2022 (11) TMI 1377 - AT - Insolvency and Bankruptcy

Validity of admission of Section 7 application - amount (small balance amount) due and payable by the corporate debtor to SASF under the OTS, and, SASF wrongfully revoked the OTS and subsequently filed an application under Section 7 of the IBC - case of appellant is that Section 7 petition in the present case is mala-fide and filed only for the purpose of recovery and not for insolvency resolution of the corporate debtor. HELD THAT - The Adjudicating Authority has only recorded the claim of the Applicant and has only unambiguously stated that it is not delving into the calculation of the amount stipulated by the Applicant in Section 7 application, and further the exact amount of financial debt is immaterial as long as the amount admitted by the corporate debtor is more than the minimum amount stipulated under Section 4(1) of the IBC i.e. Rs. 1 Lakh at the relevant time of filing Section 7 application. In the light of detailed provisions in Chapter IV (Proof of Claims) in the Insolvency Bankruptcy Board of India (Insolvency Resolution Process For Corporate Person) Regulations, 2016, the invitation, submission and verification of claims of operational and financial creditors, workmen and employees and other creditors is quite clear. In so far as the facts included in the Section 7 application in Form 1 application is concerned, the financial creditor as to provide information about the debt which is due and payable and also the date and record of default. There is no requirement in the adjudication of Section 7 application to calculate and fix the exact amount of debt in default of repayment. It is only to be seen whether the amount in default is more than the minimum or threshold value that is prescribed in Section 4 (1) of the IBC. The Appellant has not been able to make a case that the Adjudicating Authority had fixed a precise amount of the claim of Respondent No. 1-SASF and thereby caused adverse impact on the financial interest of Appellant - this Appeal has been filed by the Appellant- Suzlon Synthetics Limited, claiming to be adversely affected by the Impugned Order. It is a fact that the Section 7 admission order is directed at the corporate debtor - on looking at the reasons and grounds raised by the Appellant in this appeal, it does not become apparent as to why the Appellant had filed this appeal. Appeal dismissed while imposing a cost of Rs. 2 lakhs on the Appellant which should be deposited in the Prime Minister s Relief Fund within 15 days of this order.

Summary

Issues:
1. Appeal filed under Section 61 of the Insolvency & Bankruptcy Code, 2016 against the Impugned Order passed by the Adjudicating Authority.
2. Dispute regarding admission of Section 7 application by the Adjudicating Authority.
3. Allegations of mala-fide use of IBC for recovery purposes.
4. Locus standi of the Appellant to file the appeal.
5. Argument on limitation of the Section 7 application.
6. Impact of the admission of Section 7 application on the financial interests of the Appellant and other creditors.
7. Interpretation of the claim amount by the Adjudicating Authority.
8. Procedural aspects of claim verification and finalization under the IBC and related regulations.

Analysis:
1. The appeal was filed under Section 61 of the IBC challenging the Impugned Order admitting a Section 7 application against the Corporate Debtor. The Appellant claimed to be a financial creditor adversely affected by the admission of the application.
2. The Appellant alleged that the Section 7 application was mala-fide and aimed at recovery rather than insolvency resolution. They argued that the other financial creditors, including the Appellant, would be defrauded if the Corporate Insolvency Resolution Process (CIRP) proceeded against the debtor.
3. The Adjudicating Authority noted discrepancies in the claimed debt amount by the Financial Creditor in the Section 7 application. The Appellant contended that a disproportionate claim by the Financial Creditor would adversely affect the interests of other creditors, including the Appellant.
4. The Respondent argued that the Appellant lacked locus standi to file the appeal and that the CIRP process would not prejudice the Appellant's financial interests as all creditor claims would be duly scrutinized.
5. The Respondent contended that the Section 7 application was not time-barred, citing specific provisions and balance sheet entries exempting certain periods from limitation.
6. The Adjudicating Authority clarified that the exact debt amount was not crucial for admitting a Section 7 application as long as the debtor admitted to a debt exceeding the minimum threshold under the IBC.
7. The Tribunal emphasized the clear procedural framework for claim verification and finalization under the IBC and related regulations, ensuring a fair process for all creditors.
8. Ultimately, the Tribunal found no merit in the appeal, dismissed it, and imposed a cost on the Appellant for filing what was deemed a frivolous litigation, emphasizing the need to discourage such actions and ensure efficient use of judicial resources.

This detailed analysis covers the various legal aspects and arguments presented in the judgment, providing a comprehensive understanding of the issues involved and the Tribunal's decision.