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2019 (2) TMI 1762 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor defaulted in making repayment - existence of debt and dispute or not - Section 138 of Negotiable Instruments Act, 1881 - HELD THAT - The Financial Creditor has established that the loan was duly sanctioned and duly disbursed to the Corporate Debtor but there has been default in payment of Debt on the part of the Corporate Debtor. The nature of Debt is a Financial Debt as defined under section 5 (8) of the Code. It has also been established that admittedly there is a Default as defined under section 3 (12) of the Code on the part of the Debtor. It is found that the Petitioner has not received the outstanding Debt from the Respondent and that the formalities as prescribed under the Code have been completed by the Petitioner, this Petition deserves Admission . Application admitted - moratorium declared.
Issues Involved:
1. Existence of Financial Debt and Default 2. Acknowledgement of Debt by Corporate Debtor 3. Validity of Cheque Issued as Security 4. Non-enforcement of Pledged Shares 5. Compliance with Bankers' Books Evidence Act 6. Admission of Insolvency Petition Detailed Analysis: 1. Existence of Financial Debt and Default: The Financial Creditor, Anchor Leasing Private Limited, filed Form No. 1 under Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, invoking Section 7 of the Insolvency and Bankruptcy Code against Euro Ceramics Limited. The total debt claimed was ?10,81,50,936/- as of 31.12.2017, with the default date being 01.07.2011. The Financial Creditor granted a loan of ?5,00,00,000/- at 12% interest on 14.10.2009, which was disbursed as per the Statement of Account annexed in the Petition. The Corporate Debtor paid interest only until July 2011, and subsequent negotiations failed, leading to dishonored cheques and legal proceedings under Section 138 of the Negotiable Instruments Act, 1881. 2. Acknowledgement of Debt by Corporate Debtor: The Financial Creditor argued that the Corporate Debtor acknowledged its liability in various documents, including an affidavit in reply to the petition and a Statement of Confirmation of Accounts dated 01.04.2010. The Corporate Debtor contended that the cheque issued was only a security and its encashment was wrongful. However, the Tribunal found that the Corporate Debtor's repeated acknowledgments of the debt established a creditor-debtor relationship, satisfying the conditions under Section 5(8) of the IBC. 3. Validity of Cheque Issued as Security: The Corporate Debtor argued that the cheque for ?5,00,00,000/- was issued as security, and its encashment by the Financial Creditor was invalid. The Financial Creditor countered this by citing Puneet Kumar Agarwal v. M/s Imaginations Agri Exports & Ors., which held that issuing a blank cheque authorizes the holder to fill up the amount and realize the money due. The Tribunal rejected the Corporate Debtor's argument, stating that even if the cheque was security, it acknowledged the debt and authorized encashment in case of default. 4. Non-enforcement of Pledged Shares: The Corporate Debtor argued that the Financial Creditor should have sold the pledged 12,44,000 shares to recover the dues instead of initiating multiple legal proceedings. The Tribunal referred to Section 176 of the Indian Contract Act, 1872, which gives the pawnee the right to retain the pledged shares as collateral security or sell them after reasonable notice. The Tribunal held that the Financial Creditor was not compelled to sell the pledged shares and could choose any legal remedy to recover the dues. 5. Compliance with Bankers' Books Evidence Act: The Corporate Debtor claimed that the Financial Creditor failed to file documents evidencing the debt as per the Bankers' Books Evidence Act, 1891. The Tribunal relied on Standard Chartered Bank & DBS Bank Ltd. v. Ruchi Soya Industries Ltd., which stated that copies of entries in a Bankers' Book do not need to be certified under the Act for them to be considered valid evidence. The Tribunal found that the statement of accounts provided by the Financial Creditor was sufficient. 6. Admission of Insolvency Petition: The Tribunal concluded that the Financial Creditor had established the loan's disbursement and the Corporate Debtor's default. The Tribunal found that the petition was complete, and all procedural formalities were complied with. The Tribunal admitted the petition, appointing an Interim Resolution Professional and declaring a moratorium under Section 14 of the Code. The Tribunal emphasized that once a financial debt and default are established, the insolvency process must be triggered. Conclusion: The Tribunal admitted the insolvency petition filed by the Financial Creditor, finding that the debt and default were established, and all procedural requirements were met. The Corporate Debtor's defenses were rejected, and an Interim Resolution Professional was appointed to conduct the Corporate Insolvency Resolution Process. The moratorium was declared, prohibiting any suits or asset transfers by the Corporate Debtor during the insolvency process.
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