2020 (1) TMI 1231 - 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 - On perusal of the documentary evidence placed on record and the record of default produced by the FCS obtained from the Information Utility, a clear default is ascertainable on the part of the CD viz., Earthcon Universal Infratech Private Limited. This Authority is satisfied that the CD failed to fulfil the obligation under the Debenture Trust Deed and other document executed to guarantee/ secure the repayment of the amount disbursed by the FCS towards the issuance of the NCDs. The defence raised by the CD is nothing but a moonshine. The FC has fulfilled all the requirements for admission of the application and has proposed the name of the IRP viz., Mr. Jitender Arora, whose consent has been sought in Form-2, which is placed on record. There is no disciplinary proceeding pending against the IRP as is evidenced from Form-2. Therefore, the application is admitted. The commencement of CIR Process is initiated, which ordinarily shall be completed within 180 days, reckoning from the day this order is passed Petition admitted - moratorium declared.

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP)
2. Existence and validity of financial debt
3. Default by the Corporate Debtor (CD)
4. Legal obligations under the Debenture Trust Deed
5. Objections raised by the Corporate Debtor
6. Applicability of previous judgments and legal precedents

Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP):
The Financial Creditors (FCs) filed an application under Section 7 of the Insolvency & Bankruptcy Code, 2016 (IBC, 2016) seeking the initiation of CIRP against Earthcon Universal Infratech Private Limited (Corporate Debtor), declaration of moratorium, and appointment of an Interim Resolution Professional (IRP).

2. Existence and Validity of Financial Debt:
The Debenture Trust Deed dated 13.06.2017, along with its amendments, established the financial relationship among the parties, including the Corporate Debtor as an obligor. Various documents such as the Deed of Corporate Guarantee, Deed of Hypothecation, Mortgage Deeds, and Demand Promissory Note were executed to secure the financial obligations.

3. Default by the Corporate Debtor (CD):
The issuer company failed to repay the principal amount of ?13,12,50,000 due on 31.03.2019, leading to a financial event of default. Despite several communications and demand notices, the issuer company and the CD failed to maintain sufficient balance in the Escrow Account and did not fulfill the Debt Service Reserve Account (DSRA) requirements.

4. Legal Obligations under the Debenture Trust Deed:
The Debenture Trust Deed mandated that the issuer company and the CD were legally obligated to repay the principal amount in four quarterly installments starting from 31.03.2019. The CD was also required to deposit all receivables in the Escrow Account and ensure the repayment of secured obligations in case of default by the issuer company.

5. Objections Raised by the Corporate Debtor:
The CD argued that the FCs did not qualify as financial creditors under Section 5(7) of the IBC, 2016, and that alternative remedies were available under the Arbitration and Conciliation Act, 1996, and the SARFAESI Act, 2002. The CD also claimed that the delay in disbursement of funds by the FCs caused irreparable loss and that the repayment demand was made prematurely.

6. Applicability of Previous Judgments and Legal Precedents:
The CD referred to the judgment in Dr. Vishnu Kumar Agrawal Vs M/S Piramal Enterprises Ltd., arguing that CIRP could not be initiated against the CD for the same claim already made against the issuer company. However, the tribunal noted that the CIRP against the issuer company was stayed by the Supreme Court, and there was no legal bar to initiating CIRP against the CD.

Conclusion:
The tribunal found that the CD failed to fulfill its obligations under the Debenture Trust Deed and other related documents. The FCs met all requirements for the admission of the application, and the tribunal was satisfied with the evidence of default. The application was admitted, and the CIRP was initiated with the appointment of Mr. Jitender Arora as the IRP. A moratorium was declared, and the IRP was directed to take charge of the CD's management, make public announcements, and comply with the provisions of the IBC, 2016.

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