2018 (2) TMI 1355 - AT - Insolvency and Bankruptcy

Corporate insolvency process - eligible debt - Winding up proceeding under the Companies Act or liquidation proceeding under the I & B Code initiated - Held that - In the present case we find that the Adjudicating Authority has noticed extraneous factors unrelated to Corporate Insolvency Resolution Process which are not required to be disclosed in terms of Section 10 of I&B Code or Form 6. It is not the case of the Financial Creditor (Respondent) that a winding up proceeding under the Companies Act or liquidation proceeding under the I & B Code has been initiated against the Corporate Debtor. Therefore, we hold that the Corporate Applicant is eligible to file application under Section 10, there being a debt and default. The impugned order dated 20th June, 2017 cannot be upheld and is accordingly set aside. The case is remitted back to the Adjudicating Authority for admission of the application under Section 10, if the application is otherwise complete.

Summary

Issues:
Application under Section 10 of the Insolvency & Bankruptcy Code rejected by Adjudicating Authority based on irrelevant facts.

Analysis:
The corporate applicant filed an application under Section 10 of the Insolvency & Bankruptcy Code for corporate insolvency process initiation, which was rejected by the Adjudicating Authority citing irrelevant grounds. The Adjudicating Authority acknowledged the completeness of the application, stating that it fulfilled the requirements under the Code. However, the Authority mentioned unrelated facts, such as the personal guarantees of directors and other securities offered by the corporate debtor, which were not necessary for adjudication under Section 10.

The Adjudicating Authority listed financial creditors and operational creditors but rejected the application, alleging that the corporate debtor was attempting to avoid SARFAESI proceedings by seeking moratorium under Section 14 of the Code. The Authority expressed concerns about the impact on financial creditors and the motive behind approaching the Tribunal. The corporate applicant argued that unrelated facts should not influence the application review under Section 10.

Referring to a previous judgment, it was established that the Adjudicating Authority must only consider information provided in Form 6 and Section 10, without delving into extraneous details. Actions under SARFAESI Act or pending suits should not affect the application's validity if it is complete. The Tribunal concluded that the Adjudicating Authority erred in considering irrelevant factors and upheld the corporate applicant's eligibility to file under Section 10, remitting the case back for admission if the application is complete.

In summary, the Tribunal set aside the impugned order, emphasizing that the Adjudicating Authority should focus on the application's completeness under Section 10 without considering extraneous details. The decision highlighted the importance of adhering to the Code's requirements and not rejecting applications based on unrelated factors, ensuring fair and accurate adjudication of insolvency proceedings.