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2021 (10) TMI 1082 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors or not - creation of equitable mortgage over the Apartment proposed to be developed - physical possession of property taken over by first respondent or not - proceedings under SARFAESI Act is pending - HELD THAT - There is no impediment for an Applicant to prefer an Application under section 7 of the I B Code, 2016 when already the proceedings under SARFAESI Act, 2002 are pending. For maintaining an application u/s 7 of the Code, an applicant is to establish the existence of a debt, which is due from the Corporate Debtor. In fact, the issue of whether there is debt and default can be looked into only if the Corporate Debtor disputes the debt or takes a plea that there is no default though there is debt. Ordinarily, the Corporate Debtor is empowered to point out that a Default had not occurred. It cannot be forgotten that a debt may not be due, if it is not payable either in law or in fact. In the instant case, just because a Guarantee Deed is furnished by a different entity, the same would not in any way relieve the obligation of the Corporate Debtor to pay the First Respondent / Financial Creditor as Principal Borrower. On behalf of the First Respondent / Financial Creditor/Applicant it is brought to the notice of this Tribunal that the Corporate Debtor had availed the financial debt / loan by executing a Loan Agreement and Promissory Note to and in favour of the First Respondent / Financial Creditor. Undoubtedly, under the I B Code, CIRP is not an adversarial litigation, like the Court of Law . An Adjudicating Authority is not deciding a money claim in a civil suit. An Adjudicating Authority s part is confined to the act of deciding whether the application is complete, and whether there is any debt or default - in view of the fact that in the present case the existence of debt of the Corporate Debtor and default , committed thereto, this Tribunal is of the considered view that the Section 7 application is complete and viewed in that perspective, the impugned order dated 13.11.2020 passed by the Adjudicating Authority in admitting the application and appointing the Interim Resolution Professional Mr. A. Mohan Kumar and declaring Moratorium etc. are free from any legal infirmities. Application dismissed.
Issues Involved:
1. Whether the Financial Creditor can initiate proceedings under the Insolvency and Bankruptcy Code (IBC), 2016, despite having initiated recovery proceedings under the SARFAESI Act, 2002. 2. Whether the application under Section 7 of the IBC, 2016, is maintainable given the alleged possession of secured assets by the Financial Creditor. 3. Whether there exists a financial debt and default on the part of the Corporate Debtor. 4. Whether the Adjudicating Authority correctly admitted the application and initiated Corporate Insolvency Resolution Process (CIRP). Issue-wise Detailed Analysis: 1. Initiation of Proceedings under IBC despite SARFAESI Proceedings: The Adjudicating Authority noted that the pendency of actions under the SARFAESI Act does not obstruct the filing of an application under Section 7 of the IBC, 2016, due to the overriding effect of Section 238 of the IBC. The Tribunal referred to previous judgments, including Rakesh Kumar Gupta v. Mahesh Bansal and M/s Anandram Developers Pvt Ltd v. NCLT, which established that IBC proceedings aim to resolve the Corporate Debtor's insolvency rather than merely recover debts. This principle was reaffirmed by the Hon’ble NCLAT in Harkirat S Bedi v. Oriental Bank of Commerce. 2. Maintainability of Section 7 Application and Possession of Secured Assets: The Appellant argued that the Financial Creditor, having taken possession of the secured asset worth more than the alleged default amount, should not be allowed to proceed under Section 7 of the IBC. However, the Tribunal found that the Financial Creditor had only taken symbolic possession of an incomplete building and had not realized any sale proceeds. The Tribunal emphasized that the IBC’s provisions, particularly Section 238, override the SARFAESI Act, and the Financial Creditor is entitled to initiate CIRP despite the possession of the secured asset. 3. Existence of Financial Debt and Default: The Tribunal confirmed the existence of a financial debt and default. The Corporate Debtor had availed a housing loan of ?3.78 crore, of which ?2 crore was disbursed, and there was a default of ?2,74,49,023 as of 5.6.2019. The Tribunal referred to the Hon’ble Supreme Court’s decisions in Innoventive Industries Ltd v. ICICI Bank and Mobilox Innovations Pvt Ltd v. Kirusa Software Pvt Ltd, establishing that the existence of a financial debt and default mandates the admission of a Section 7 application. 4. Admission of Application and Initiation of CIRP: The Tribunal found that the application under Section 7 was complete, and there was no disciplinary proceeding against the proposed Resolution Professional. The Corporate Debtor’s arguments regarding the valuation and possession of the secured asset were insufficient to negate the existence of a financial debt and default. The Tribunal upheld the Adjudicating Authority’s decision to admit the application, appoint an Interim Resolution Professional, and declare a moratorium. Disposition: The appeal was dismissed, affirming the Adjudicating Authority’s order dated 13.11.2020 in IBA/779/2019, which admitted the Financial Creditor’s application under Section 7 of the IBC, 2016, and initiated CIRP for the Corporate Debtor. The Tribunal found no legal infirmities in the impugned order and concluded that the appeal lacked merit. Consequently, the stay application and the application seeking exemption from filing a certified copy of the impugned order were also closed.
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