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2019 (9) TMI 968 - AT - Insolvency and BankruptcyMaintainability of application - Initiation of CIRP - Section 7 of Insolvency and Bankruptcy Code, 2016 - disputes between the Appellants and Respondent, pending proceedings in various Forums or not - pre-existing dispute or not - HELD THAT - The amounts borrowed by the Respondent is a debt due and payable and it is borrowed against a time value of money. The Adjudicating Authority (NCLT, Chennai Branch, Chennai) is directed to admit the application under Section 7 of IBC after notice to Respondent, in case Respondent wants to settle claim before order of admission. Parties to appear before the Adjudicating Authority on 16.10.2019 for fixing the date of hearing.
Issues Involved:
1. Rejection of application under Section 7 of Insolvency and Bankruptcy Code, 2016 (IBC) by Adjudicating Authority. 2. Existence of disputes between the parties affecting the insolvency process. 3. Segregation of amounts paid by different undertakings. 4. Completeness of details in the application under Section 7(5)(b) of IBC. 5. Applicability of Section 5(6)(a) of IBC regarding disputes. 6. Pendency of civil suit affecting the insolvency process. Detailed Analysis: 1. Rejection of Application under Section 7 of IBC: The appellants challenged the order dated 25th October 2018 by the Adjudicating Authority (NCLT, Division Bench, Chennai) which rejected their application under Section 7 of the IBC. The application was filed for initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The provision under Section 7(1) allows a Financial Creditor to file an application for CIRP when a default has occurred. The appellants filed the application in the prescribed Form-1, detailing the financial debt and providing evidence such as promissory notes and a mortgage deed. 2. Existence of Disputes: The Adjudicating Authority observed disputes between the appellants and the respondent, including pending proceedings in various forums. However, the appellate tribunal noted that these proceedings were unrelated to the claims of the appellants. The respondent had filed a civil suit seeking a declaration of no debt owed and an injunction against interference with the property. The appellate tribunal clarified that the existence of disputes is not a valid ground for rejecting an application under Section 7 of IBC, unlike Section 9 where disputes can be a reason for rejection. 3. Segregation of Amounts Paid: The Adjudicating Authority noted that the statements of accounts of M/s Colorhomes and M/s Colorhome Developers Pvt Ltd were used interchangeably without segregating the amounts paid by both undertakings. The appellate tribunal found this reasoning unacceptable, emphasizing that M/s Colorhome Developers Pvt Ltd had issued promissory notes and executed a mortgage deed in favor of the appellants, thereby acknowledging the debt. 4. Completeness of Details in Application: The Adjudicating Authority also rejected the application under Section 7(5)(b) of IBC for being incomplete in details. The appellate tribunal, however, found that the appellants had provided complete details of the debt and default in Part-V of Form-1. The proposed Interim Resolution Professional (IRP) had also agreed to the appointment, and no disciplinary proceedings were pending against him. The tribunal highlighted that the Adjudicating Authority failed to provide the appellants an opportunity to rectify any defects in the application, as mandated by the proviso to Section 7(5)(b). 5. Applicability of Section 5(6)(a) of IBC: The Adjudicating Authority held that the petition was liable to be dismissed under Section 5(6)(a) of IBC, which defines "dispute" to include suits or arbitration proceedings relating to the existence of the amount of debt. The appellate tribunal disagreed, referencing the Supreme Court's decision in "Innoventive Industries Ltd. Vs. ICICI Bank and Anr." which clarified that for financial creditors under Section 7, the existence of a dispute does not bar the initiation of CIRP. 6. Pendency of Civil Suit: The Adjudicating Authority considered the pendency of a civil suit as a ground for rejecting the application, citing a dispute in the amount of debt. The appellate tribunal rejected this view, stating that the pendency of a civil suit does not affect the initiation of CIRP under Section 7 of IBC, as the process is triggered by the occurrence of default. Conclusion: The appellate tribunal found that the amounts borrowed by the respondent constituted a debt due and payable, which had defaulted. The tribunal set aside the impugned order dated 25th October 2018, directing the Adjudicating Authority to admit the application under Section 7 of IBC after notifying the respondent. The parties were instructed to appear before the Adjudicating Authority on 16.10.2019 for fixing the date of hearing, with no orders as to costs.
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