2017 (12) TMI 1849 - Tri - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - HELD THAT - A perusal of the petition show that it is complete in all respects. The documents show that financial debt is due from the Corporate Debtor and there is occurrence of default. In fact, even in the reply filed by the corporate debtor it has not denied the liability or the occurence of default. Moreover, Financial Creditor issued notice under section 13 (2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, recalling the entire loan facilities. There is no tenable objection filed by the Corporate Debtor in the reply. Pendency of proceedings before the Debt Recovery Tribunal, Ahmedabad is not a ground for not commencing Insolvency Resolution Process in view of the fact that the provisions of the Code is having overriding effect over any other Law. This petition deserves to be admitted and it is accordingly admitted under section 7 (5) of the Code.

Summary

Issues Involved:
1. Authorization of the Chief Manager to file the petition.
2. Sanction of financial facilities and defaults by the Corporate Debtor.
3. Securities held by the Financial Creditor.
4. Objections raised by the Corporate Debtor.
5. Completeness and validity of the petition.
6. Appointment of Interim Resolution Professional.
7. Declaration of moratorium.

Detailed Analysis:

1. Authorization of the Chief Manager to File the Petition:
The Bank of Baroda, through its Chief Manager, filed the application under Section 7 of the Insolvency and Bankruptcy Code, 2016, read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The Chief Manager was duly authorized by a power of attorney and Board Resolution No. 62 to represent the bank in legal proceedings and to sign pleadings and applications.

2. Sanction of Financial Facilities and Defaults by the Corporate Debtor:
The Bank of Baroda sanctioned various financial facilities to the Corporate Debtor under the Master Restructuring Agreement (MRA) dated 31.03.2015. These facilities included:
- Rupee term loans (Term Loan I and II) totaling Rs. 14.84 crores.
- Working capital term loans (WCTL-I and II) totaling Rs. 35.11 crores.
- Restructured funded interest term loan (FITL) of Rs. 9.74 crores.
- Restructured fund-based working capital facility of Rs. 12.86 crores.
- Additional fund-based working capital facility and letter of credit facility, though no disbursements were made under these.

The Corporate Debtor defaulted on these facilities, with the total amount in default as on June 30, 2017, being Rs. 86.57 crores. Notices under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, were issued to the Corporate Debtor, but the amounts were not repaid.

3. Securities Held by the Financial Creditor:
The Financial Creditor held various securities, including:
- Hypothecation of fixed and current assets through multiple deeds of hypothecation.
- Mortgages on immovable properties, including sheds, buildings, and lands, by the Corporate Debtor and individual mortgagors.
- Guarantees executed by individuals and a company for the due repayment of the facilities.

The estimated value of these securities was Rs. 33.03 crores.

4. Objections Raised by the Corporate Debtor:
The Corporate Debtor raised objections, claiming the petition was incomplete and lacked proper documentation. They also argued that the company’s sickness was due to non-cooperation by the banks, particularly the State Bank of India, which did not grant the required loan amount and imposed additional conditions. The Corporate Debtor also mentioned pending proceedings under Section 19(8) of the Recovery of Debt Act, 1993, against the banks.

5. Completeness and Validity of the Petition:
The petition was found to be complete in all respects, with the necessary documents showing financial debt and occurrence of default. The Corporate Debtor did not deny the liability or the occurrence of default. The pendency of proceedings before the Debt Recovery Tribunal was not a ground to prevent the commencement of the Insolvency Resolution Process, as the Code has an overriding effect over other laws.

6. Appointment of Interim Resolution Professional:
The petition proposed Mr. Ramubhai Shankerlal Patel as the Interim Resolution Professional (IRP), who was appointed under Section 13(1)(c) of the Code. The IRP was directed to cause a public announcement of the initiation of the Corporate Insolvency Resolution Process and call for submission of claims.

7. Declaration of Moratorium:
A moratorium was declared under Section 13(1)(a) of the Code, prohibiting:
- The institution or continuation of suits or proceedings against the Corporate Debtor.
- Transferring, encumbering, or disposing of any assets of the Corporate Debtor.
- Actions to foreclose, recover, or enforce any security interest.
- Recovery of property by an owner or lessor.

The moratorium was not applicable to transactions notified by the Central Government in consultation with any financial sector regulator. The moratorium came into force from the date of the order and would last until the completion of the Corporate Insolvency Resolution Process.

Conclusion:
The petition was admitted under Section 7(5) of the Code, and the application was disposed of accordingly, with no order as to costs. The order was communicated to the Petitioner Financial Creditor, Respondent Corporate Debtor, and the Interim Insolvency Resolution Professional.