2017 (6) TMI 1188 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process existence of eligible debt - Held that - This Bench is of the view that discretion is to be used to admit the Petition rather than to dismiss the petition especially when there is ample proof of admission of availing loan and defaulting thereof. It is an established fact that this Company is already reeling under debt burden of more than 2300 crores therefore this Bench does not find any merit to dismiss this petition by looking at the word may under in Sub-section 5 of Section 7 of the Insolvency & Bankruptcy Code. On perusal of the documents placed and the reasons given above/this Bench being satisfied that the debtor company defaulted in repaying its debt to the financial creditor this Bench hereby admits this application.

Issues Involved:
1. Default in repayment of loan.
2. Validity of the Corporate Insolvency Resolution Process (CIRP) initiation.
3. Objections raised by the Corporate Debtor.
4. Adjudicating Authority's discretion under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).
5. Impact of Joint Lender Forum (JLF) and Corrective Action Plan (CAP).
6. Applicability of RBI guidelines.
7. Security enforcement and realization of debt.

Detailed Analysis:

1. Default in Repayment of Loan:
The Indian Bank filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, against the Corporate Debtor, Varun Resources Ltd., for failing to repay a loan amounting to ?31,28,56,661 along with interest. The default date was noted as 1.5.2014. The debtor company acknowledged its indebtedness on 26.6.2013, confirming the outstanding amount towards the term loan of ?50 crores.

2. Validity of CIRP Initiation:
The Financial Creditor sought to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor due to the default in repayment. The Tribunal examined the facts and documents presented, including the statutory mortgage of the vessel "Maharishi Mahatreya" and the Scheme of Arrangement of Amalgamation approved by the Bombay High Court, which transferred the liabilities to Varun Resources Ltd.

3. Objections Raised by the Corporate Debtor:
The Corporate Debtor raised several objections:
- The majority of the creditors supported the current management and the Corrective Action Plan (CAP), with significant funds already infused.
- The debt owed to the Financial Creditor was less than 1% of the total debt.
- The Tribunal should exercise discretion under Section 7(5)(a) of the IBC, considering the ongoing CAP.
- The application was in contravention of RBI Circulars, which provided options for dissenting lenders to exit.
- Admission of the application would derail the CAP and have financially disastrous consequences.

4. Adjudicating Authority's Discretion under Section 7 of IBC:
The Tribunal noted that Section 7(5)(a) of the IBC provides discretion to admit the application if a default has occurred. The Tribunal emphasized that the existence of debt and default was not disputed by the Corporate Debtor. The Tribunal referenced the NCLAT's decision in Innoventive Industries Ltd. vs. ICICI Bank & Anr., which clarified that the Adjudicating Authority is not required to consider other schemes or permissions from JLF while initiating insolvency proceedings.

5. Impact of Joint Lender Forum (JLF) and Corrective Action Plan (CAP):
The Corporate Debtor argued that the JLF and CAP were in progress, and the Financial Creditor's loan was a minor portion of the total debt. The Tribunal, however, found that the Financial Creditor was not bound by the JLF agreement and could proceed with the insolvency application independently.

6. Applicability of RBI Guidelines:
The Tribunal addressed the Corporate Debtor's contention regarding RBI guidelines, noting that the guidelines allowed dissenting lenders to exit but did not prevent them from initiating insolvency proceedings. The Tribunal found no merit in the argument that the Financial Creditor's application contravened RBI Circulars.

7. Security Enforcement and Realization of Debt:
The Corporate Debtor suggested that the Financial Creditor could realize its debt through the secured vessel. The Tribunal rejected this argument, stating that the Financial Creditor was not obligated to exhaust security enforcement before initiating insolvency proceedings. The Tribunal also noted that proceedings before the Debt Recovery Tribunal had not progressed.

Conclusion:
The Tribunal, satisfied with the existence of debt and default, admitted the application for initiating CIRP against the Corporate Debtor. The order prohibited various actions against the Corporate Debtor, including suits and enforcement of security interests, and appointed an Interim Resolution Professional. The Tribunal directed the Registry to communicate the order to the Financial Creditor and the Corporate Debtor within seven days.

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