2017 (6) TMI 1169 - Tri - Insolvency and Bankruptcy

Corporate insolvency process - initiation of the proceedings by the corporate debtor - Held that - The admission of the petition would have a serious impact on the financial creditors who have already set the wheel in motion to secure their debts. The apprehension, or rather certainty, of taking away the physical possession of their valuable properties and being dispossessed appears to be the motivation for the corporate debtor to approach this Tribunal under the Code, rather than ensuring resolution of their debts or seeking a turnaround of the corporate business. To stay the repossession of immovable properties by Banks by resorting to the provision of section 10 of the Code, and the consequential effect of the moratorium which has to follow, would clearly be an abuse of the process of law to which this Bench certainly cannot be a party to. It is not sufficient just to meet the requirements under section 10 of the Code which would automatically entitle the corporate debtor to initiate such proceedings. Surely it could never have been the intention of the Legislature to provide relief to defaulters of the Banks by taking refuge under this Code. The Adjudicating Authority has to consider the merits of each case and see beyond what meets the eye, and only after due application of mind, consider the case on its merits. In the facts of the case, this Bench does not deem it just, fit and proper to admit the petition as initiation of the proceedings by the corporate debtor shall cause irreparable loss and injury to the Banks, and an uncalled for protection to the borrowers and various guarantors. Resultantly, the prayer for triggering the resolution process is rejected. Petition stands dismissed.

Summary

Issues:
- Invocation of insolvency resolution process by the corporate debtor under section 10 of the Insolvency and Bankruptcy Code.
- Eligibility of the corporate debtor to initiate the resolution process.
- Appointment of an interim resolution professional.
- Details of liabilities towards financial and operational creditors.
- Opposition by a financial creditor regarding the resolution process initiation.
- Offering of immovable properties and personal guarantees as securities.
- Concerns regarding the abuse of the moratorium provision under section 14 of the Code.
- Impact on financial creditors and potential abuse of the insolvency resolution process.
- Decision on the admission of the petition and rejection of the resolution process initiation.

Analysis:

The judgment revolves around a petition filed by a corporate debtor seeking to invoke the insolvency resolution process under section 10 of the Insolvency and Bankruptcy Code due to its inability to liquidate substantial outstanding liabilities. The corporate debtor, facing default towards financial creditors like Canara Bank and Standard Chartered Bank, presented details of debts amounting to approximately ?32 crore and securities held by the creditors. The petitioner proposed an interim resolution professional for the process, emphasizing the necessity to pay off debts and salvage assets before further deterioration.

The court examined the eligibility of the corporate debtor to initiate the resolution process, noting the offering of immovable properties and personal guarantees as securities to secure loans from the Banks. Despite fulfilling the requirements for initiating the resolution process, concerns were raised regarding potential abuse of the moratorium provision under section 14 of the Code to prevent repossession of properties by the Banks. The court highlighted the joint and several liability towards financial creditors, emphasizing that personal properties of guarantors might not be affected during the resolution process.

Opposition from a financial creditor, Standard Chartered Bank, was noted, with claims that the petition aimed at obtaining a moratorium rather than resolving debts. The court acknowledged the initiation of proceedings under the SARFAESI Act by the Banks, indicating a possible attempt by the corporate debtor to avoid repossession of properties through the insolvency resolution process. Concerns were raised about the adverse impact on financial creditors and the potential misuse of the Code for personal protection rather than genuine resolution of debts.

Ultimately, the court decided against admitting the petition for the insolvency resolution process, citing potential irreparable loss to the Banks and unwarranted protection to borrowers and guarantors. The judgment emphasized the need for a thorough evaluation of each case beyond surface details and the prevention of abuse of the legal process. The rejection of the petition signified a stance against facilitating defaulters' relief through the insolvency framework, prioritizing fair consideration of merits and protection of creditors' interests.