2019 (10) TMI 1492 - 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 - creation of a SPV which has not materialized - time limitation - HELD THAT - There is no doubt that the Petition has been filed within limitation period. We have also carefully perused the terms and conditions of MOU whereby both the parties in addition to this financial transaction have entered for creation of a SPV which has not materialized. It is to be noted that the Corporate Debtor was already having tender in its favour from Kolkata Port Trust which as per its claim only has been illegally terminated by the Kolkata Port Trust and which has resulted into default in the payment of the loan taken by the Corporate Debtor - MOU consists of two transactions i.e. one is related to granting of loan and other is in regard to formation of SPV. From the perusal of MOU, it is evident that both these transactions are independent of each other. In any case, transaction loan has not been made for equity, hence, it remains of the nature of financial debt. Filing of petition by all the three entities independently or by the Financial Creditor on behalf of other two parties only when such purpose would have assigned the debt payable by the Corporate Debtor to them to the Financial Creditor - HELD THAT - Provisions of Section 5(7) of the Insolvency and Bankruptcy Code, 2016 are absolutely clear. No material has been placed on record that to the fact that such debt has been legally assigned or transferred to the Financial Creditor. Hence, to this extent, we accept this plea of the Corporate Debtor. However, the loan given by the Financial Creditor itself is more than threshold limit of ₹ 1 Lakh, hence, this fact has not help the cause of the Corporate Debtor as far as maintainability of this Petition is concerned - pending arbitration proceedings cannot be limiting factor. The application deserves to be allowed - petition admitted - moratorium declared.

Summary

Issues:
1. Initiation of Corporate Insolvency Resolution Process under Section 7 of the Insolvency & Bankruptcy Code, 2016.
2. Validity of the loan transaction and default by the Corporate Debtor.
3. Maintainability of the Petition and arbitration proceedings.
4. Appointment of Interim Resolution Professional and declaration of moratorium.

Issue 1: Initiation of Corporate Insolvency Resolution Process
The Financial Creditor filed an application under Section 7 to start the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor due to a default amounting to ?5,44,85,928 since January 2016. The loan was provided based on a memorandum of understanding (MOU) for financial assistance, which was not repaid as per the terms.

Issue 2: Validity of the loan transaction and default
The Financial Creditor presented evidence of the loan transaction, including postdated cheques that were dishonored. The Corporate Debtor argued that the MOU was not terminated and that the loan was received from multiple entities, making the application not maintainable. However, the Tribunal found the loan transaction independent of other agreements and within the limitation period, admitting the Petition for CIRP.

Issue 3: Maintainability of the Petition and arbitration proceedings
The Corporate Debtor contended that the loan amount was received from various entities and not legally assigned to the Financial Creditor, questioning the maintainability of the Petition. The Financial Creditor argued that the debt was due and payable, meeting the conditions for initiating CIRP. The Tribunal held that the loan amount exceeded the threshold limit, dismissing the Corporate Debtor's argument.

Issue 4: Appointment of Interim Resolution Professional and declaration of moratorium
The Tribunal admitted the Petition, declared a moratorium, and appointed an Interim Resolution Professional. The moratorium prohibited legal actions against the Corporate Debtor and ensured the continuation of essential services. The Tribunal directed the Financial Creditor to pay fees to the IRP and ensured timely conduct of the CIRP.

In conclusion, the Tribunal admitted the Petition for initiating CIRP against the Corporate Debtor, declared a moratorium, and appointed an Interim Resolution Professional to oversee the resolution process. The judgment highlighted the independence of the loan transaction, the validity of the default, and the maintainability of the Petition despite multiple entities being involved in the financial assistance provided to the Corporate Debtor.