2020 (10) TMI 167 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - financial debt - existence of debt and dispute or not - time limitation - HELD THAT - On the facts of the instant case, from a perusal of the copy of Certificate of Registration of the Financial Creditor NBFC, copy of Loan Agreement dated 20.03.2015, Bank statement of IIFL along with the certificate under Bankers' Book Evidence Act, 1891 it is more than clear that the Financial Creditor has provided financial assistance to the Corporate Debtor and there exists a financial debt within the meaning of Section 5(8) of the Code of 2016, having been disbursed against the consideration for the time value of money, as per the terms of the Loan agreement, i.e. money borrowed against the payment of interest. On a perusal of the Demand Promissory Note issued by the Corporate Debtor in favour of the Financial Creditor for ₹ 13 Crore and the Demand Notice dated 07.03.2019 demanding payment of loan amounts along with the reply filed by the Corporate Debtor, and the Independent Auditor's Report for year ending 31.03.2017 showing secured loan from the Financial Creditor, it is clear that there is default in the repayment of the debt, within the meaning of section 3(12) of the Code. It is not the case of the Corporate Debtor that there is no debt, or that the debt has been repaid. The only issue raised by the Corporate Debtor is merely that the amounts claimed by the Financial Creditor in the Petition are in excess. Neither the debt nor the default have been denied. Further, the Corporate Debtor has only raised the issue of limitation, but since we find that it is a case of continuing default, its argument fails. There is not only an existing debt and default, but that, as observed from the Corporate Debtor's Independent Auditor's Report, the Company has lost its substratum and its net worth is eroded, showing negative balances - It is seen that the Corporate Debtor has filed its Statement of Solvency in Form 8 along with the Independent Auditor's Report for year ending 31.03.2017 which records that the LLP has not made any profits and the Reserves and Surplus of the Corporate Debtor reflected in the Financial Statement shows negative balance. The Corporate Debtor has failed to file Audited Financial Statement for the year ending 2018 and 2019 to establish the fact that the Corporate Debtor is solvent. On perusal of the NeSL Report dated 18.07.2019 showing that the Corporate Debtor has defaulted in repayment of the financial debt. It is established that the Corporate Debtor is in default of an amount higher than the minimum required for the initiation of CIRP - present petition is an independent proceeding, initiated on account of the debt and default having occurred vis-a-vis the Loan Agreement dated 20.03.2015, entered into between the Financial Creditor and the Corporate Debtor, and initiated on account of the Petition filed by the Financial Creditor in the instant case. The instant application is filed strictly in accordance with the extant provisions of the Code and the debt and default are established by the Financial Creditor by submitting substantial evidence in support of the claim. It is therefore, a fit case for initiating CIRP - application admitted - moratorium declared.

Summary

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Objections raised by the Corporate Debtor regarding the period of limitation, incorrect amount of default, and proceedings under Section 138 of the Negotiable Instruments Act, 1881.
3. Impleadment application by Reliance Capital AIF Trustee Company Private Limited.

Detailed Analysis:

1. Initiation of CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The petition was filed by India Infoline Finance Limited (Financial Creditor) against Unishire Regency Park LLP (Corporate Debtor) for initiating CIRP, claiming a default of ?15,22,13,219/- as on 07.03.2019 under a Loan Agreement dated 20.03.2015. The Financial Creditor provided financial assistance for the construction and sales activity of a residential project, and the Corporate Debtor defaulted in repayment starting from 30.06.2015. The Tribunal noted that the Financial Creditor submitted substantial evidence, including the Loan Agreement, Demand Promissory Note, and Demand Notice, establishing the debt and default. The Tribunal emphasized that the proceedings under Section 7 are summary proceedings to ascertain debt and default without detailed investigation.

2. Objections Raised by the Corporate Debtor:
The Corporate Debtor raised several objections:
a. Proceedings under Section 138 of Negotiable Instruments Act, 1881: The Corporate Debtor argued that since proceedings under Section 138 were pending, the present petition could not be filed. The Tribunal rejected this argument, stating that proceedings under Section 138 are criminal and do not preclude the Financial Creditor from initiating CIRP.
b. Period of Limitation: The Corporate Debtor contended that the petition was barred by limitation. The Tribunal found that the default was continuous from 30.06.2015 to 31.12.2016, and the petition was filed within the limitation period.
c. Incorrect Amount of Default: The Corporate Debtor argued that the amount mentioned in the petition was incorrect. The Tribunal noted that neither the debt nor the default was denied, and the issue of excess amount claimed did not negate the existence of debt and default.
d. RERA Compliance and Loan Restructuring: The Corporate Debtor argued that the Financial Creditor should comply with RERA provisions and restructure the loan. The Tribunal rejected this, stating that obligations under RERA are on the developer, not the lender.
e. Valuable Security: The Corporate Debtor claimed that the Financial Creditor had security over twice the debt amount. The Tribunal found this argument irrelevant to the proceedings under Section 7.

3. Impleadment Application by Reliance Capital AIF Trustee Company Private Limited:
Reliance Capital AIF Trustee Company Private Limited sought to be impleaded, claiming they had provided financial assistance of ?126 Crore to the Corporate Debtor and had obtained a 'No Due Certificate' from all financial creditors, including the present Financial Creditor. The Tribunal found no merit in the application, stating that the present petition was an independent proceeding based on the debt and default under the Loan Agreement dated 20.03.2015. The Tribunal noted that any claims by other parties could be submitted to the Interim Resolution Professional (IRP) once CIRP is ordered.

Conclusion:
The Tribunal admitted the petition, initiating CIRP against the Corporate Debtor. Shri Vijayakumar Subramaniam Varun was appointed as the IRP. A moratorium was declared, prohibiting suits, asset transfers, and recovery actions against the Corporate Debtor. The Tribunal directed the IRP to follow all provisions of the Insolvency and Bankruptcy Code, 2016, and submit progress reports. The impleadment application was disposed of with remarks allowing claims to be submitted to the IRP.