2022 (11) TMI 1397 - AT - Companies Law

Rejection of Section 7 petition filed by the Appellant for initiation of CIRP - arbitration proceedings initiated on personal guarantee - award in favour of the Appellant which award has already been put into execution by the Appellant - HELD THAT - There is already an award to pay Cash Security of Rs. 3, 64, 58, 785/- with interest which award has already been put in execution by the Financial Creditor this was reason good enough to refuse admission of Section 7 application. It has now been laid down by the Hon ble Supreme Court in Vidarbha Industries Power Ltd. vs Axis Bank Limited 2022 (7) TMI 581 - SUPREME COURT that admission of Section 7 application is not obligatory merely on proof of debt and default. The facts as has been noticed by the Adjudicating Authority are sufficient to refuse admission of Section 7 application - Appeal dismissed.

Summary

Issues:
- Rejection of Section 7 petition by Adjudicating Authority
- Applicability of Section 5 (8) (i) of the Code to the guarantee given by the Appellant
- Impact of existing award and execution by the Financial Creditor on the Section 7 application

Analysis:

The judgment revolves around the rejection of a Section 7 petition by the Adjudicating Authority, which was filed by the Appellant for initiation of Corporate Insolvency Resolution Process (CIRP). The Appellant claimed that the funds were provided to the Corporate Debtor based on his personal guarantee, and arbitration proceedings resulted in an award in favor of the Appellant, which was executed. The Adjudicating Authority, despite acknowledging these facts, refused to admit the Section 7 application.

The crux of the matter lies in the interpretation of Section 5 (8) (i) of the Code concerning whether the guarantee provided by the Appellant falls under the definition of financial debt. The Appellant argued that the guarantee squarely falls within the ambit of Section 5 (8) (i) of the Code. However, the judgment highlights that the mere existence of a debt and default is not sufficient for the mandatory admission of a Section 7 application, as established in the case of Vidarbha Industries Power Ltd. vs Axis Bank Limited by the Hon'ble Supreme Court.

Furthermore, the judgment emphasizes the significance of an existing award requiring the Appellant to pay a Cash Security amount with interest, which had already been executed by the Financial Creditor. This aspect played a pivotal role in the decision to reject the Section 7 application. The Adjudicating Authority's assessment of the facts led to the conclusion that the circumstances warranted the dismissal of the appeal.

In conclusion, the Appellate Tribunal upheld the decision to dismiss the appeal, citing the existing award and its execution by the Financial Creditor as substantial reasons for refusing admission of the Section 7 application. The judgment underscores the nuanced application of the law in insolvency matters, emphasizing that mere proof of debt and default may not automatically mandate the admission of a Section 7 petition.