2021 (3) TMI 1304 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - HELD THAT - There is no dispute as to the financial debt was payable more than ₹ 1,00,000/- lacs and the Corporate Debtor committed default in paying the same. These are only two facts sufficient for considering the application under Section 7 of the Insolvency Bankruptcy Code, 2016. The Corporate Debtor raised technical defence that Proprietary concern cannot be filed an application under IBC 2016. However, now Hon ble NCLAT in the case of Neeta Saha v. Ram Niwas Gupta 2020 (2) TMI 1442 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI has held that Proprietary concern being creditor can initiate Corporate Insolvency Resolution Process against the Corporate Debtor, so this technical defence is not maintainable. Another defence taken was that the Certificate of Information Utility is not produced, however, law does not mandate to produce such Certificate, law requires from the Financial Creditor to produce evidence of the debt and default by the Corporate Debtor, where in this case evidence is produced. Financial Creditor proved that the Corporate Debtor committed default in paying the financial debt of ₹ 37,10,972/-. hence, required to be admitted into Corporate Insolvency Resolution Process. The application is otherwise complete and defect free - Application allowed - moratorium declared.

Summary

Issues:
1. Application under Section 7 of the Insolvency & Bankruptcy Code, 2016 filed by Financial Creditor against Corporate Debtor.
2. Challenge to maintainability of the application based on technical grounds.
3. Dispute regarding the financial debt and default by the Corporate Debtor.
4. Legal position on the ability of a Proprietary Concern to initiate Corporate Insolvency Resolution Process.
5. Requirement of producing a Certificate of Information Utility under Section 7(3)(a) of the Insolvency & Bankruptcy Code, 2016.
6. Determination of default in paying financial debt by the Corporate Debtor.
7. Appointment of Interim Resolution Professional (IRP) and initiation of Corporate Insolvency Resolution Process.

Analysis:
1. The Financial Creditor filed an application under Section 7 of the Insolvency & Bankruptcy Code, 2016 against the Corporate Debtor, alleging a default in payment of a financial debt of ?37,10,972. The debt was due on 14-07-2015, with a total loan amount of ?52,50,000, out of which only ?30,00,000 was repaid by the Corporate Debtor, leaving a balance of ?22,50,000 unpaid. The application sought to initiate Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor based on this default.

2. The Corporate Debtor challenged the maintainability of the application on technical grounds, arguing that a Proprietary Firm cannot file under IB Proceedings and that no evidence was provided regarding the due date of the debt, thus claiming there was no default. Additionally, the absence of a Certificate issued by the Information Utility (IU) under Section 7(3)(a) of the Code was highlighted as a reason for rejecting the application.

3. The Tribunal found that the Financial Creditor had proven the default by the Corporate Debtor in paying the financial debt, amounting to ?37,10,972. The Corporate Debtor's failure to repay the remaining amount of ?22,50,000, along with accrued interest, constituted a clear default. The Tribunal concluded that the application was complete and defect-free, leading to the admission of the Corporate Debtor into the CIRP.

4. The issue of whether a Proprietary Concern could initiate the Corporate Insolvency Resolution Process was addressed by referring to a relevant case law, which established that such concerns could indeed act as creditors in initiating CIRP. This legal position invalidated the technical defense raised by the Corporate Debtor on this matter.

5. Regarding the requirement of producing a Certificate of Information Utility, the Tribunal clarified that while evidence of the debt and default by the Corporate Debtor was necessary, the law did not mandate the production of such a certificate. The evidence presented by the Financial Creditor sufficed to establish the default, rendering this technical defense invalid.

6. The Tribunal appointed an Interim Resolution Professional (IRP) and declared a moratorium on various actions against the Corporate Debtor, in accordance with the provisions of the Insolvency & Bankruptcy Code, 2016. The IRP was tasked with managing the operations of the Corporate Debtor and protecting its assets during the Corporate Insolvency Resolution Process. Additionally, the Financial Creditor was directed to make an advance payment to the IRP for the smooth conduct of the CIRP.