2020 (7) TMI 744 - Tri - Companies Law

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 Bench has no doubt that the Corporate Debtor M/s. Katara Spinning Mills Limited had a total debt of 23.90 crores and also defaulted on OTS-2018 and OTS-2019 schemes - the Bench concludes that the nature of Debt is a Financial Debt as defined under section 5 (8) of the Code. It has also been established that there is a Default as defined under section 3 (12) of the Code on the part of the Debtor. The two essential requirements i.e. existence of debt and default for admission of a petition under section 7 of the I B Code have been met in this case. Petition admitted - moratorium declared.

Summary

Issues Involved:
1. Default on financial debt by the Corporate Debtor.
2. Revocation of One Time Settlement (OTS) schemes.
3. Admission of the petition under Section 7 of the Insolvency and Bankruptcy Code (IBC).
4. Appointment of Interim Resolution Professional (IRP).
5. Declaration of Moratorium.

Issue-wise Detailed Analysis:

1. Default on Financial Debt by the Corporate Debtor:
The Petitioner, Bank of India, filed Form No. 1 under Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, invoking Section 7 of the Insolvency and Bankruptcy Code (IBC) against the Corporate Debtor, Katare Spinning Mills Limited. The Petitioner claimed a total default amount of ?23,90,64,696.69 as of 28.08.2018, with the date of default being 30.06.2015. The Corporate Debtor acknowledged the debt in the balance sheet for the financial year 2015-16 and through a debit balance confirmation dated 31.08.2015.

2. Revocation of One Time Settlement (OTS) Schemes:
The Petitioner offered an OTS scheme in 2018 for ?1229.64 lakhs, which the Corporate Debtor failed to comply with, leading to its revocation. A second OTS scheme in 2019 was offered for ?12.30 crore, subject to certain conditions, including an upfront deposit of ?1.23 crore. The Corporate Debtor deposited ?1.15 crore initially and later ?8 lakhs, but failed to provide a Board Resolution accepting the OTS terms, leading to the revocation of the second OTS scheme as well.

3. Admission of the Petition under Section 7 of the IBC:
The Tribunal noted that the Corporate Debtor did not dispute the debt or the default. Despite multiple hearings and ongoing negotiations for settlement, the Corporate Debtor failed to meet the OTS conditions. The Tribunal concluded that the debt of ?23.90 crores was a "Financial Debt" as defined under Section 5(8) of the Code, and there was a "Default" as defined under Section 3(12) of the Code. Hence, the petition met the requirements for admission under Section 7 of the IBC.

4. Appointment of Interim Resolution Professional (IRP):
The Tribunal appointed Mr. Vitthal M. Dahake as the Interim Resolution Professional (IRP) to conduct the Insolvency Resolution Process. The Tribunal verified that no disciplinary actions were pending against the proposed IRP.

5. Declaration of Moratorium:
Upon admitting the petition, the Tribunal declared a Moratorium as per Section 14 of the Code, prohibiting the institution of any suits, transferring or encumbering any assets of the Corporate Debtor, and ensuring the supply of essential goods or services to the Corporate Debtor during the Moratorium period. The IRP was directed to make a public announcement of the initiation of the Corporate Insolvency Resolution Process and report the progress within 30 days.

Conclusion:
The Tribunal admitted the petition under Section 7 of the IBC, appointed an IRP, and declared a Moratorium, marking the commencement of the Corporate Insolvency Resolution Process from the date of the order.