2020 (1) TMI 1240 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor Failed to make repayment of its dues - Financial Debt - existence of debt and dispute or not - HELD THAT - This Adjudicating Authority is of the considered view that the debt due to the Financial Creditor is a 'Financial Debt' as defined in sub-section (8) of Section 5 of the IB Code. The Petition is complete in all respects. Petition 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. Financial stress and restructuring efforts of the Corporate Debtor.
3. RBI circular dated February 12, 2018, and its impact on the proceedings.
4. Admissibility of the petition filed by the Financial Creditor.
5. Appointment of Interim Resolution Professional (IRP) and declaration of moratorium.

Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP):

IDBI Bank Limited, the Financial Creditor, filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, to initiate CIRP against Reliance Naval and Engineering Limited, the Corporate Debtor. The petition was based on the default of a financial debt amounting to ?1250.40 Crores, with an aggregate default of ?1159.43 crores as of August 31, 2018. The Corporate Debtor's account was classified as a Non-Performing Asset (NPA) on February 28, 2018.

2. Financial Stress and Restructuring Efforts:

The Corporate Debtor faced financial stress due to a downturn in the commercial shipbuilding sector, cancellation of contracts, and cost overruns in the Dry Dock-2 Project. The debt restructuring under the Corporate Debt Restructuring (CDR) Scheme was approved on March 18, 2015. Subsequently, Reliance Defence Systems Pvt. Ltd. took over the management of the Corporate Debtor, and the company was renamed Reliance Naval and Engineering Ltd. The Corporate Debtor sought refinancing of its facilities under a revised business plan, but delays in sanctioning the refinancing package by lenders led to further financial difficulties.

3. RBI Circular Dated February 12, 2018, and Its Impact:

The Corporate Debtor filed an IA based on the RBI circular dated February 12, 2018, which required all lenders to initiate steps to cure defaults. The circular was challenged in the Supreme Court, and the court quashed it on April 2, 2019, declaring all cases initiated under the circular as non-est. The Corporate Debtor argued that the proceedings initiated by the Financial Creditor were based on this circular and should be dismissed.

4. Admissibility of the Petition:

The Financial Creditor contended that the petition was filed independently of the RBI circular and based on the admitted debt and default by the Corporate Debtor. The Adjudicating Authority found that the debt was an admitted financial debt, and the petition was complete in all respects. The Corporate Debtor's arguments based on the RBI circular were not relevant to the present petition.

5. Appointment of Interim Resolution Professional (IRP) and Declaration of Moratorium:

The Adjudicating Authority appointed Mr. Rajeev Bal Sawangikar as the Interim Resolution Professional (IRP) and declared a moratorium under Section 13(1)(a) of the IB Code. The moratorium prohibited the institution or continuation of suits or proceedings against the Corporate Debtor, transferring or disposing of its assets, and any action to foreclose or enforce security interests. The moratorium order was to remain in force until the completion of the CIRP.

Conclusion:

The petition filed by IDBI Bank Limited was admitted under Section 7(5) of the IB Code, and the Corporate Insolvency Resolution Process was initiated against Reliance Naval and Engineering Limited. The moratorium was declared, and the IRP was appointed to manage the process. The arguments based on the RBI circular were dismissed as irrelevant to the present case.