2018 (4) TMI 1379 - Tri - Insolvency and Bankruptcy

Corporate insolvency process - jurisdiction of this court - Held that - Objections raised by the Corporate Debtor Companies carry no force that the Applicant Bank cannot move an application under the I & B Code before this Court, while the JLF is considering or has seized of the issue of resolution plan for the Corporate Debtor or the Applicant Bank filed the present petition contrary to the guidelines issued by the RBI. Because in our humble opinion such objection/contention may sound high but remedy lie elsewhere not necessarily before this Court under the I & B Code. The company could take up such issue with the RBI but such action does not necessarily debar the Applicant Bank for filing present application under the I & B Code before this Court nor jurisdiction of this Courts is expressly barred, if such RBI Circular/Guidelines are ignored or violated by the Applicant Bank. Moreover, M/s. Rotomac Global Pvt. Ltd. earlier itself, in its letter dated March 14th, 2016 No. RGPL/2015-16 addressed to AGM, Bank of India, Kanpur earlier has proposed for reassessment of its non-fund based limits from ₹ 2,250/- Crores to ₹ 4,220/- Crores out of which a debt of ₹ 3,100/- Cores as a non-fund based loan has been duly admitted. Since, such being position that the Corporate Debtor Companies are not able to repay its debts then, its Board of Director cannot be expected to remain in and to keep continue with the affair of managing the company. Thus as a matter of record that the Corporate Debtor Companies M/s. Rotomac Global Private Limited itself through its letter dated 14.03.2016 has admitted its loan liability to the extent of ₹ 3,100 Crores. Such being the factual position the Company is not able to repay its debts then its management cannot be expected to have a divine right to keep continue with the managing the affair of the company - petition under the I & B Code is acceptable.

Issues Involved:
1. Default in debt repayment by the Corporate Debtors.
2. Objections raised by the Corporate Debtors regarding the insolvency application.
3. Legal proceedings already initiated by the Applicant Bank.
4. Impact of Joint Lender’s Forum (JLF) and RBI guidelines on the insolvency process.
5. Status of the Corporate Debtors as wilful defaulters.
6. Legal validity of the insolvency application under the I&B Code, 2016.

Detailed Analysis:

1. Default in Debt Repayment by the Corporate Debtors:
The Financial Creditor (Bank of Baroda) filed insolvency applications against Rotomac Global Private Limited (principal borrower) and Rotomac Exports Private Limited (guarantor) under Section 7 of the Insolvency & Bankruptcy Code, 2016. The Corporate Debtors defaulted on a debt of ?553.78 crores, with additional outstanding debts totaling ?4,420 crores. The Applicant Bank provided evidence including statements of accounts, CIBIL reports, auditor reports, and orders from the Debt Recovery Tribunal (DRT).

2. Objections Raised by the Corporate Debtors:
The Corporate Debtors contended that the Applicant Bank’s claim constituted only 22% of the total debt owed to a consortium of seven banks. They argued that the demand for repayment was first made in October 2016, not 2015, and highlighted ongoing DRT proceedings and actions under the SARFAESI Act. They also claimed that the insolvency application would jeopardize restructuring efforts and result in job losses for around 1000 employees. They requested dismissal of the applications in the interest of justice.

3. Legal Proceedings Already Initiated by the Applicant Bank:
The Applicant Bank had already initiated DRT proceedings and issued notices under the SARFAESI Act. The DRT had issued a recovery certificate, and symbolic possession of secured properties was taken. Despite these actions, the Applicant Bank argued that these proceedings did not bar them from filing an application under Section 7 of the I&B Code.

4. Impact of Joint Lender’s Forum (JLF) and RBI Guidelines on the Insolvency Process:
The Corporate Debtors claimed that a JLF was constituted to restructure debts, but no resolution plan materialized. They argued that the Applicant Bank’s decision to declare them wilful defaulters hindered the restructuring process. The Applicant Bank countered that the JLF’s actions did not prevent them from seeking insolvency proceedings under the I&B Code. The Tribunal noted that the JLF was not functioning effectively due to the wilful defaulter status of the Corporate Debtors.

5. Status of the Corporate Debtors as Wilful Defaulters:
The Corporate Debtors were categorized as wilful defaulters by the Applicant Bank, a decision upheld after review by the Allahabad High Court. This status prevented effective functioning of the JLF and preparation of a resolution plan. The Tribunal found that the wilful defaulter status was a significant factor in considering the insolvency applications.

6. Legal Validity of the Insolvency Application under the I&B Code, 2016:
The Tribunal held that the applications met the requirements of Section 7 of the I&B Code, including evidence of default and completeness of the application. The Tribunal referenced the Supreme Court’s ruling in Innoventive Industries Ltd. v. ICICI Bank, emphasizing that the Adjudicating Authority must admit the application if a default is established. The Tribunal dismissed the Corporate Debtors’ objections, stating that the pendency of other proceedings or restructuring efforts did not bar the insolvency application.

Conclusion:
The Tribunal admitted the insolvency applications under Section 7 of the I&B Code, 2016, appointing an Interim Resolution Professional (IRP) and imposing a moratorium on suits and proceedings against the Corporate Debtors. The Tribunal emphasized that the I&B Code has an overriding effect over other laws and that the objective is to ensure timely resolution of insolvency to maximize asset value and protect stakeholders' interests.

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