2019 (9) TMI 1361 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - HELD THAT - It is imperative to mention here that the Adjudicatory Authority is not required to determine the quantum of financial debt. The Tribunal is not supposed to ascertain the quantum of amount of default or to pass a decree as to how much is actually due to the applicant-financial creditor. Any objection with regard to amount would be maintainable before the committee of creditors. Once a default in terms of section 4 of the Code is established and all other requirements are fulfilled, the insolvency resolution process has to be triggered. It is imperative to mention that the contention of the respondent that the applicant has levied high rate of interest is untenable and is of no consequence. Further, the contention of the respondent that the applicant ought to have exercised the put option available to it under the buy-back agreement is also untenable as the default is independent of the buy-back agreement and the proceedings under section 7 of the I and B Code, 2016 is independent of the buy-back agreement. The contention of the respondent that the applicant should have invoked the arbitration clause as per the memorandum of understanding does not hold any water as it is well established that arbitration clause is no bar for the initiation of CIRP - the debt and default of the corporate debtor has been established and the application deserves to be admitted. Application admitted - moratorium declared.

Summary

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Existence and default of financial debt.
3. Contentions regarding the interest rate and the put option.
4. Arbitration clause as a bar to CIRP initiation.
5. Appointment of Interim Resolution Professional (IRP).

Issue-wise Detailed Analysis:

1. Initiation of CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The application was filed by Dalmia Group Holdings, a financial creditor, against Lokhandwala Infrastructure P. Ltd., the corporate debtor, for initiating CIRP. The application was filed on March 12, 2019, claiming a total default of ?36,98,28,139 including interest as on February 15, 2019. The applicant and the respondent had entered into a memorandum of understanding (MoU) dated April 4, 2016, for the construction of a commercial project, "Lokhandwala Business Bay."

2. Existence and Default of Financial Debt:
The applicant disbursed ?25,00,00,000 as an advance out of the total consideration of ?41,16,96,000 for purchasing six commercial units. The advance consideration was deemed a loan/finance granted for the time value of money, thus qualifying as financial debt under Section 5(8) of the I&B Code, 2016. The respondent defaulted in making interest payments from the third quarter of the financial year 2017-18. The applicant issued multiple notices and invoked personal and corporate guarantees, which were annexed to the application. The respondent admitted its liability in an email dated May 9, 2018.

3. Contentions Regarding the Interest Rate and the Put Option:
The respondent contended that the applicant charged an unjustified interest rate of 21% per annum along with 3% per month for delayed payment. The applicant rebutted, stating that the interest rates were in accordance with the MoU and the buy-back agreement. The respondent also argued that the applicant should have exhausted the put option under the buy-back agreement before initiating insolvency proceedings. The Tribunal found this contention untenable as the default was independent of the buy-back agreement.

4. Arbitration Clause as a Bar to CIRP Initiation:
The respondent argued that the dispute should have been referred to arbitration as per the MoU. The Tribunal rejected this contention, stating that an arbitration clause does not bar the initiation of insolvency proceedings under the I&B Code. The Tribunal cited the Supreme Court judgment in Innoventive Industries Ltd. v. ICICI Bank, which clarified that the Adjudicating Authority only needs to see if a default has occurred, irrespective of any dispute over the debt.

5. Appointment of Interim Resolution Professional (IRP):
The applicant proposed Mr. Ajit Kumar as the IRP, who had no disciplinary proceedings pending against him. The Tribunal found the application complete under Section 7(2) of the I&B Code, with the existence of financial debt and default proved. The Tribunal admitted the application and declared a moratorium under Section 14 of the I&B Code, prohibiting certain actions against the corporate debtor and ensuring the continuation of essential goods and services. The Tribunal appointed Mr. Ajit Kumar as the IRP to carry out the functions under the I&B Code.

Order:
The application for initiating CIRP against Lokhandwala Infrastructure Private Limited was admitted. A moratorium was declared, prohibiting suits, transferring assets, and recovering property from the corporate debtor. The supply of essential goods or services to the corporate debtor was to continue uninterrupted. The public announcement of the CIRP was to be made immediately, and Mr. Ajit Kumar was appointed as the IRP. The registry was directed to communicate the order to all relevant parties immediately.