The NCLAT has held that banks cannot be found guilty of wilful contempt for not releasing non-fund based credit facilities as per an approved resolution plan, unless there is clear evidence of deliberate defiance of court orders.
NCLAT Clarifies Contempt Standards for Banks
The National Company Law Appellate Tribunal (NCLAT) has clarified that banks cannot be held liable for wilful contempt simply for failing to release rolled-over non-fund-based credit facilities under an approved resolution plan. The Tribunal ruled that mere disputes regarding the bona fide interpretation of terms cannot qualify as contempt unless there is deliberate defiance of judicial orders.
This decision underscores the importance of a clear understanding of contractual obligations within the framework of resolution plans. It reflects the challenges faced by financial institutions in navigating complexities within the IBC and the potential for differing interpretations among stakeholders.
By establishing a standard that necessitates deliberate defiance for a contempt finding, the NCLAT is attempting to balance the protective elements of bankruptcy law with the operational realities of banking and credit facilities.
Practitioners must be aware of this ruling, as it may influence how they approach disputes related to the release of credit facilities and guide their strategies in negotiations involving resolution plans.
