NCLT Admits Axis Bank’s Plea; Initiates CIRP Against Digital Ventures

NCLT Admits Axis Bank’s Plea; Initiates CIRP Against Digital Ventures

The appellate authority dismissed the applicability of the Supreme Court’s Vidarbha principle

The Mumbai bench of the National Company Law Tribunal has initiated insolvency proceedings against Digital Ventures Pvt Ltd, a subsidiary of Zee Learn Ltd, on a petition by Axis Bank over a Rs.106 crore debt default.

The tribunal dismissed arguments regarding a cut-back mechanism as a novation of contract and deemed the Supreme Court’s 'Vidarbha principle' inapplicable in the matter.

It initiated the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).

The issues before the NCLT were whether the application was hit by Section 10A of the IBC; if there was novation of contract, and if the Vidarbha principle was applicable.

The adjudicating authority observed that the cut-back mechanism could not be treated as a novation of contract, especially in absence of a pact between the parties for substituting the original contract.

The bench held that a temporary method of repayment percentage of a debt through the mechanism could not change the binding contract between the financial creditor and the corporate debtor. It relied on the law that acknowledgment of debt in the books of a corporate debtor was valid proof of debt and default.

Terming the reliance on the Vidarbha principle futile, the adjudicating authority noted that it had the discretion to admit or refuse an insolvency petition under IBC Section 7(5)(a). The discretionary power did not depend on the financial creditor proving the debt and default.

Thus, the tribunal declared a moratorium under Section 14 and appointed Pravin R Navandar the Interim Resolution Professional (IRP).

The alleged default amount was Rs.106,35,42,647.20, including principal amount - Rs.82,21,47,329.78, interest - Rs.23,53,47,981.12 (at the rate of 12.9 percent per annum), and penal interest – Rs.60,47,336.30 (at the rate of 1 percent) on the overdue installment.

It was based on default in repayment of a loan for Rs.125,00,00,000 sanctioned by the Axis Bank to Digital Ventures. The default resulted in the loan being classified as a Non-Performing Asset (NPA) by Axis Bank in 2021.s

The bank petitioned under Section 7 of the IBC read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules.