2018 (12) TMI 1834 - 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 - what are ingredients of Section 7 of Code to be considered, while considering an application filed under section 7 of the Code? - HELD THAT - Whenever Corporate Debtor committed default, a Financial either by itself or jointly may file an application/ Petition in prescribed form by furnishing record of default in question, suggesting name of Resolution professional to act as Interim Resolution Professional. On being satisfied that default has occurred, application filed is complete, there are not disciplinary proceedings against name Resolution Professional, the Adjudicating Authority may by an order admit the case by initiating CIRP against Corporate Debtor, appointing Resolution Professional, imposing moratorium etc, failing which application can be rejected. It is not in dispute and there cannot be in dispute that the Applicants Banks have disbursed loans in question on various dates as mentioned above. The Banks have tried its level best to regularise the accounts of corporate debtor by various methods like restructuring terms of loans, further finance etc. However, the Corporate Debtor failed to act to the satisfaction of Banks. Therefore, the Banks have resorted various legal remedies available to them under SARFAESI, initiating proceedings before DRT, DRAT by the Banks and the Respondent too has filed criminal cases against the official of Bank and other people. There are serious allegations of fraud and cheating on the part Corporate Debtor in diverting funds of the Company resulting registering a case by the CBI against the personnel of Corporate Debtor. It is a settled position of law that IBC is a codified law with a particular object behind it, in order to provide speedy remedy to resolve the disputes arise in corporate sector - the account of Corporate Debtor was declared as NPA by all consortium of Banks as early as 2010 and onwards, and the efforts made by the Banks to restructure the loans were failed. So far as the contention with regard to laches and limitation is concerned, as raised on behalf of Corporate, it is to be noted that there are various proceedings issued by the Applicant's Banks as soon as accounts of Corporate Bank became irregular and tried to restructure its accounts. Therefore, admittedly, the Accounts of Corporate with the Banks became NPAs right from 2010. It is not the case of the corporate debtor that it has repaid the loan in question but it contends that default in question is not wilful and the Banks are responsible for that situation. Initiation of criminal proceedings by the parties would not bar the Adjudicating Authority to take judicial notice of the issue involved in the case. The Corporate Debtor is admittedly placed insolvent position and the remedies initiated by the Applicants under other acts also would not bar the Adjudicating Authority to entertain the application. Since the Adjudicating Authority has already allowed IA No. 150 of 2018 seeking amendment was already allowed by an order dated 11th July, 2018 and filed amended Application, the allegations with regard to defective application etc as raised by the respondent are no longer tenable. Application admitted - moratorium declared.

Summary

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016.
2. Default by the Corporate Debtor in repayment of loans.
3. Maintainability of the petition and the applicability of the Limitation Act.
4. Allegations of fraud and mismanagement by the Corporate Debtor.
5. Appointment of Interim Resolution Professional (IRP).
6. Declaration of Moratorium.

Issue-wise Detailed Analysis:

1. Initiation of CIRP under Section 7 of IBC, 2016:
The petition was filed by the State Bank of India (SBI) on behalf of a consortium of banks under Section 7 of the IBC, 2016, seeking to initiate CIRP against the Corporate Debtor, M/S. Metal Closure Pvt. Ltd. (MCPL), due to a default amounting to ?282,02,71,568.8. The tribunal noted that the application was in the prescribed form and accompanied by the necessary documents, including evidence of default and the proposed name of the IRP.

2. Default by the Corporate Debtor:
The Corporate Debtor had availed various credit facilities from a consortium of banks, including SBI, Punjab National Bank (PNB), Corporation Bank, and UCO Bank. Despite multiple restructuring attempts and additional credit facilities, the Corporate Debtor failed to regularize its accounts, leading to the classification of its debts as Non-Performing Assets (NPA) by the banks. The tribunal found substantial evidence demonstrating the default by the Corporate Debtor.

3. Maintainability of the Petition and Applicability of the Limitation Act:
The Corporate Debtor argued that the petition was not maintainable due to the failure of the petitioner to substantiate the disbursement of loans and the application being barred by laches and limitation. The tribunal referred to the Supreme Court's judgment in B.K. Educational Services Private Ltd Vs. Parag Gupta and Associates, which held that the Limitation Act, 1963, applies to the IBC. However, the tribunal noted that the debt was acknowledged by the Corporate Debtor through various documents, including balance confirmation letters, and the default continued to exist, making the petition maintainable.

4. Allegations of Fraud and Mismanagement:
The Corporate Debtor alleged large-scale fraud and unauthorized transactions, leading to the initiation of criminal proceedings. However, the tribunal observed that the allegations of fraud and the initiation of criminal proceedings did not bar the adjudicating authority from taking judicial notice of the issue at hand. The tribunal noted the forensic audit report indicating financial irregularities and the subsequent declaration of the account as fraudulent by the consortium of banks.

5. Appointment of Interim Resolution Professional (IRP):
The petitioner proposed the name of Mr. Abhishek Nagori as the IRP, who was found to be eligible and without any disciplinary proceedings against him. The tribunal appointed Mr. Nagori as the IRP to carry out the functions under the IBC and the rules issued by the Insolvency and Bankruptcy Board of India (IBBI).

6. Declaration of Moratorium:
The tribunal declared a moratorium prohibiting the institution or continuation of suits or proceedings against the Corporate Debtor, transferring or disposing of assets, and actions to foreclose or enforce security interests. The moratorium was to remain in effect until the completion of the CIRP. The tribunal directed the Board of Directors and staff of the Corporate Debtor to extend full cooperation to the IRP.

Conclusion:
The tribunal admitted the petition, initiating CIRP against the Corporate Debtor, and appointed Mr. Abhishek Nagori as the IRP. A moratorium was declared, and the IRP was directed to adhere to the time schedule and file progress reports with the tribunal. The case was posted for the IRP's report on 18.01.2019.