2017 (8) TMI 1257 - Tri - Insolvency and Bankruptcy

Insolvency and Bankruptcy procedures - order of moratorium - Held that - Petition deserves to be admitted and accordingly it is admitted. This Adjudicating Authority is appointing Shri Ravi Kapoor, who has shown his address at 4th Floor, Shaival Plaza, Near Gujarat College, Ellisbridge, Ahmedabad-380006, and Registration Number as IBBI/IPA-002/IP- 00076/2016-17/1203, as Interim Insolvency Resolution Professional under Section 13(1) of the Code. This Adjudicating Authority directs the Applicant to make public announcement of initiation of Corporate Insolvency Process and calls for submission of claims under Section 15 as required by Section 13(l)(b) of the Code. In view of the commencement of the Insolvency Resolution Process with the admission of this Petition and appointment of the Interim Insolvency Resolution Professional, this Adjudicating Authority hereby passed the order declaring moratorium under Section 13(1)(a) prohibiting the following as laid down in Section 14 of the Code; (i) 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; (ii) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (iii) 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); (iv) 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 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. The order of moratorium shall not apply to such transactions that might be notified by the Central Government in consultation with any financial sector regulator in view of sub-section (3) of Section 14 of the Code. 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 involved:
1. Interpretation of provisions under the Insolvency and Bankruptcy Code, 2016.
2. Validity of objections raised by the Respondent regarding winding up order and exchange rate.
3. Right of audience for a Financial Creditor in insolvency proceedings.
4. Classification of debt as operational debt and initiation of insolvency resolution process against a guarantor.
5. Appointment of an Interim Insolvency Resolution Professional and declaration of moratorium.

Issue 1: Interpretation of provisions under the Insolvency and Bankruptcy Code, 2016:
The Applicant filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking relief. The Respondent raised objections related to a winding-up order against a different entity and the exchange rate calculation. The Tribunal found the objections to be untenable, emphasizing that the debt due to the Operational Creditor from the Corporate Debtor could be classified as operational debt. The Tribunal highlighted the occurrence of default and the guarantee provided by the Respondent, leading to the admission of the petition.

Issue 2: Validity of objections raised by the Respondent:
The Respondent objected to the winding-up order and the exchange rate calculation. The Tribunal clarified that the winding-up order did not directly affect the Respondent, and failure to access records did not prejudice the Respondent's defense, especially after admitting liability. Regarding the exchange rate, the Tribunal ruled that the rate on the repayment date is crucial, dismissing the objection raised by the Respondent.

Issue 3: Right of audience for a Financial Creditor:
The Central Bank of India, a Financial Creditor, filed an application to recall an order related to insolvency proceedings. The Tribunal noted that there is no specific provision requiring notice to Financial Creditors in such cases. The argument regarding the Corporate Debtor's relationship with the Bank and the nature of the debt was considered. Ultimately, the Tribunal ruled that the Operational Creditor could proceed against the Respondent, who guaranteed the debt, as it fell under operational debt.

Issue 4: Classification of debt and initiation of insolvency resolution process:
The Tribunal analyzed the definitions of 'operational debt' and 'claim' under the Code. It concluded that the amount payable under the Guarantee Agreement could be considered operational debt. The Tribunal highlighted the co-extensive liability of the Principal Borrower and the Guarantor, citing relevant legal precedents to support its decision to admit the petition and appoint an Interim Insolvency Resolution Professional.

Issue 5: Appointment of an Interim Insolvency Resolution Professional and declaration of moratorium:
Following the admission of the petition and the appointment of the Interim Insolvency Resolution Professional, the Tribunal declared a moratorium, prohibiting various actions against the Corporate Debtor. Exceptions were made for the supply of goods and essential services. The moratorium order was to remain in force until the completion of the Corporate Insolvency Resolution Process, subject to specific provisions under the Code.

This detailed analysis of the judgment showcases the Tribunal's thorough examination of the issues involved and its application of legal principles under the Insolvency and Bankruptcy Code, 2016.