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Home Case Index All Cases Insolvency and Bankruptcy Insolvency and Bankruptcy + AT Insolvency and Bankruptcy - 2019 (1) TMI AT This

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2019 (1) TMI 84 - AT - Insolvency and Bankruptcy


Issues Involved
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code).
2. Jurisdiction and powers of the Adjudicating Authority (National Company Law Tribunal, Guwahati Bench).
3. Determination of default in repayment of loans by the Corporate Debtor.
4. Status and rights of Financial Creditors.
5. Application of inherent powers by the Adjudicating Authority.
6. Objections raised by the Corporate Debtor including maintainability, limitation, and management change.

Detailed Analysis

1. Initiation of Corporate Insolvency Resolution Process (CIRP)
Both appeals involved applications under Section 7 of the I&B Code for initiating CIRP against the Corporate Debtor. The Financial Creditors alleged defaults in repayment of unsecured loans. The Adjudicating Authority initially rejected these applications, leading to the appeals.

2. Jurisdiction and Powers of the Adjudicating Authority
The Adjudicating Authority, Guwahati Bench, rejected the applications by exercising inherent powers to address extraordinary situations, which is beyond the scope of the I&B Code. The Appellate Tribunal found that the Adjudicating Authority exceeded its jurisdiction and should have confined its examination to the existence of debt and default as per Sections 7, 9, and 10 of the I&B Code.

3. Determination of Default in Repayment of Loans
The Financial Creditors provided evidence of loans disbursed and alleged defaults in repayment. The Adjudicating Authority, however, concluded there was no default based on the representation of the application and certain agreements. The Appellate Tribunal emphasized that the Adjudicating Authority should ascertain the existence of default from the records and evidence provided by the Financial Creditors.

4. Status and Rights of Financial Creditors
The Adjudicating Authority initially questioned the status of the Appellants as Financial Creditors. The Appellate Tribunal clarified that the Financial Creditors had provided loans to the Corporate Debtor, which were invested with a time value of money, thus confirming their status as Financial Creditors under Sections 5(7) and 5(8) of the I&B Code.

5. Application of Inherent Powers by the Adjudicating Authority
The Adjudicating Authority exercised inherent powers under Rule 11 of the National Company Law Tribunal Rules, 2016, which is not applicable in cases under Sections 7, 9, or 10 of the I&B Code. The Appellate Tribunal set aside the orders, stating that inherent powers cannot be used to decide disputes or determine the maintainability of applications under Section 7.

6. Objections Raised by the Corporate Debtor
The Corporate Debtor raised several objections, including the maintainability of the application, the claim being barred by limitation, and a change in management. The Adjudicating Authority did not accept these objections and proceeded on merit. The Appellate Tribunal found that the objections regarding limitation were rightly rejected, and the existence of debt and default was sufficient for admitting the application.

Conclusion
The Appellate Tribunal set aside the impugned orders and remitted the matters to the Adjudicating Authority for admission of the applications under Section 7 of the I&B Code. The Adjudicating Authority was directed to admit the cases if debt and default were established, without considering any new objections. The appeals were allowed with specific directions for further proceedings.

 

 

 

 

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