2017 (3) TMI 1574 - Tri - Insolvency and Bankruptcy

Initiating insolvency process - proof of existence of dispute - non service of notice - Held that - Primarily to sustain the transaction of loan as given by the applicant to the respondent, the applicant seeks to rely on a Memorandum of Understanding (MOU) as entered into between two corporate entities. Curiously the said MOU does not contain a date as to when the MOU was executed. Further the MOU also seems to be not conclusive from the following words as found in the last paragraph of the said MOU as reproduced hereunder That the parties has agreed to enter into a detailed exhaustive agreement later on (emphasis supplied). However no such further agreement as contemplated by the above terms contained in the MOU has been produced before us. Further the applicant as a Non Banking Financial Company is also required to comply with the provisions of Section 186 of the Companies Act, 2013 in relation to the loan transaction termed as Inter Corporate Deposit between two companies in relation to amounts made available as loan subsequent to 01.04.2014. In any case the applicant has also failed to furnish the necessary Board Resolution for granting the loan to the respondent all of which literally clouds the transaction of loan itself. Even in relation to the service of notice there seems to be glaring anomaly as both the speed post and courier through which the notice dated 13.01.2017 seems to have been dispatched seems to have not been delivered or delivered at some other place. However Annexure XII which is claimed to be acknowledgement of liability alleged to have been issued by the respondent reflects the same address to which the notices were sent by the applicant but from which address the postal authorities report that the addressee (meaning the respondent) had moved thereby casting a cloud on the application itself as that of collusive as between the parties. Taking into consideration all the above, we are unable to feel persuaded to admit the application

Issues Involved:
1. Initiation of insolvency process under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Verification of the respondent's status as a "corporate person."
3. Adequacy and authenticity of the documents submitted by the applicant.
4. Compliance with legal provisions and procedural requirements.
5. Role and responsibilities of professionals in certifying documents.

Detailed Analysis:

1. Initiation of Insolvency Process under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The application seeks to invoke Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) to initiate insolvency proceedings against the respondent. The applicant, a financial creditor, claims that the respondent owes a debt that remains unpaid. The application includes details of the loan disbursed in three tranches totaling ?10,50,000/-, with a repayment deadline of 30.09.2016 at an interest rate of 16%. Despite partial repayment of ?5,00,000/- on 11.04.2016, the balance remains unpaid, prompting the applicant to issue demand and reminder letters, followed by notices under Section 433(e) of the Companies Act, 1956, and Section 8 of the IBC.

2. Verification of the Respondent's Status as a "Corporate Person":
The tribunal emphasized the necessity of verifying the respondent's status as a "corporate person," as defined under Section 3(7) and Section 3(8) of the IBC. The applicant failed to provide essential documents like the Certificate of Incorporation and constitutional documents (articles and memorandum of association) to substantiate that the respondent is indeed a corporate person. The tribunal noted that the status report of the corporate person is essential to establish its existence at the time of initiating the insolvency process.

3. Adequacy and Authenticity of the Documents Submitted by the Applicant:
The tribunal found several defects and inconsistencies in the documents submitted by the applicant. The Memorandum of Understanding (MOU) between the parties lacked a date and indicated an intention to enter a more detailed agreement, which was not provided. The applicant also failed to furnish a Board Resolution authorizing the loan, raising doubts about the legitimacy of the transaction. Additionally, the tribunal noted discrepancies in the notice of default and service proofs, suggesting potential collusion between the parties.

4. Compliance with Legal Provisions and Procedural Requirements:
The tribunal highlighted the absence of an "Information Utility" as contemplated under Section 7 of the IBC, which necessitates the applicant to provide comprehensive and accurate information. The applicant's failure to produce critical documents, such as the status report from the Ministry of Corporate Affairs (MCA) website, further undermined the application. The tribunal stressed the importance of adhering to procedural requirements and providing all necessary information to facilitate a fair evaluation of the case.

5. Role and Responsibilities of Professionals in Certifying Documents:
The tribunal underscored the significant role of professionals, including finance and secretarial professionals, in certifying the accuracy and completeness of documents. It criticized the mechanical and pedantic manner in which certificates were issued, emphasizing the need for diligence and thoroughness. The tribunal pointed out that the absence of an Information Utility increases the responsibility of the Interim Resolution Professional (IRP) to meticulously verify the contents of the application and supporting documents.

Conclusion:
The application was rejected due to the applicant's failure to provide adequate and authentic documentation to substantiate the claims and establish the respondent's status as a corporate person. The tribunal highlighted the need for professionals to exercise greater vigilance and diligence in certifying documents and warned against fraudulent and malicious initiation of proceedings under the IBC. The rejection was without costs, but the tribunal emphasized the importance of adhering to procedural requirements and the responsibilities of professionals in the insolvency process.

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