2020 (6) TMI 775 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - HELD THAT - Initiation of CIRP proceedings, under the provisions of the Code, would be a civil death for corporate debtor. Therefore, before initiating such CIRP, the Adjudicating Authority is empowered, and to be satisfied the grounds for such initiation in terms of section 7 of Code, under which the present petition is filed, by taking into consideration of object of the Code, financial status of corporate debtor, whether it is going concern, what is effect of initiation of CIRP on its stake holders, public at large. And these factors are necessarily to be considered by the Adjudicating Authority, especially in view of the present severe adverse economic conditions prevailing in the Country due to Pandemic. The Adjudicating Authority cannot mechanically examine merely the debt and default as defined under the provisions of Code. Without considering the issue in a positive way, it is not just and proper for the petitioners to plead first to initiate CIRP as prayed for, and thereafter, all issues can be resolved during CIRP proceedings. It is true that since the default occurred prior March 25, 2020 it would not cover by the said amendment. Since the case is not yet admitted by the Adjudicating Authority and the respondent expressed its willingness to settle the issue in the light of earlier offer of one-time settlement as offered by the petitioners, it would be just and proper for the financial creditor to take it into consideration the prevailing economic situation while considering settlement proposal, as debt and default in question is continuous cause action till date. The initiation of the CIRP against the corporate debtor, at present not is at all justified, and the parties have to resolve the issue by coming to a new settlement basing on the prevailing economy situation in the country - the petitioners/financial creditors, are hereby directed to re-consider the settlement proposal made by the respondent by taking into con sideration of present severe economic conditions and also the corporate debtor being going concern having several stake holders. Petition disposed off.

Summary

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Financial status and ongoing viability of the corporate debtor.
3. Settlement proposals and their consideration.
4. Impact of the COVID-19 pandemic on the corporate debtor and the broader economy.

Detailed Analysis:

1. Initiation of CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The petitioners, M/s. India Asset Growth Fund and two others, filed C.P. (IB) No. 233/BB/2019 under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking to initiate CIRP against CMRS Projects P. Ltd. due to a default amounting to ?18,58,04,039. The petitioners claimed that the corporate debtor issued non-convertible debentures (NCDs) and defaulted on repayment. The financial creditors subscribed to NCDs amounting to ?13,00,00,000, disbursed in three tranches. The corporate debtor defaulted on payments, and the debt fell due on August 24, 2018.

2. Financial Status and Ongoing Viability of the Corporate Debtor:
The corporate debtor, engaged in real estate development, argued that it is a commercially solvent company. It proposed a settlement of ?12,00,00,000, detailing payments linked to specific projects. The financial creditors, however, rejected this proposal, citing the corporate debtor's failure to honor previous settlement commitments. The tribunal noted that the corporate debtor has made partial payments and is currently incurring expenses for its employees and projects.

3. Settlement Proposals and Their Consideration:
The tribunal observed that the corporate debtor proposed a one-time settlement of ?14,50,00,000, which was initially accepted by the financial creditors but could not be implemented due to the COVID-19 pandemic. The tribunal emphasized that the corporate debtor is still willing to settle and urged the financial creditors to consider the prevailing economic situation. The tribunal highlighted the importance of exploring settlement options before initiating CIRP, given the severe economic conditions.

4. Impact of the COVID-19 Pandemic on the Corporate Debtor and the Broader Economy:
The tribunal acknowledged the devastating impact of the COVID-19 pandemic on the economy, particularly the real estate sector. It noted that initiating CIRP would be a "civil death" for the corporate debtor, affecting various stakeholders, including employees, home-buyers, and vendors. The tribunal referenced recent amendments suspending provisions of the Insolvency and Bankruptcy Code for initiating CIRP due to the pandemic, although the default in this case occurred before the suspension date.

Conclusion:
The tribunal concluded that initiating CIRP against the corporate debtor was not justified at present. It directed both parties to explore settlement possibilities, considering the current economic situation. The petitioners were granted liberty to take appropriate legal action, including invoking the provisions of the Code, if settlement efforts failed. The petition was disposed of with directions for both parties to cooperate in settlement efforts.