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2019 (4) TMI 1853 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - existence of debt and dispute or not - HELD THAT - Section 5(7) of Insolvency and Bankruptcy Code, 2016, defines 'Financial Creditor' means any person to whom financial debt is owed and includes such person to whom such debts has been legally assigned or transferred. It is not in dispute that the Bank owes financial debt (i.e. loan advance) against the Corporate Debtor under section 7 of Insolvency Bankruptcy Code makes it clear that Financial Creditor may file application for initiation of Corporate Insolvency Resolution Process against the Corporate Debtor before Adjudicating Authority when default has occurred - The Financial Creditor proved that there is 'financial debt' due against the Corporate Debtor and the Corporate Debtor committed 'default' in paying financial debt. Application admitted.
Issues involved:
- Application under section 7 of Insolvency and Bankruptcy Code, 2016 for Corporate Insolvency Resolution Process (CIRP) due to default in payment by Corporate Debtor. - Dispute regarding the maintainability of the application by the Financial Creditor. - Authority of the Special Officer to initiate proceedings on behalf of the Bank. - Definition of 'Financial Creditor' under the Insolvency and Bankruptcy Code, 2016. - Appointment of Resolution Professional and declaration of moratorium. Issue 1: Application for CIRP due to default in payment: The Financial Creditor, a Co-operative Bank, filed an application under section 7 of the Insolvency and Bankruptcy Code against the Corporate Debtor for defaulting on a financial debt. The Corporate Debtor did not dispute receiving the loan or the default in payment, leading to the Tribunal assessing the existence of financial debt and default as per legal precedents. Issue 2: Dispute on maintainability of the application: The Corporate Debtor argued that the application was not maintainable due to a pending Writ Petition challenging the Bank's actions under the SARFAESI Act, 2002. The Corporate Debtor contended that the appointed Special Officer lacked the authority to file the proceeding, citing the absence of elected Directors. However, the Tribunal ruled that the application was maintainable under the Insolvency and Bankruptcy Code, emphasizing the Code's supremacy over other laws. Issue 3: Authority of the Special Officer to initiate proceedings: The Corporate Debtor disputed the Special Officer's authority to initiate proceedings, claiming the Officer was appointed solely for election purposes. However, the Tribunal found that the Special Officer was empowered to manage the Bank's affairs, including initiating proceedings under the Code for loan defaults, thereby validating the Officer's actions in filing the application. Issue 4: Definition of 'Financial Creditor' under the Code: The Tribunal clarified that the definition of 'Financial Creditor' under the Insolvency and Bankruptcy Code encompassed entities to whom financial debt is owed, regardless of their classification as Nationalised Banks, Scheduled Banks, or Co-operative Banks. The Tribunal emphasized that the pending issue before the High Court regarding the Bank's status did not affect the application's validity. Issue 5: Appointment of Resolution Professional and declaration of moratorium: After establishing the default and financial debt, the Tribunal admitted the application for CIRP. It declared a moratorium, appointed a Resolution Professional, and issued necessary orders for the conduct of the Corporate Insolvency Resolution Process, including payment of fees, time-bound resolution, and communication of the order to all concerned parties. This detailed analysis of the judgment highlights the key legal issues, arguments presented by both parties, and the Tribunal's findings and decisions, ensuring a comprehensive understanding of the case.
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