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Home Case Index All Cases Insolvency and Bankruptcy Insolvency and Bankruptcy + AT Insolvency and Bankruptcy - 2018 (12) TMI AT This

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2018 (12) TMI 1126 - AT - Insolvency and Bankruptcy


Issues Involved:
1. Maintainability of the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) concerning "usurious penal interest."
2. Applicability of the Usurious Loans Act, 1918 in the context of the I&B Code.
3. Role and jurisdiction of the Adjudicating Authority under the I&B Code.
4. The relationship between the I&B Code and the Usurious Loans Act, 1918.

Issue-Wise Detailed Analysis:

1. Maintainability of the Petition under Section 7 of the I&B Code concerning "Usurious Penal Interest":
The primary issue addressed was whether the Adjudicating Authority could entertain or reject an application under Section 7 of the I&B Code based on the ground of "usurious and extortionate penal interest." The appellant argued that the Adjudicating Authority should have considered the arbitral proceedings suggesting a pending dispute regarding the quantum and the applicability of the Usurious Loans Act, 1918, to determine the maintainability of the petition. It was contended that the claimed penal interest did not constitute a "financial debt" as defined under Section 5(8) of the I&B Code, and the Resolution Professional should apply for setting aside "extortionate credit transactions" under Section 50(1).

2. Applicability of the Usurious Loans Act, 1918 in the Context of the I&B Code:
The court examined whether the provisions of the Usurious Loans Act, 1918, particularly Sections 3 and 4, were applicable to proceedings under the I&B Code. The Usurious Loans Act, 1918, allows courts to re-open transactions involving excessive interest rates and substantially unfair terms. However, the court concluded that the Usurious Loans Act, 1918, was enacted when insolvency proceedings were governed by different laws, and its provisions were not designed to apply to the modern insolvency resolution process under the I&B Code.

3. Role and Jurisdiction of the Adjudicating Authority under the I&B Code:
The judgment clarified that the Adjudicating Authority under the I&B Code is not a court of law and does not decide money claims or suits. Its primary role is to facilitate the Corporate Insolvency Resolution Process (CIRP) and ensure the resolution of the corporate debtor as a going concern. The Adjudicating Authority cannot exercise the powers vested under Sections 3 or 4 of the Usurious Loans Act, 1918, as it does not deal with money claims or suits but focuses on the resolution process.

4. The Relationship between the I&B Code and the Usurious Loans Act, 1918:
The court emphasized that the I&B Code aims to maximize the value of the corporate debtor's assets and balance the interests of all stakeholders. The initiation of CIRP under Sections 7 or 9 of the I&B Code does not amount to recovery proceedings, and the Adjudicating Authority is not required to decide on the claim's quantum, including interest, for triggering the CIRP. The provisions of the Usurious Loans Act, 1918, are not applicable to proceedings under the I&B Code, and the Adjudicating Authority cannot reject an application based on the grounds of usurious interest rates.

Findings:
The court found that the Adjudicating Authority erred in considering the Usurious Loans Act, 1918, for rejecting the application under Section 7 of the I&B Code. The judgment reiterated that if the application is complete and the Adjudicating Authority is satisfied that there is a debt due to the financial creditor and a default on the part of the corporate debtor, it must admit the application in the absence of any other infirmity.

Conclusion:
The appeals challenging the orders of admission (Company Appeal (AT) (Insolvency) No. 336 of 2017 and Company Appeal (AT) (Insolvency) No. 07 of 2018) were dismissed. The appeal in Company Appeal (AT) (Insolvency) No. 10 of 2018 was allowed, and the case was remitted to the Adjudicating Authority for hearing the application for admission after notice to the parties. The court clarified that the Usurious Loans Act, 1918, is not applicable to proceedings under the I&B Code, and the Adjudicating Authority cannot reject an application based on usurious interest rates.

 

 

 

 

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