2021 (9) TMI 1429 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - Existence of financial debt or not - internal wrongdoing by constituent shareholders - HELD THAT - This Petition has been preferred under section 7 for four term loans amounting to total Rs. 159,67,40,173/- along with interest as on 15.03.2019. The date of default as per the Petition is 13th July 2017. The Bench notes that existence of Financial Debt is admitted by the Corporate Debtor and these term loans are adequately reflected in the balance sheet of the Corporate Debtor for the year 2015-2016 and 2016-2017 as has been annexed in the rejoinder submitted by the Petitioner. The Financial Creditor has also produced the Bank statements before the Bench that clearly reflects disbursal of the money. The bench notes that the Corporate Debtor is a body Corporate and has independent identity distinct from the shareholders. The Bench also notes that the Corporate Debtor had borrowed the money and it must be repaid. Since the Corporate Debtor had borrowed the money, it cannot take a plea of intra shareholders dispute or allegation of internal wrong doings by the constituent shareholders as a reason for not meeting its repayment obligation - In any case, the term loans have been reflected in the balance sheet of the Corporate Debtor and is reflected in the CIBIL Report. The facts of the case clearly and unbiasedly shows that there is a Financial Debt in terms of section 5(8) of IBC, 2016 and there is default in terms of section 3(12) of the IBC, 2016 by the present Corporate Debtor. Petition admitted - moratorium declared.

Summary

Issues:
Initiation of Corporate Insolvency Resolution Process (CIRP) based on default in loan repayment.

Analysis:
The Company Petition was filed by the Financial Creditor seeking to initiate CIRP against the Corporate Debtor due to default in loan repayment, invoking Section 7 of the Insolvency and Bankruptcy Code, 2016. The debts originated from six loan transactions with Yes Bank Limited, out of which four loans remained unpaid. The Financial Creditor, to whom the loans were assigned, claimed a total due amount of Rs. 159,67,40,173/- as of 15.03.2019. The Corporate Debtor disputed the debt, alleging that the loans were fraudulently sanctioned and diverted, but did not deny the default. The Bench found the existence of financial debt admitted by the Corporate Debtor and noted that the loans were reflected in the balance sheet and supported by bank statements. Despite the Corporate Debtor's arguments of fraud and misuse, the Bench held that the debts must be repaid, dismissing claims of intra-shareholder disputes as a defense against repayment obligations.

The Bench emphasized that the misuse or diversion of funds by the Corporate Debtor did not absolve it from repaying the loans, as financial debt and default were established based on records and the CIBIL report. The Petition was admitted under Section 7 of the IBC, initiating the CIRP against the Corporate Debtor. The Bench appointed an Insolvency Resolution Professional and imposed restrictions on legal actions against the Corporate Debtor, ensuring continuity of essential services, and enforcing a moratorium period. The public announcement of the insolvency resolution process was mandated, and management control vested in the IRP/RP during the CIRP period. The Registry was directed to update the Master Data of the Corporate Debtor and communicate the order to all parties involved.

Additionally, an Interim Application was filed by the Corporate Debtor against the Petitioner, alleging fraudulent intent in filing the petition. The application claimed that the loans were tainted with fraud by the Petitioner, similar to the Corporate Debtor's arguments in the main petition reply. The Bench dismissed the Interim Application, affirming the allowance of the Company Petition and the initiation of CIRP against the Corporate Debtor.