2017 (3) TMI 1707 - Tri - Companies Law

Corporate insolvency process - Held that - Insolvency Resolution Process as contemplated under the IBC is for the benefit of all stakeholders including the Corporate Debtor as the very Scheme of the IBC contemplates not only the insolvency resolution process being put in motion by a financial or operational Creditor but also the Corporate Debtor itself and this Tribunal has to take a holistic view in entertaining the petition keeping in mind the interest of all the stake holders. In view of the pending SARFAESI proceedings initiated by the Financial Creditor herein it is no doubt evident that the assets of the Corporate Debtor are being put to coercive action which is detrimental to the Corporate Debtor particularly when possession is in the hands Financial Creditor. We are inclined to admit the Petition as well as grant a moratorium in terms of Section 14 of the IBC to be enjoyed by the Corporate Debtor. The Interim Resolution Professional proposed in Form I of the petition who has also given his consent as prescribed in Form 2 is hereby appointed as the Interim Resolution Professional to exercise all powers and subject to all duties as contemplated under the provisions of the IBC.

Issues Involved:
1. Locus standi of the Financial Creditor.
2. Validity of the Assignment Deed.
3. Pending civil suit challenging the Assignment Deed.
4. Status quo order by the Hon'ble High Court of Delhi.
5. Initiation of the Insolvency Resolution Process under the Insolvency & Bankruptcy Code, 2016 (IBC).

Detailed Analysis:

1. Locus Standi of the Financial Creditor:
The Corporate Debtor contended that the Financial Creditor does not have the locus standi to maintain the petition under Section 7 of the IBC, arguing that it is not a Financial Creditor. The Tribunal, however, clarified that the definition of "Financial Creditor" under Section 5(7) of the IBC includes a person to whom such debt has been legally assigned or transferred. The assignment made by SBI to the Financial Creditor was legally valid under Section 5 of the SARFAESI Act, thereby establishing the locus standi of the Financial Creditor.

2. Validity of the Assignment Deed:
The Corporate Debtor argued that the Assignment Deed executed by SBI in favor of the Financial Creditor was against RBI Circulars, as the account was not an NPA at the time of assignment. The Tribunal referenced the Supreme Court judgment in ICICI Bank v. APS Star Industries, which upheld the legality of debt assignments by banks. It concluded that the assignment was valid and did not affect the rights or interests of the borrower.

3. Pending Civil Suit Challenging the Assignment Deed:
The Corporate Debtor had filed a civil suit seeking a declaration that the Assignment Deed was void. The Tribunal noted that the pendency of the civil suit did not preclude the initiation of the Insolvency Resolution Process under the IBC. The Tribunal emphasized that the IBC process is independent and aimed at resolving insolvency for the benefit of all stakeholders.

4. Status Quo Order by the Hon'ble High Court of Delhi:
The Corporate Debtor referred to a status quo order by the Delhi High Court, arguing that it prevented the initiation of insolvency proceedings. The Tribunal clarified that the status quo order was to protect the possession of the assignee Financial Creditor and did not bar the Tribunal from considering the petition under the IBC. The Tribunal also highlighted that the IBC proceedings are not contingent on the classification of the account as an NPA.

5. Initiation of the Insolvency Resolution Process:
The Tribunal examined the overwhelming evidence of the Corporate Debtor's indebtedness and default, including the audited financial statements and the statement of accounts. It concluded that the Corporate Debtor was heavily indebted and unable to service even the interest component of the loans. The Tribunal emphasized that the initiation of the Insolvency Resolution Process under the IBC was in the interest of all stakeholders, including the Corporate Debtor, as it aimed to resolve insolvency and prevent coercive actions detrimental to the Corporate Debtor.

Conclusion:
The Tribunal admitted the petition and granted a moratorium under Section 14 of the IBC. An Interim Resolution Professional (IRP) was appointed to exercise all powers and duties as prescribed under the IBC. The Tribunal directed all parties to cooperate with the IRP to ensure the effective discharge of duties. The petition was admitted on the terms outlined, marking the initiation of the Insolvency Resolution Process.

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