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2018 (12) TMI 1126 - AT - Insolvency and BankruptcyCorporate Insolvency Resolution Process - whether the Adjudicating Authority can entertain or reject an application under Section 7 of the I&B Code on the ground of usurious and extortionate penal interest ? - Held that - From the I&B Code , it will be evident that the Corporate Insolvency Resolution Process is not a litigation and are not decided by Court of Law. Now, the Adjudicating Authority deals with the matter of insolvency, which in its first stage is required to take steps for resolution of the Corporate Debtor . Therefore, the Adjudicating Authority being not a Court of law and as the Adjudicating Authority do not decide a money claim or suit, it cannot exercise any of the power vested under Sections 3 or 4 of the Usurious Loans Act, 1918 . The Presidency- Towns Insolvency Act, 1909 having repealed, and there being a bar of jurisdiction under Section 231 of the I&B Code as no civil court have jurisdiction in respect of any matter in which the Adjudicating Authority is empowered to decide under the Code, we hold that the provisions of Sections 3 & 4 of the Usurious Loans Act, 1918 are not applicable to any of the proceeding under Section 7 or 9 of the I&B Code . Further, as initiation of Corporate Insolvency Resolution Process under Sections 7 or 9 do not amount to recovery proceedings, the question of deciding the claim, which may include the interest by the Adjudicating Authority does not arise for the purpose of triggering the Corporate Insolvency Resolution Process . If the application is complete and the Adjudicating Authority is satisfied that there is a debt due to the Financial Creditor and there is a default on the part of the Corporate Debtor , it has no other option but to admit the application in absence of any other infirmity. For the reasons aforesaid, no interference is called for against the order(s) of admission which are under challenge
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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