2018 (9) TMI 2034 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - pendency of proceedings against the corporate debtor before different forum - HELD THAT - It is well settled that pendency of proceedings against the corporate debtor cannot be an impediment or bar to initiate Corporate Insolvency Resolution Process against the Corporate Debtor under the provisions of Section 7 of the Code. There has been no court injunction restraining the applicant bank to initiate action under the provisions of the Code. Simply pendency of proceedings cannot be a ground to deny admission of an application under Section 7 of the Code, once the application is complete and there has been commission of default - Insolvency and Bankruptcy Code, 2016 being a complete Code and subsequent Union Law, will prevail over other later laws like the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, Money Laundering Act and SARFESI Act, 2002. As per Section 238, the provisions of the Code are to be given effect to notwithstanding anything contrary contained in any other later laws or any instrument having effect under such law. Thus, the objection in this regard will not sustain as initiation and pendency of proceedings in different forums is no bar for initiation of Corporate Insolvency Resolution Process under Section 7 of the Code in view of the overriding effect given to the provisions of Section 238 of the Code. It is pertinent to note that in financial transactions, adjustments and compromise are to be left to the parties to settle the matter in their best interest or exigencies of the business. However, in the absence of any binding compromise agreement/ debt restructuring approval, it is beyond the powers of the adjudicating authority to extend time indefinitely or to defer the prayer of applicant financial creditor for admission of the petition filed under Section 7 of the Code - The procedure in relation to the Initiation of Corporate Insolvency Resolution Process by the Financial Creditor is delineated under Section 7 of the Code, wherein only Financial Creditor / Financial Creditors can file an application. As per Section 7 (1) of the Code an application could be maintained by a Financial Creditor either by itself or jointly with other Financial Creditors. It is seen that the applicant has placed various documents in relation to the disbursement of the loan to the respondent company. The materials on record and the loan documents clearly depict that that the loan was sanctioned and the loan agreements were properly executed. Respondent company utilised and enjoyed the loan facility. The applicant bank has filed various documents pertaining to creation of charge over the assets of the respondent company in respect of various loans taken from consortium banks - the applicant 'financial creditor' has placed on record voluminous and overwhelming evidence in support of the claim as well as to prove the default. In the case on hand, it is seen that respondent corporate debtor has committed default in repayment of the outstanding financial debt. On a bare perusal of Form - I filed under Section 7 of the Code read with Rule 4 of the Rules shows that the form is complete and there is no infirmity in the same. Accordingly, it is seen that the application of the financial creditor is complete and there is no disciplinary proceeding pending against the proposed IRP - the present application is complete and the applicant financial creditor is entitled to claim its outstanding financial debt from the corporate debtor and that there has been a default in payment of the financial debt. Application admitted - moratorium declared.

Summary

Issues Involved:
1. Territorial Jurisdiction
2. Appointment of Interim Resolution Professional (IRP)
3. Debt and Default
4. Parallel Proceedings and Forum Shopping
5. One-Time Settlement (OTS) and Payments
6. Admissibility of Application under Section 7 of the Insolvency and Bankruptcy Code, 2016
7. Moratorium and Consequences

Detailed Analysis:

1. Territorial Jurisdiction:
The Tribunal confirmed its territorial jurisdiction over the matter as the registered office of the respondent company, Dynamic Shells (India) Private Limited, is located in New Delhi, which falls under the jurisdiction of the National Company Law Tribunal (NCLT), Principal Bench, Delhi.

2. Appointment of Interim Resolution Professional (IRP):
The applicant, Punjab National Bank, proposed Mr. Nilesh Sharma as the Interim Resolution Professional (IRP). Mr. Sharma agreed to the appointment and provided necessary declarations and disclosures, satisfying the requirements under Section 7 (3) (b) of the Insolvency and Bankruptcy Code, 2016.

3. Debt and Default:
The applicant bank granted various fund-based and non-fund-based loan facilities to the respondent company. Despite availing of these facilities, the respondent failed to adhere to the repayment schedules, leading to the classification of the account as a non-performing asset (NPA) on 31.12.2011. The total outstanding amount claimed by the applicant bank as of 31.12.2011 was ?30,00,98,972.50. The Tribunal noted that the applicant bank provided sufficient evidence, including loan documents, balance sheets, and certified statements of accounts, to prove the existence of debt and default.

4. Parallel Proceedings and Forum Shopping:
The respondent argued that the applicant bank engaged in forum shopping by initiating multiple litigations in different forums, including the Debt Recovery Tribunal (DRT) and under the SARFAESI Act, 2002. However, the Tribunal held that the pendency of such proceedings does not bar the initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Code, as per Section 238 of the Code, which provides an overriding effect to the provisions of the Code over other laws.

5. One-Time Settlement (OTS) and Payments:
The respondent contended that there was a One-Time Settlement (OTS) agreed upon between the parties, and partial payments were made. However, the Tribunal emphasized that in the absence of a binding compromise agreement or debt restructuring approval, the adjudicating authority cannot indefinitely extend time or defer the admission of the application under Section 7 of the Code.

6. Admissibility of Application under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The Tribunal observed that the application under Section 7 is maintainable if the default is more than one lakh rupees. The applicant bank, being a financial creditor, is entitled to file the application. The Tribunal is required to ascertain the occurrence of default, ensure the application is complete, and verify that no disciplinary proceedings are pending against the proposed IRP. The Tribunal found that the application was complete, and the applicant bank provided overwhelming evidence of debt and default.

7. Moratorium and Consequences:
Upon admitting the application, the Tribunal declared a moratorium under Section 14 of the Code, imposing prohibitions on:
- Institution or continuation of suits or proceedings against the corporate debtor.
- Transfer, encumbrance, or disposal of the corporate debtor's assets.
- Foreclosure or enforcement of security interests.
- Recovery of property by owners or lessors.

The Tribunal directed the IRP to make a public announcement and perform his functions as per the Code. The personnel associated with the corporate debtor are legally obligated to assist the IRP. The IRP must protect and preserve the value of the corporate debtor's property.

Conclusion:
The Tribunal admitted the application under Section 7 of the Insolvency and Bankruptcy Code, 2016, and appointed Mr. Nilesh Sharma as the Interim Resolution Professional. The moratorium was declared, and the IRP was directed to proceed with the insolvency resolution process.