insolvency Proceedings Against Birla Tyres

The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, consisting of Justice Rakesh Kumar Jain (Judicial Member) and Naresh Salecha (Technical Member), has affirmed the initiation of Corporate Insolvency Resolution Process (CIRP) against Birla Tyres Ltd. (Corporate Debtor) by the National Company Law Tribunal NCLT.

Birla Tyres Ltd., a subsidiary of the BK Birla Group of Companies, was incorporated in 1991 as part of Kesoram Industries Ltd. However, it underwent demerger in 2018 as part of a restructuring plan. During the Financial Year 2021, Birla Tyres incurred losses amounting to ₹287.63 crore, while its total revenue stood at ₹153.11 crore.

SRF Ltd. (Operational Creditor) supplied Tire Cord Fabric to Birla Tyres Ltd. (Corporate Debtor) from 2018 to 2019 based on a Work Order dated April 6, 2018. Upon non-payment for the supplies, SRF Ltd. served a Demand Notice on Birla Tyres Ltd. for an amount of ₹15,84,53,695.75 (inclusive of interest), with a principal amount of ₹10,06,42,246.75. In an email dated June 3, 2020, Birla Tyres Ltd. acknowledged the debt of ₹10.18 crores and made a final payment of ₹10 lakh to SRF Ltd.

Due to the absence of any further payments, the Operational Creditor issued a Demand Notice under Section 8(1) of the IBC to the Corporate Debtor on July 23, 2021. The Corporate Debtor failed to either dispute or respond to the Demand Notice. Consequently, the Operational Creditor filed a petition under Section 9 of the IBC, seeking the initiation of CIRP against the Corporate Debtor. Despite multiple opportunities granted by the NCLT, the Corporate Debtor failed to file any Reply to the petition.

On May 5, 2022, the NCLT commenced the Corporate Insolvency Resolution Process against the Corporate Debtor.

Manav Investment & Trading Company Limited (Appellant), a shareholder of the Corporate Debtor, filed an appeal before the NCLAT challenging the order dated May 5, 2022.

The Appellant contended that the Corporate Debtor had duly filed applications with the National Stock Exchange of India Ltd. and Bombay Stock Exchange (BSE) Ltd. to obtain no objection letters from the Stock Exchanges, as required by the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements). However, the NCLT prematurely admitted the Corporate Debtor into CIRP before the no-objection letters could be issued. Furthermore, the Corporate Debtor was experiencing financial difficulties due to the general economic downturn and the pandemic. Additionally, there was significant labour unrest at the Balasore factory, where 2,000 workers were engaged in strikes and protests, hindering access to the factory premises and impeding the Corporate Debtor’s ability to retrieve records for filing its Reply to the Section 9 petition.

The NCLAT bench, upon examining the NCLT order dated May 5, 2022, concluded that the NCLT had provided ample opportunities for the Corporate Debtor to present its defence, but the Corporate Debtor failed to effectively present its case.

In the absence of any pre-existing dispute, the NCLAT affirmed the NCLT’s decision to admit the Section 9 petition and initiate the Corporate Insolvency Resolution Process against the Corporate Debtor. The Bench’s decision was based on the established debt and default, and the Appellant’s appeal was dismissed accordingly.