2017 (9) TMI 278 - Tri - Insolvency and Bankruptcy

Initiating the insolvency resolution process under Section 7 of the Insolvency & Bankruptcy Code, 2016 - petitioner proves to be a Financial Creditor - Held that - Once the petitioner is proved to be a Financial Creditor and there being abundant evidence to determine the existence of default committed by the Corporate Debtor , the application under Section 7 of the Code is maintainable. Sub-section (4) of Section 7 of the Code reads as under - The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3). In this case, the record relied upon by the Financial Creditor establishes the existence of default and the other conditions being satisfied, the instant petition deserves to be admitted. It is found that the application filed in the prescribed proforma is complete in all respect. Instant petition is admitted declaring the moratorium as determined.

Summary

Issues Involved:
1. Whether the petitioner qualifies as a "Financial Creditor" under the Insolvency & Bankruptcy Code, 2016.
2. Whether the application for initiating insolvency resolution process is maintainable before the Tribunal.
3. Whether the petitioner has provided sufficient evidence of default.
4. Whether the objections raised by the Corporate Debtor regarding jurisdiction and terms of the agreement hold merit.

Issue-wise Detailed Analysis:

1. Qualification as a "Financial Creditor":
The petitioner, a company incorporated under Danish law, initiated the insolvency resolution process claiming itself to be a "Financial Creditor" under Section 7 of the Insolvency & Bankruptcy Code, 2016. The Tribunal examined the Trade Finance Facility Agreement dated 01.01.2016, where the petitioner extended a loan to the Corporate Debtor. The agreement stipulated that loans were to be disbursed on a "with recourse" basis, meaning the petitioner retained the right to claim the loan amount from the Corporate Debtor if the buyer defaulted. The Tribunal concluded that the petitioner falls within the definition of "Financial Creditor" as per Section 5(7) and Section 5(8) of the Code, which includes receivables sold or discounted other than on a non-recourse basis.

2. Maintainability of the Application:
The Corporate Debtor argued that the application was not maintainable before the Tribunal, citing Clause 22 of the agreement, which stipulated that disputes were to be settled by arbitration in London under English law. The Tribunal dismissed this objection, stating that the existence of a default and the status of the petitioner as a Financial Creditor under the Code are sufficient to maintain the application before the Tribunal. The Tribunal emphasized that the Code's provisions take precedence in determining the maintainability of the insolvency application.

3. Evidence of Default:
The petitioner provided substantial evidence of default, including demand promissory notes, legal notices, and transaction details evidencing the payments made to the Corporate Debtor. The Tribunal noted that the Corporate Debtor did not dispute the facility's existence or the terms of the agreement, which included the provision of loans up to 80% of the invoice value. The objections raised by the Corporate Debtor, including claims of misrepresentation and non-adjustment of payments, were found to be unsupported by any documentary evidence. The Tribunal concluded that the petitioner had adequately established the default.

4. Objections Raised by the Corporate Debtor:
The Corporate Debtor's primary objections included the claim that the petitioner had not granted the full credit facility as agreed and that the petitioner should proceed against the buyers instead. The Tribunal found these objections to be baseless, noting the absence of any supportive documents or affidavits from the Corporate Debtor. The Tribunal also addressed the contention that the petitioner had a lien over the goods and should proceed against the buyers, clarifying that the petitioner's status as a Financial Creditor remains unchanged even if the goods were released on the Corporate Debtor's insistence.

Conclusion:
The Tribunal admitted the petition, declaring a moratorium prohibiting the institution of suits or continuation of pending suits against the Corporate Debtor, transferring or disposing of assets, and recovering property during the moratorium period. The Tribunal directed that the supply of essential goods or services to the Corporate Debtor should not be terminated during the moratorium. The matter was adjourned for the formal appointment of the Interim Insolvency Resolution Professional and further directions.