2017 (6) TMI 739 - Tri - Insolvency and Bankruptcy

Initiation of insolvency resolution process - Held that - A perusal of the objections and upon hearing of the representations made by the Learned Counsel for Punjab National Bank demonstrated before us that the petitioners have not come with disclosure of full facts before this Tribunal as they have not furnished full particulars in relation to the assets mortgaged or the securities furnished to above financial creditors and the legal web in which it has been entangled by the owners themselves of the above said properties who are none other than the directors of the petitioner and a case in point is that in relation to the Khari Baoli property. Once the petition as titled by the Corporate Debtor is admitted, then following consequences by way of moratorium under Section 14 automatically arises, namely, a. institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any count of law, tribunal, arbitration panel or other authority; b. transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; c. any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; d. the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. The admission goes without saying will have a serious impact in relation to the objectors, namely, the financial creditors as whatever action which has culminated into taking physical possession of the secured assets will be automatically stayed for a period of atleast six months or even more depending upon the circumstances of the process and seems to be the motivation for the petitioner to approach this Tribunal under IBC, 2016 rather than put into to effect the avowed objects for which IBC, 2016 has been enacted as given in the preface of this order. We cannot be a party to such mala fide actions on the part of the corporate debtor and this is a clear case of abuse of process of law which should be discouraged at the threshold. As the petitioners have not come with clean hands before this Tribunal in bringing out the necessary facts, we are constrained to dismiss this petition. With a view to discourage the parties from abusing the process of IBC, 2016 and this Tribunal, we deem it as a fit case to impose costs as contemplated under Section 65 of IBC, 2016.

Summary

Issues Involved:
1. Compliance with Insolvency & Bankruptcy Code, 2016.
2. Disclosure of full facts and particulars by the corporate debtor.
3. Objections raised by financial creditors.
4. Allegations of fraudulent and malicious intent.
5. Consequences of admitting the petition under Section 14 of IBC, 2016.
6. Imposition of costs and penalties under Section 65 of IBC, 2016.

Detailed Analysis:

1. Compliance with Insolvency & Bankruptcy Code, 2016:
The Insolvency & Bankruptcy Code, 2016 (IBC) aims to consolidate and amend laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner. The primary objective is the maximization of asset value, promotion of entrepreneurship, availability of credit, and balancing the interests of all stakeholders.

2. Disclosure of Full Facts and Particulars by the Corporate Debtor:
The corporate debtor must furnish detailed information in Form-6, including incorporation details, financial and operational creditors, total debt, amount in default, and security details. The corporate debtor in this case, incorporated on June 13, 2008, disclosed debts exceeding ?100 crores to four financial creditors. However, objections were raised regarding incomplete disclosures about assets and securities.

3. Objections Raised by Financial Creditors:
Financial creditors, notably Punjab National Bank and Oriental Bank of Commerce, objected to the petition, alleging that the corporate debtor did not disclose full facts. They pointed out legal entanglements involving properties mortgaged to them, suggesting that the corporate debtor's directors engineered civil suits to remove properties from creditors' accountability.

4. Allegations of Fraudulent and Malicious Intent:
Punjab National Bank highlighted civil suits and proceedings initiated by the corporate debtor's directors, allegedly to evade lawful debt recovery. Instances included a suit titled “Mayank Maheshwari v. Anurag Garg” and actions under the SARFAESI Act. The bank argued that these actions were deliberate attempts to manipulate legal processes and avoid debt repayment.

5. Consequences of Admitting the Petition Under Section 14 of IBC, 2016:
Admitting the petition would trigger a moratorium, staying suits, transferring assets, enforcing security interests, and recovering properties. This would significantly impact financial creditors, as it would halt their recovery actions for at least six months. The tribunal found that the petition was motivated by a desire to abuse the process of law rather than genuine insolvency resolution.

6. Imposition of Costs and Penalties Under Section 65 of IBC, 2016:
The tribunal concluded that the petitioners did not come with clean hands and aimed to abuse the IBC process. Under Section 65 of IBC, penalties can be imposed for fraudulent or malicious initiation of insolvency proceedings. The tribunal imposed a penalty of ?10,00,000 on the corporate debtor and its directors, Mr. Anurag Garg and Ms. Ritu Garg, to be paid within one month. The proceeds are to be shared equally among the financial creditors to cover their defense costs.

Conclusion:
The petition was dismissed due to the corporate debtor's failure to disclose full facts and the apparent abuse of the insolvency process. The tribunal imposed a penalty to deter such misuse of the IBC provisions.