2018 (7) TMI 512 - Tri - Insolvency and Bankruptcy

Corporate insolvency procedure - Held that - All the allegations levelled against the proceeding u/s 7 of the Code could cause no serious impediment in the way of acceptance of such an application. Consequently, all those allegations are rejected. As on 31.10.2017, the CD owed an amount to the tune of ₹ 53,87,09,011.75 to the FC and that there was a clear default in repayment of such debt. The various materials on record, the financial statements annexed with the application as well as the averments made in the letter dated 14.03.2016 in particular make such conclusion inevitable. There cannot be any escape that this proceeding finds cause of action as contemplated in Section 7(5)(a) of the Code of 2016 and therefore, same needs to be accepted. The order of moratorium u/s .14 made effective

Summary

Issues Involved:
1. Authority to file the application under Section 7 of the Insolvency & Bankruptcy Code, 2016.
2. Compliance with Rule 4(3) of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016.
3. Impartiality and qualification of the proposed Interim Resolution Professional (IRP).

Detailed Analysis:

1. Authority to File the Application:
The Corporate Debtor (CD) challenged the authority of the person filing the application on behalf of the Financial Creditor (FC). It was argued that the power of attorney was defective and did not bear the necessary signatures, rendering it legally invalid. The CD also contended that the Board resolution dated 14.08.2017 delegated the authority to file claims to the Deputy General Manager when the bank’s exposure was less than ?100 crores, whereas the application was filed by the General Manager.

The Tribunal acknowledged the defects in the power of attorney but emphasized that the FC relied on Board resolutions rather than the power of attorney. It was held that higher-grade officers could discharge functions assigned to junior officers unless specifically prohibited. Consequently, the Tribunal concluded that the General Manager had the requisite authority to file the application under Section 7 of the Code.

2. Compliance with Rule 4(3):
The CD alleged that the FC failed to send a copy of the application to the registered office of the CD as mandated by Rule 4(3) of the Rules of 2016. The Tribunal found that there was substantial compliance with the rule as the CD received the application, participated in the proceedings, and contested the application. The Tribunal held that any peripheral infringements of Rule 4(3) were too insignificant to dismiss the proceeding.

3. Impartiality and Qualification of the Proposed IRP:
The CD questioned the impartiality of the initially proposed IRP, alleging a close nexus with the FC. The FC replaced the initial IRP with another candidate, but the CD argued that the FC overstepped its role by appointing the IRP instead of merely naming a candidate as required by Section 7(3)(b) of the Code.

The Tribunal noted that the replacement IRP possessed the necessary qualifications and experience, and the lapses in naming the IRP were minor and did not warrant dismissal of the application. The Tribunal emphasized that the IRP’s qualifications and the legislative intent behind Section 7(3)(b) supported the continuation of the proceedings.

Conclusion:
The Tribunal admitted the application under Section 7 of the Insolvency & Bankruptcy Code, 2016, initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The order included the imposition of a moratorium, prohibition of suits or proceedings against the corporate debtor, and the continuation of essential goods or services during the moratorium period. The Tribunal directed the public announcement of the CIRP and the submission of claims under Section 15 of the Code. The appointment of the Interim Resolution Professional (IRP) was to be finalized shortly.