2019 (4) TMI 1745 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of Corporate Insolvency Resolution Process - Corporate Debtor committed default in paying the loan - default of debt - section 7 of the Insolvency Bankruptcy Code, 2016 - HELD THAT - It is not in dispute that the financial creditor gave corporate advance of ₹ 15 lakhs to the corporate debtor. There appears to be dispute of the rate of interest. In my considered opinion, if the amount payable towards interest is kept aside and not considered as the rate may be exhorbitant, still it is seen from evidence on record that the corporate debtor is liable to pay to the financial creditor the financial debt of more than ₹ 1 lakh - Since there is a default of debt of a sum more than ₹ 1 lakh committed by the corporate debtor, then corporate debtor has to be admitted in CIRP. It is not in dispute that the financial debt as claimed by the Financial Creditor is due and payable by the corporate debtor. The corporate debtor did not raise defence that corporate advance given to them is in contravention of provisions of sections 185 and 186 of the Companies Act, 2013 - the financial creditor proved both crucial facts that there is a debt of more than ₹ 1 lakh due and payable by the corporate debtor and the corporate debtor committed default in paying the debt. The application has to be admitted. Application admitted.

Summary

Issues:
Application under section 7 of I&B Code for CIRP due to default in loan payment. Dispute over interest rate charged by Financial Creditor. Corporate Debtor's defense against high interest rate. Admittance of Corporate Debtor in CIRP. Appointment of Interim Resolution Professional and moratorium order.

Analysis:
The Financial Creditor filed an application under section 7 of the Insolvency & Bankruptcy Code, 2016 against the Corporate Debtor for defaulting on a loan of ?47,40,000 with 8% interest per month. The Corporate Debtor received an advance of ?15 lakhs with 8% interest per month, totaling ?42 lakhs, out of which ?9,60,000 was paid, leaving a balance of ?32,42,000 unpaid. Despite demands, the Corporate Debtor failed to pay, leading to the application.

The Corporate Debtor contended that the financial assistance was taken in good faith and objected to the interest rate, claiming the Financial Creditor admitted receiving ?11,60,000. The Corporate Debtor proposed to clear the debt in two years without the high interest rate. The Financial Creditor argued that the Corporate Debtor admitted the debt and default, justifying CIRP admission.

The Tribunal noted the dispute over interest rate but found evidence of the Corporate Debtor owing more than ?1 lakh, meeting the IBC's minimum default requirement. Despite the high interest rate, the debt was due and payable. The Tribunal refrained from delving into Companies Act provisions violations and admitted the Corporate Debtor in CIRP.

The Tribunal cited Section 30A of The Bengal Money-Lenders Act, 1940, capping interest rates for commercial loans. The interest rate charged by the Financial Creditor exceeded the permissible limit, but the default amount was substantial. The Tribunal admitted the application and appointed an Interim Resolution Professional, imposing a moratorium to initiate the Corporate Insolvency Resolution Process.

The order declared the moratorium's scope, including restrictions on legal actions against the Corporate Debtor and supply continuity of essential goods/services. The Interim Resolution Professional was tasked with creditor details and resolution plan formulation. The Financial Creditor was directed to pay advance fees, and the IRP was instructed to complete the CIRP promptly. The order was to be communicated to all parties, with a progress report due on a specified date.