2017 (8) TMI 866 - Tri - Insolvency and Bankruptcy

Insolvency Resolution Process - Held that - In view of the commencement of the Insolvency Resolution Process with the admission of this Petition and appointment of the Interim Resolution Professional, this Adjudicating Authority hereby passes the order declaring moratorium under section 13(1)(a) prohibiting the following as laid down in section 14 of the Code; (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court 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 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 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. (i) The moratorium order in respect of (a), (b), (c) and (d) above shall not apply to the transactions notified by the Central Government. (ii) However, the order of moratorium shall not apply in respect of supply of essential goods or services to Corporate Debtor. (iii) The applicant shall also make public announcement about initiation of Corporate Insolvency Resolution Process , as required by Section 13(l)(b) of the Code. (e) However, the supply of goods and essential services to the Corporate Debtor shall not be terminated or suspended or interrupted during moratorium period. The moratorium order in respect of (i), (ii), (iii) and (iv) above shall not apply to the transactions notified by the Central Government. (f) The provisions of sub-section (1) of Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. This order of moratorium shall be in force from the date of order till the completion of Corporate Insolvency Resolution Process subject to the Proviso under sub-section (4) of section 14.

Summary

Issues:
Application invoking Section 7 of the Insolvency and Bankruptcy Code, 2016; Existence of default in payment of debt; Appointment of Interim Resolution Professional; Declaration of moratorium under Section 13 of the Code.

Detailed Analysis:

1. Application invoking Section 7 of the Insolvency and Bankruptcy Code, 2016:
- The applicant, a company, filed an application under Section 7 of the Code against the respondent company for defaulting on a Rupee Term Loan. Various legal documents were executed as security for the loan, including a Deed of Hypothecation and a Demand Promissory Note. The respondent failed to repay the loan as per the agreement terms, leading to dishonored cheques and legal proceedings. The applicant provided evidence of default and filed a complete application, proposing an Interim Resolution Professional.

2. Existence of default in payment of debt:
- The Tribunal analyzed the loan agreements, supplementary agreements, and financial records to establish the default in payment by the respondent to the applicant. The respondent acknowledged the debt in its annual reports for multiple years. The Tribunal concluded that the applicant is a Financial Creditor, and the respondent is a Corporate Debtor, satisfying the conditions under Section 7 of the Code. The pendency of proceedings before other forums did not preclude admission of the application.

3. Appointment of Interim Resolution Professional:
- Considering the merits of the case and the public interest, the Tribunal admitted the application under Section 7(5) of the Code. Shri Kuldip Verma was appointed as the Interim Insolvency Resolution Professional to oversee the resolution process. A moratorium was declared under Section 13(1)(a) of the Code, prohibiting certain actions against the corporate debtor, and a public announcement of the initiation of the Corporate Insolvency Resolution Process was mandated.

4. Declaration of moratorium under Section 13 of the Code:
- The Tribunal passed an order declaring a moratorium to protect the corporate debtor's assets during the insolvency resolution process. The moratorium prohibited suits, asset transfers, enforcement of security interests, and recovery actions against the debtor. Essential services supply was exempted from the moratorium, ensuring continuity. The order was to be communicated to the parties involved, maintaining the integrity of the resolution process.

This detailed analysis highlights the key aspects of the judgment, covering the legal grounds for invoking the insolvency proceedings, establishing default, appointing a resolution professional, and implementing a moratorium to facilitate the resolution process effectively.