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2019 (7) TMI 1624 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - HELD THAT - The basic contention that the Applicant/Petitioner is not commercial solvent to pay its debts is not substantiated to initiate CIRP. A property put on sale during CIRP would normally fetch much below market value. As per the estimation of Petitioner herself, the property in question is worth not less than Rs. Three Crores and the default stated to be of ₹ 56,55,587.21. The proceedings under Code cannot be misused to avoid other judicial proceedings. It is also not in dispute that the Award in question is not questioned by the Petitioner so far. The Petitioner is not commercially insolvent so as to initiate CIRP under Section 10 R/w Section 2 of the Code - Petition dismissed.
Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 10 of the IBC, 2016. 2. Financial capability and solvency of the Corporate Applicant. 3. Objections raised by Financial Creditors. 4. Validity and implications of the Arbitration Award. Issue-wise Detailed Analysis: 1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 10 of the IBC, 2016: The petition was filed by a shareholder and director of M/s. Nysa Enterprises Private Limited under Section 10 of the Insolvency and Bankruptcy Code (IBC), 2016, to initiate the CIRP against M/s. Nysa Enterprises Private Limited due to a default amounting to ?56,55,587.21 out of a total debt of ?60,00,000. The Corporate Applicant claimed that the termination of a franchise agreement by V.F. Brands India Private Limited led to their inability to continue business, resulting in defaults to Financial and Operational Creditors. 2. Financial capability and solvency of the Corporate Applicant: The Corporate Applicant argued that due to the termination of the franchise agreement and subsequent business closure, they were unable to pay their debts. They stated that they had taken loans from ICICI Bank, Zen Lefin Pvt. Ltd., and HDFC Bank Ltd., totaling ?60,00,000, and were facing financial difficulties. However, objections were raised regarding the financial capability of the Corporate Applicant, particularly by Zen Lefin Pvt. Ltd. and HDFC Bank Ltd., who argued that the Corporate Applicant had sufficient assets, including a land valued at ?3,00,00,000, which could cover the debts. 3. Objections raised by Financial Creditors: Zen Lefin Pvt. Ltd. (now CapFloat Financial Services Private Limited) and HDFC Bank Ltd. filed objections. Zen Lefin Pvt. Ltd. contended that the Corporate Debtor had defaulted on a loan of ?15,00,000 and had an outstanding amount of ?28,83,107.29. They argued that the Corporate Debtor was financially capable of repaying the debt but lacked the intention to do so. HDFC Bank Ltd. also argued that the Corporate Applicant was commercially solvent and capable of paying the outstanding amount. They highlighted that the Corporate Applicant had approached the Tribunal to avoid legal liabilities and recovery measures. 4. Validity and implications of the Arbitration Award: HDFC Bank Ltd. had initiated arbitration proceedings against the Corporate Applicant, resulting in an award of ?3,30,269.44 with 18% interest per annum. The Tribunal noted that the Corporate Applicant had not challenged the arbitration award, and it was suggested that the insolvency petition was filed to prevent other judicial proceedings. The Tribunal agreed with the Financial Creditors that the Corporate Applicant was not commercially insolvent, given their substantial asset base. Conclusion: The Tribunal concluded that the Corporate Applicant was not commercially insolvent and had sufficient assets to cover the debts. The proceedings under the IBC could not be misused to avoid other judicial proceedings. Consequently, the petition to initiate CIRP under Section 10 of the IBC was dismissed. The Tribunal emphasized that the order would not prevent the Petitioner from seeking other legal remedies available under the law.
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