2018 (1) TMI 1191 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - existence of debt - Held that - It is settled law that in a Petition under Section 7 of the Code, this Adjudicating Authority has to see whether there is existence of financial debt and a default has been committed in payment of financial debt. On both the aspects, there is sufficient material on record. The finding is against the Corporate Debtor. Financial Creditor has filed copy of Power of Attorney; copies showing details of dates of disbursement and the amounts in respect of the Facilities; copies of various security documents creating/recording various security interests; copies of certificate of charges with respect to the securities created; copy of Valuation Report; copies of Financial Contracts and documents; copies of the Report of the Central Repository of Information on Large Credits and Report of TransUnion CIBIL dated August 31, 2017 and September, 2017; copies of entries in the bankers book maintained by the Petitioner Bank as per the Bankers Books Evidence Act, 1891; copies of Statement of Accounts; and copies of other documents proving existence of Financial Debt. The Petitioner Bank has proposed the name of an Interim Resolution Professional and filed his Written Communication. Moreover, this Petition filed by the Financial Creditor is complete in all respects. Therefore, there are no grounds to reject this petition. This Application deserves to be admitted and it is accordingly admitted under Section 7(5) of the Code.

Issues Involved:
1. Authority of the petitioner to file the application.
2. Existence of financial debt and default.
3. Impact of debt restructuring on default status.
4. Validity of objections raised by the corporate debtor.
5. Appointment of Interim Resolution Professional.
6. Issuance of moratorium.

Detailed Analysis:

1. Authority of the Petitioner to File the Application:
The petitioner, Bank of Baroda (BOB), filed the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IB Code) against the corporate debtor. BOB authorized its Deputy General Manager through a General Power of Attorney dated 15th December 2009, and a Circular Resolution dated 14th November 2017 authorized executives to file applications before the National Company Law Tribunal (NCLT). The tribunal held that the power of attorney holder was duly authorized to file the petition, and the objection raised by the corporate debtor on this count was not sustainable.

2. Existence of Financial Debt and Default:
The tribunal examined the financial debt extended to the corporate debtor through various working capital consortium agreements and supplemental agreements, resulting in a total debt of ?173,00,00,000. The petitioner provided detailed disbursement records and default amounts, showing a total default of ?205,46,37,451.80 as of August 31, 2017. The account was classified as Non-Performing Asset (NPA) on November 9, 2015, and notices were issued to the corporate debtor for repayment, which were not complied with.

3. Impact of Debt Restructuring on Default Status:
The corporate debtor argued that there was no default due to a new repayment schedule agreed upon in the Joint Lenders Meeting. However, the tribunal referred to the Reserve Bank of India's Master Circular on asset classification, which states that restructured non-performing assets continue to have the same classification as prior to restructuring. The tribunal concluded that the corporate debtor committed default in repayment as the restructuring did not alter the NPA status based on the pre-structuring repayment schedule.

4. Validity of Objections Raised by the Corporate Debtor:
The corporate debtor raised objections regarding the service of notice and the authority of the petitioner to file the application. The tribunal found that the notice was served within the required timeframe, and the power of attorney holder was duly authorized. The corporate debtor also contended that there was no default due to restructuring, but the tribunal dismissed this argument based on RBI guidelines and evidence of acknowledgment of debt by the corporate debtor.

5. Appointment of Interim Resolution Professional:
The petitioner proposed the name of Mr. Abhay N. Mamudhane as the Interim Resolution Professional (IRP), who provided written communication accepting the role. The tribunal appointed Mr. Mamudhane as the IRP under Section 13(1)(c) of the IB Code.

6. Issuance of Moratorium:
The tribunal ordered a moratorium under Section 13(1)(a) of the IB Code, prohibiting the institution or continuation of suits or proceedings against the corporate debtor, transferring or disposing of assets, and actions to foreclose or recover security interests. The moratorium also ensured the continuation of essential goods and services to the corporate debtor during the insolvency resolution process.

Conclusion:
The application was admitted under Section 7(5) of the IB Code, and the tribunal directed the IRP to make a public announcement and call for claims. The moratorium order came into force immediately and would remain effective until the completion of the Corporate Insolvency Resolution Process. The application was disposed of with no order as to costs, and copies of the order were communicated to the relevant parties.

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