2018 (1) TMI 229 - AT - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - absence of records of default - Held that - In this case, we find that the application preferred by Respondent under Section 7 is not complete in absence of records of default , as required in terms of sub-section (3) (a) of Section 7 of the I&B Code . In such case, it was not open to the Adjudicating Authority to entertain the application preferred by Respondent. This apart, as we find that the application under Section 7 of the I&B Code in Form-1 has not been filed by the Respondent- Operational Creditor , but an Advocate, Mr. Rohit Khanna, who is neither Authorised Representative nor holds any position with or in relation to the Financial Creditor , as required to be stated as Form-1 of the Adjudicating Authority Rules, 2016, we hold that application under Section 7 of the I&B Code was not maintainable at the instance of the Respondent.

Summary

Issues:
- Maintainability of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
- Compliance with the requirements of sub-section (3)(a) of Section 7.
- Authorization of the person filing the application.
- Validity of the orders passed by the Adjudicating Authority.

Analysis:

1. Maintainability of the Application:
The Respondent, a Foreign Company, initiated the Corporate Insolvency Resolution Process against the Appellant-Corporate Debtor under Section 7 of the Insolvency and Bankruptcy Code, 2016. The Appellant contended that the application was not maintainable due to the absence of a 'record of default' or a certificate from a financial institution. The Respondent argued that the Adjudicating Authority correctly admitted the application as the existence of default was established to the satisfaction of the Authority.

2. Compliance with Section 7 Requirements:
Sub-section (3)(a) of Section 7 mandates the 'Financial Creditor' to provide a 'record of default' as specified by the Insolvency and Bankruptcy Board of India. The application filed by the Respondent lacked the necessary record of default, rendering it incomplete. The Adjudicating Authority should not have entertained the application without this essential requirement, as per the provisions of the Code and the Adjudicating Authority Rules.

3. Authorization of the Applicant:
The application under Section 7 was filed by an Advocate on behalf of the Respondent, who was neither an Authorized Representative nor held any position with the Financial Creditor. This lack of authorization from the Financial Creditor, as required by the Adjudicating Authority Rules, further supported the finding that the application was not maintainable.

4. Validity of Orders by the Adjudicating Authority:
The Appellate Tribunal, after careful consideration, found that the impugned orders of the Adjudicating Authority, including the appointment of an Interim Resolution Professional and the declaration of moratorium, were unsustainable due to the defects in the application. Consequently, all related actions and orders were declared illegal and set aside, allowing the Appellant to resume independent operations through its Board of Directors.

In conclusion, the appeal was allowed, the impugned orders were set aside, and the proceedings were directed to be closed. The Appellant was released from the legal constraints, and the fees of the Interim Resolution Professional, if appointed, were to be determined and paid by the Appellant.