2017 (8) TMI 84 - Tri - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - Section 7 of the Insolvency and Bankruptcy Code, 2016 - Held that - The provisions of moratorium shall not apply to transactions which might be notified by the Central Government or the supply of the essential goods or services to the Corporate Debtor as may be specified is not to be terminated or suspended or interrupted during the moratorium period. The Interim Resolution Professional shall perform all his functions contemplated interalia by Sections 15, 17, 18, 19, 20 & 21 of the Code. It is further made clear that all the personnel connected with the Corporate Debtor, its promoters or any other person associated with the Management of the Corporate Debtor are under legal obligation under Section 19 of the Code to extend all assistance and cooperation to the Interim Resolution Professional as may be required by him in managing the affairs of the Corporate Debtor. In case there is any violation the Interim Resolution Professional would be at liberty to make appropriate application to this Tribunal with a prayer for passing an appropriate order. The Interim Resolution Professional shall be under duty to protect and preserve the value of the property of the Corporate Debtor as a part of its obligation imposed by Section 20 of the Code and perform all his functions strictly in accordance with the provisions of the Code.

Summary

Issues:
1. Initiation of Corporate Insolvency Resolution Process under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Compliance with necessary requirements by the Financial Creditor.
3. Default by the Corporate Debtor in repayment of loan and EMIs.
4. Security agreement and default established through dishonoured cheques.
5. Bar on initiating Corporate Insolvency Resolution Process during pending arbitration proceedings.
6. Appointment of Interim Resolution Professional and declaration of moratorium.

Analysis:

1. The Tribunal was approached by Reliance Commercial Finance Limited seeking initiation of Corporate Insolvency Resolution Process against Ved Cellulose Limited under Section 7 of the Insolvency and Bankruptcy Code, 2016. The petitioner, a Financial Creditor, acquired the debt through a scheme approved by the Bombay High Court, transferring the loan amount and related obligations to them.

2. The Financial Creditor and Corporate Debtor's incorporation details were provided, along with loan specifics amounting to ?1,92,38,526 disbursed on 28.03.2014. The Corporate Debtor failed to make scheduled EMI payments, resulting in a total recoverable amount of ?2,01,26,510 as of 31.05.2017.

3. The loan agreement included security towards equipment, with a marked hypothecation agreement. The default was evidenced by dishonoured cheques and non-receipt of scheduled payments post-March 2016.

4. The Tribunal addressed the issue of pending arbitration proceedings and clarified that Section 7 of the Code allows initiation of Corporate Insolvency Resolution Process even during arbitration, unlike the provision for Operational Creditors under Section 9. Precedents were cited to support this interpretation.

5. After reviewing the evidence presented, the Tribunal found that all requirements under Section 7 were met, establishing the default by the Corporate Debtor. The initiation of Corporate Insolvency Resolution Process was approved, with an Interim Resolution Professional appointed and a moratorium declared under Section 14 of the Code.

6. The Tribunal outlined the responsibilities of the Interim Resolution Professional and imposed obligations on all parties associated with the Corporate Debtor to cooperate as per the provisions of the Code. The judgment concluded with directives for the Interim Resolution Professional to manage the affairs of the Corporate Debtor in accordance with the Code.