2018 (7) TMI 1335 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - proof of debt - Held that - The stand of financial creditor (SBI) that the applicant has not come with clean hands and has suppressed facts, cannot be a ground to reject the application if it is otherwise complete. The other two financial creditors have raised almost similar objections which cannot detain us from proceeding under Section 10 of the Code. The other objection that action under SARFAESI Act has since been initiated will also not come in the way of provisions of Section 10 of the Code. In view of the overriding effect given by the provisions of section 238 of the Code, the initiation and pendency of proceedings under SARFAESI Act is no bar for initiation of resolution and Insolvency proceedings under the Code. Hence, the objection raised by the financial creditors cannot sustain. As a sequel to the aforesaid discussion, we are satisfied that the present application is complete, the applicant corporate debtor has committed a default and there is no disciplinary proceeding pending against the proposed resolution professional. Therefore, as the application is complete the present application is admitted under section 10(4)(a) of the Code. The Corporate Insolvency Resolution Process shall commence from the date of this order under sub-section 5 of Section 10 of the Code.

Issues Involved:
1. Jurisdiction and Admissibility of the Application
2. Compliance with Procedural Requirements under the Insolvency and Bankruptcy Code (IBC)
3. Default in Payment of Debts
4. Objections Raised by Financial Creditors
5. Appointment of Interim Resolution Professional (IRP)
6. Declaration of Moratorium

Analysis:

1. Jurisdiction and Admissibility of the Application:
The applicant company, incorporated under the Companies Act, 1956, filed an application under Section 10 of the Insolvency and Bankruptcy Code, 2016 (IBC) for initiating the Corporate Insolvency Resolution Process (CIRP). The Tribunal, having territorial jurisdiction over the applicant company's registered office, is the Adjudicating Authority under Section 60(1) of the Code.

2. Compliance with Procedural Requirements under the Insolvency and Bankruptcy Code (IBC):
The application was filed by the authorized representative of the applicant company, supported by a Board of Director Meeting resolution dated 27.11.2017. The shareholder agreement dated 17.11.2017 revealed unanimous consent from all shareholders to file the application under Section 10 of the Code. The applicant company complied with the requirements of Section 10(3)(a), (b), and (c) of the Code, including the submission of audited financial statements, provisional financial statements, and the proposal of an Interim Resolution Professional (IRP).

3. Default in Payment of Debts:
The applicant company had availed loans from twelve financial creditors and owed debts to several operational creditors. Due to non-payment, the loan accounts were declared Non-Performing Assets (NPA). The applicant company submitted relevant financial documents and demand notices from unpaid creditors to support the proof of default. The Tribunal found that the applicant company had committed defaults exceeding the minimum amount stipulated under Section 4 of the Code.

4. Objections Raised by Financial Creditors:
Three financial creditors—State Bank of India, Indiabulls Housing Finance Limited, and MAS Financial Services Limited—filed objections. State Bank of India raised concerns about the significant decrease in inventory value, alleging misrepresentation by the applicant. The Tribunal noted that any illegal diversion of inventory could be addressed by the financial creditor through appropriate legal action. The objections raised were not sufficient to reject the application if it was otherwise complete, as per precedents set by the Hon'ble NCLAT in similar cases.

5. Appointment of Interim Resolution Professional (IRP):
The applicant proposed the name of Sh. Brij Kishore Sharma as the IRP, who confirmed his qualifications and absence of disciplinary proceedings against him. The Tribunal found the proposal in compliance with the Code and appointed Sh. Brij Kishore Sharma as the IRP.

6. Declaration of Moratorium:
The Tribunal declared a moratorium under Section 14 of the Code, prohibiting:
(a) Institution or continuation of suits or proceedings against the corporate debtor.
(b) Transfer, encumbrance, or disposal of the corporate debtor's assets.
(c) Actions to foreclose or enforce security interests.
(d) Recovery of property by owners or lessors.

The moratorium would not apply to transactions notified by the Central Government or essential goods/services to the corporate debtor. The IRP was directed to make a public announcement and perform duties as per Sections 15, 17, 18, 19, 20, and 21 of the Code.

Conclusion:
The Tribunal admitted the application under Section 10(4)(a) of the Code, initiating the Corporate Insolvency Resolution Process from the date of the order. The IRP was appointed, and a moratorium was declared, with directions for public announcement and compliance with the Code's provisions. The objections raised by the financial creditors were addressed, but they did not prevent the admission of the application.

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