2019 (8) TMI 1591 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor faield to make repayment of its dues - financial debt or not - existence of debt and dispute or not - HELD THAT - There is no room for argument advanced on behalf of the Corporate Debtor that the provisions of Section 186 of the Companies Act, 2013 has been violated while disbursing the loan because the financial debt was initially disbursed in 2013 when the such provisions were not applicable and the petitioner was exempted as a 'Private Company' under Section 372A of the Companies Act, 1956. Further after March, 2014 the financial debt disbursed never exceeded the prescribed threshold limits as provided under Section 186(2) of the Companies Act, 2013 to warrant passing of a special resolution. The other argument concerning applicability of Punjab Registration of Money Lenders Act, 1938 and Punjab Prohibition of Private Money Lending Act, 2007 has also failed to impress us because the entire cause of action arose to the petitioner in Delhi including the fact that registered offices of both the entities are situated at Delhi and the said act would only apply to the territory of Punjab and Haryana - The legal position has been put beyond doubt that Section 238 of the Code contains a non-obstante clause which is in the 'widest terms possible'. Therefore, the argument raised on behalf of Corporate Debtor is not sustainable and there are no hesitation to reject the same. ll requirements of Section 7 for the initiation of Corporate Insolvency Resolution Process by a Financial Creditor stand fulfilled. In that regard, it has been submitted that the petition as prescribed by Rule 4 (1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read with Section 7 (2) of IBC is complete in all respects - A conjoint reading of the aforesaid provision would show that form and manner of the application has to be the one as prescribed. It is evident from the record that the application has been filed on the proforma prescribed under Rule 4 (2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read with Section 7 of the Code. We are satisfied that a default amounting to lacs of rupees has occurred. As per requirement of Section 4 of the Code if default amount is one lac or more then the CIR Process would be issued. The application under sub section 2 of Section 7 is complete; and no disciplinary proceedings are pending against the proposed Interim Resolution Professional. Petition admitted - moratorium declared.

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Validity of financial debt and its disbursement.
3. Compliance with the Companies Act, 2013.
4. Applicability of Punjab Registration of Money Lenders Act, 1938 and Punjab Prohibition of Private Money Lending Act, 2007.
5. Non-obstante clause of the Insolvency and Bankruptcy Code, 2016.
6. Appointment of Interim Resolution Professional (IRP).
7. Declaration of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016.
8. Obligations of the ex-management and auditors under Section 19 of the Insolvency and Bankruptcy Code, 2016.
9. Financial Creditor's responsibility to deposit expenses for IRP.

Detailed Analysis:

1. Initiation of CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The petition was filed under Section 7 of the Insolvency and Bankruptcy Code, 2016, for initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The petition was filed using Form-1 as prescribed under Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The Financial Creditor claimed a total default amount of INR 11,08,84,000/- as of 25.04.2019, and the petition was filed on 10.06.2019.

2. Validity of Financial Debt and its Disbursement:
The Financial Creditor provided proof of disbursement of loans to the Corporate Debtor, amounting to INR 10,85,00,000/- initially, with interest rates varying from 9% to 15% per annum. The Corporate Debtor acknowledged the debt and made partial repayments. However, subsequent cheques issued by the Corporate Debtor were dishonored due to insufficient funds and account closure.

3. Compliance with the Companies Act, 2013:
The Corporate Debtor argued that the loan disbursement violated Section 186 of the Companies Act, 2013. However, the Tribunal found that the financial debt was initially disbursed in 2013 when the provisions were not applicable, and the petitioner was exempted under Section 372A of the Companies Act, 1956. Post-March 2014 disbursements did not exceed the prescribed threshold limits, negating the need for a special resolution.

4. Applicability of Punjab Registration of Money Lenders Act, 1938 and Punjab Prohibition of Private Money Lending Act, 2007:
The Tribunal dismissed the applicability of these Acts as the cause of action arose in Delhi, and both entities' registered offices were in Delhi. The Acts would only apply to the territories of Punjab and Haryana.

5. Non-obstante Clause of the Insolvency and Bankruptcy Code, 2016:
The Tribunal emphasized the non-obstante clause in Section 238 of the Insolvency and Bankruptcy Code, 2016, which overrides any other law. The Tribunal cited the Supreme Court's judgment in M/s. Innoventive Industries Limited v. ICICI Bank & Anr., reinforcing that the Code's provisions prevail over any conflicting state laws.

6. Appointment of Interim Resolution Professional (IRP):
The Financial Creditor proposed Mr. Sanyam Goel as the Interim Resolution Professional (IRP). The Tribunal found no disciplinary proceedings against him and confirmed his appointment, directing him to make a public announcement regarding the initiation of CIRP.

7. Declaration of Moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016:
A moratorium was declared, prohibiting the institution or continuation of suits, transferring or disposing of assets, and recovering property occupied by the Corporate Debtor. Essential services like water and electricity were to be maintained during the moratorium period.

8. Obligations of the Ex-management and Auditors under Section 19 of the Insolvency and Bankruptcy Code, 2016:
The Tribunal directed the ex-management, auditors, and other personnel to provide all necessary documents and information to the IRP within a week. Non-compliance would lead to coercive actions.

9. Financial Creditor's Responsibility to Deposit Expenses for IRP:
The Financial Creditor was directed to deposit INR 2 lacs with the IRP to cover expenses, which would be adjusted by the Committee of Creditors. The IRP was to account for and reimburse the amount to the Financial Creditor.

Conclusion:
The petition was admitted, and the CIRP was initiated with the appointment of Mr. Sanyam Goel as the IRP. The Tribunal's order included directives for public announcement, declaration of moratorium, and obligations of the ex-management to assist the IRP. The Financial Creditor was also instructed to deposit the necessary expenses for the IRP's functions.

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