2019 (7) TMI 1838 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - proceedings under the SARFAESI Act 2002 - overriding effect of IBC - HELD THAT - The Corporate Debtor has acknowledged its debt in the Balance Confirmation Letter dated 07.01.2015 and 30.06.2015 and has admitted to its liability in the Reply Letter dated 17.02.2016 issued by the Corporate Debtor in response to the Notice under section 13(2) of the SARFAESI Act 2002 dated 05.02.2016 - The Corporate Debtor has not disputed the fact that it has received the loan under the Secured Business Loan Scheme. Further the Corporate Debtor has not disputed that it has to repay the amounts so received as a loan. The Corporate Debtor and its Directors have also executed a deed of guarantee and personal guarantees dated 05.03.2014 and various other undertakings that the secured assets of the Corporate Debtor shall not be transferred. The Corporate Debtor has failed to maintain the financial discipline to repay the loan amounts and has not taken any efforts to make the necessary payments - The Corporate Debtor s submission that the said petition deserved to be dismissed on the ground that the Petitioner has already initiated proceedings under the SARFAESI Act 2002 and a special civil suit is an untenable argument. In this regard it is imperative to mention here that section 238 of the Insolvency and Bankruptcy Code 2016 provides that the provisions of the Code shall have an overriding effect and therefore the proceedings under the SARFAESI Act 2002 or any other proceedings are no bar to initiate proceedings under section 7 of the I B Code. The Application under sub-section (2) of Section 7 of I B Code 2016 is complete. The existing financial debt of more than Rupees One Lakh against the corporate debtor and its default is also proved. Accordingly the petition filed under section 7 of the Insolvency and Bankruptcy Code for initiation of Corporate Insolvency Resolution Process against the Corporate Debtor Deserves to be admitted. Petition admitted - moratorium declared.

Summary

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of Insolvency & Bankruptcy Code, 2016.
2. Financial Creditor's claim of default by Corporate Debtor.
3. Corporate Debtor's objections regarding parallel proceedings and pre-existing disputes.
4. The applicability of Section 238 of the Insolvency and Bankruptcy Code, 2016.
5. Appointment of Interim Resolution Professional (IRP).

Issue-wise Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of Insolvency & Bankruptcy Code, 2016:
The petition was filed by the Small Industries Development Bank of India (Petitioner) against Swiss Ribbons Private Limited (Corporate Debtor) under Section 7 of the Insolvency & Bankruptcy Code, 2016, for initiating CIRP. The petition was initially filed on January 5, 2018, and later transferred to the Mumbai Bench of NCLT.

2. Financial Creditor's claim of default by Corporate Debtor:
The Petitioner claimed a total default amounting to ?8,27,17,184/- as of December 31, 2017. The Petitioner provided financial assistance to the Corporate Debtor through a term loan of ?6,30,00,000/- under the Secured Business Loan Scheme, as per the Letter of Intent dated February 4, 2014. The Corporate Debtor acknowledged the debt through various documents, including the Balance Confirmation Letters dated January 7, 2015, and June 30, 2015. The Corporate Debtor's account was classified as a Non-Performing Asset on November 8, 2015, due to failure in repayment.

3. Corporate Debtor's objections regarding parallel proceedings and pre-existing disputes:
The Corporate Debtor contended that the Petition should be dismissed as the Petitioner had already initiated proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, before the Debt Recovery Tribunal (DRT), Ahmedabad. The Corporate Debtor also highlighted a pre-existing dispute by filing a Special Civil Suit claiming damages of ?25 crores against the Petitioner. The Corporate Debtor argued that multiple proceedings for the same transaction are not permissible.

4. The applicability of Section 238 of the Insolvency and Bankruptcy Code, 2016:
The Tribunal emphasized that Section 238 of the Insolvency and Bankruptcy Code, 2016, provides that the provisions of the Code shall have an overriding effect over any other law in force. Therefore, the proceedings under the SARFAESI Act, 2002, or any other proceedings do not bar the initiation of proceedings under Section 7 of the I&B Code. The Tribunal rejected the Corporate Debtor's argument of parallel proceedings as untenable.

5. Appointment of Interim Resolution Professional (IRP):
The Petitioner proposed Mr. George Samuel, a registered insolvency resolution professional, as the Interim Resolution Professional (IRP). The Tribunal found the application under Section 7(2) of the I&B Code to be complete, with the financial debt and default established. Consequently, the petition for initiating CIRP against the Corporate Debtor was admitted. The Tribunal declared a moratorium under Section 14 of the I&B Code and appointed Mr. George Samuel as the IRP to carry out the functions specified under the Code.

Order:
The petition filed under Section 7 of the I&B Code, 2016, was admitted, and a moratorium under Section 14 of the I&B Code was declared. The Tribunal prohibited the institution or continuation of suits or proceedings against the Corporate Debtor, transferring or disposing of assets, and actions to foreclose or recover any security interest. The supply of essential goods or services to the Corporate Debtor was not to be terminated or suspended during the moratorium period. The public announcement of the CIRP was to be made immediately, and the IRP was appointed to carry out the functions as per the I&B Code. The Registry was directed to communicate the order to the Financial Creditor, Corporate Debtor, and IRP immediately.