2017 (4) TMI 1267 - Tri - Insolvency and Bankruptcy

Corporate insolvency procedure - existence of default from the records of an information utility or on the basis of other evidence furnished by the financial creditor as per sub- section (3) of Section 7 of the Code - whether the Corporate Debtor has defaulted In making the payment? - Held that - The petitioner Bank had already issued a notice dated 20 08.2015 Annexure R-I) attached with the objections for initiating the proceedings for declaring the corporate debtor as wilful defaulter. For that matter the applicant Bank has already filed OA before the DRT. Learned senior counsel for the corporate debtor contended that the present petition to declare the respondent/corporate debtor as insolvent would be setting up an inconsistent case. We have already discussed above that the provisions of the Code have overriding effect over other laws and being the latest law on the subject the proceedings before the DRT will not debar the right of the financial creditor to file application under Section 7 of the Code. . The next contention was that by taking over of custody of the premises of the corporate debtor it will seriously prejudice the respondent/corporate debtor in pursuing the criminal case already pending on a private complaint against the Bank official and others as they could tamper with the evidence. We find that the insolvency professional has an onerous duty not to act an agent of the applicant but he has to abide by the Code of Conduct and follow the norms framed by the Board. He has to maintain the high ethical standards. While taking in custody the premises and the articles lying therein. we can direct the IRP to prepare an inventory of all the articles which are lying there and to keep them in safe custody. wherever necessery and while preparing the inventory of articles one of the authorised representative of the corporate debtor can be permitted to associate himself in the said process but such a person would be duty bound to attest the inventory as a witness. The petition therefore is admitted declaring the moratorium

Issues Involved:
1. Default in payment of financial debt by Corporate Debtor.
2. Compliance with procedural requirements under the Insolvency and Bankruptcy Code, 2016.
3. Validity of the appointment of Interim Resolution Professional (IRP).
4. Determination of the existence and amount of default.
5. Impact of pending litigations on the insolvency proceedings.
6. Protection of interests of other financial creditors and shareholders.
7. Application of moratorium upon admission of the insolvency petition.

Detailed Analysis:

1. Default in Payment of Financial Debt by Corporate Debtor:
The application was filed by Punjab National Bank (PNB) under Section 7 of the Insolvency and Bankruptcy Code, 2016, against the Corporate Debtor for default in payment of financial debt. The Corporate Debtor admitted the default but contested the calculation of the outstanding amount. The Tribunal emphasized that the term "default" under Section 3(12) of the Code is broad and does not necessitate precise calculation before admitting the application.

2. Compliance with Procedural Requirements:
The application was filed in Form No. 1 as required by Rule 4(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The petitioner complied with all procedural requirements, including dispatching the application to the Corporate Debtor's registered office and filing an affidavit of dispatch.

3. Validity of the Appointment of Interim Resolution Professional (IRP):
The proposed IRP, Mr. Vivek Goyal, was initially appointed in another case after the filing of this petition. The petitioner later proposed Mr. Navneet Gupta as the new IRP, and his written communication in Form II was found complete. The IRP must not be a related party to the Corporate Debtor or the petitioner Bank and must abide by the Code of Conduct set by the Board.

4. Determination of the Existence and Amount of Default:
The Tribunal noted that the existence of default must be ascertained from records or evidence provided by the financial creditor. The petitioner provided certified statements of account under the Banker's Book Evidence Act, showing no installment was deposited after the account was declared NPA in 2014. The total amount in default was calculated as ?52,57,19,407, though the exact amount would be determined by the IRP.

5. Impact of Pending Litigations on the Insolvency Proceedings:
The Corporate Debtor argued that various pending litigations should be considered before admitting the application. The Tribunal held that pending litigations do not affect the insolvency proceedings unless there is an adjudication on the claim or default. The Code has an overriding effect on other laws, and the moratorium under Section 14 would stay all pending suits and proceedings against the Corporate Debtor.

6. Protection of Interests of Other Financial Creditors and Shareholders:
The Corporate Debtor raised concerns about the interests of other financial creditors and shareholders. The Tribunal clarified that the IRP would represent all creditors, not just the petitioner, and would constitute a committee of creditors as per Section 21 of the Code. The consent of 60% of creditors required under Section 13(9) of the SARFAESI Act does not apply to proceedings under the Code.

7. Application of Moratorium Upon Admission of the Insolvency Petition:
The Tribunal declared a moratorium prohibiting the institution or continuation of suits or proceedings against the Corporate Debtor, transferring or disposing of assets, and recovering any property occupied by the Corporate Debtor. The moratorium would remain effective until the completion of the corporate insolvency resolution process or until the Tribunal approves a resolution plan or orders liquidation.

Conclusion:
The Tribunal admitted the petition, declared a moratorium, and scheduled further directions for the appointment of the IRP. The order was communicated to the petitioner and the Corporate Debtor forthwith.

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