2017 (10) TMI 1532 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Application rejected on the ground that the Respondent-'Financial Creditor' failed to produce the record or evidence of default in terms of Clause (a) of sub-section (3) of Section 7 of the 'I B Code' - HELD THAT - In the present case, the Appellant-'Corporate Debtor' has enclosed the application preferred by the Respondent-'Financial Creditor' under Section 7 in Form 1 as Annexure-A- 13 (Colly.). Therein the Respondent'Financial Creditor' at Part V has given the details of the particulars of the 'Financial Debt' (Documents, Records and Evidence of default). In support of the details of security held by or created for the benefit of the 'Financial Creditor' 'mortgages', 'guarantees', 'share pledge' etc. has been shown. The application preferred by the Respondent-Financial Creditor' under section 7 in Form 1 is complete and there are records of debt and records of default - the Adjudicating Authority rightly admitted the application and passed the order of moratorium and prohibitory orders in accordance with 'I B Code' - Appeal dismissed.

Summary

Issues Involved:
1. Maintainability of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code).
2. Requirement of evidence of default under Section 7(3)(a) of the I&B Code.
3. Applicability of regulations and rules framed by the Insolvency and Bankruptcy Board of India (Board) and the Central Government.
4. Completeness of the application filed by the Financial Creditor.

Detailed Analysis:

1. Maintainability of the application under Section 7 of the I&B Code:
The Appellant argued that the application under Section 7 was not maintainable because the Respondent failed to produce the record or evidence of default as required by Clause (a) of sub-section (3) of Section 7 of the I&B Code. The Respondent countered that the Adjudicating Authority needs to ascertain the existence of default from the documents filed by the Financial Creditor in Form 1 as prescribed under the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

2. Requirement of evidence of default under Section 7(3)(a) of the I&B Code:
The Appellant contended that due to the absence of regulations specifying the "record or evidence of default" under Clause (a) of sub-section (3) of Section 7, the petition was not maintainable. The Respondent argued that the application was complete and in compliance with the prescribed form and manner, including the necessary documents as evidence of default.

3. Applicability of regulations and rules framed by the Board and the Central Government:
The Appellant submitted that the Central Government is empowered to frame rules only regarding the form, manner, and fee for making an application before the Adjudicating Authority, and not for specifying records of default. The power to specify records of default lies with the Board under Section 240. However, the Tribunal noted that procedural rules should not obstruct the substantive adjudication process and that the rules framed by the Central Government under Section 239, which prescribe documents, records, and evidence of default, are valid in the absence of specific regulations by the Board.

4. Completeness of the application filed by the Financial Creditor:
The Tribunal examined the application filed by the Financial Creditor in Form 1, which included details of the financial debt and evidence of default, such as entries in bankers' books, letters from IDBI Bank, recall notices, and court orders. The Tribunal found that the application was complete and included sufficient records of debt and default, thus justifying the Adjudicating Authority's decision to admit the application and pass the order of moratorium and prohibitory orders.

Conclusion:
The Tribunal dismissed the appeal, affirming that the application under Section 7 was maintainable, the evidence of default was adequately provided, and the procedural rules were appropriately applied. The Adjudicating Authority's decision to admit the application and declare a moratorium was upheld. No order as to costs was made.