2018 (11) TMI 1046 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - applicant bank coming within the definition of Financial Creditor - Held that - In the present case applicant bank had sanctioned and disbursed the term loan amount recoverable with applicable interest by entering in to loan agreements with the corporate debtor. The corporate debtor had borrowed the credit facility against payment of interest as agreed between the parties. The loan was disbursed against the consideration for time value of money with a clear commercial effect of borrowing. Moreover the debt claimed in the present application includes both the component of outstanding principal and interest. In that view of the matter not only the present claim comes within the purview of Financial Debt but also the applicant bank can clearly be termed as Financial Creditor so as to prefer the present application under Section 7 of the Code. The applicant bank clearly comes within the definition of Financial Creditor. The material placed on record further confirms that applicant financial creditor had disbursed various loan facilities to the respondent corporate debtor and the respondent has availed the loan and committed default in repayment of the outstanding financial debt. On a bare perusal of Form - I filed under Section 7 of the Code read with Rule 4 of the Rules shows that the form is complete and there is no infirmity in the same. It is also seen that there is no disciplinary proceeding pending against the proposed IRP. We are satisfied that the present application is complete in all respect and the applicant financial creditor is entitled to claim its outstanding financial debt from the corporate debtor and that there has been default in payment of the financial debt. As a sequel to the above discussion and in terms of Section 7(5)(a) of the Code, the present application is admitted.

Summary

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Territorial jurisdiction of the Tribunal.
3. Financial facilities and defaults by the corporate debtor.
4. Objections raised by the corporate debtor regarding FDR, insurance cover, forum shopping, and discrepancies in the amount of claim.
5. Appointment of Interim Resolution Professional (IRP) and declaration of moratorium.

Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP):
The Bank of India, as a financial creditor, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (the Code) to initiate the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor, M/s. Basic India Limited. The application was supported by the necessary documents and declarations, including the proposed appointment of Mr. Anup Sood as the Interim Resolution Professional (IRP).

2. Territorial Jurisdiction:
The Tribunal confirmed its territorial jurisdiction over the matter, as the registered office of the corporate debtor is located in New Delhi, falling under the National Capital Territory (NCT) of Delhi.

3. Financial Facilities and Defaults:
The Bank of India sanctioned various financial facilities to the corporate debtor, which were renewed/enhanced over time. Despite availing these facilities, the corporate debtor failed to maintain financial discipline, leading to the declaration of the account as Non-Performing Asset (NPA) on 30.09.2017. The total outstanding amount, including interest, was ?1,04,36,38,469 as of 13.03.2018.

4. Objections Raised by the Corporate Debtor:
- FDR Objection: The corporate debtor argued that the Fixed Deposit Receipt (FDR) held by the bank should prevent the account from becoming an NPA. The Tribunal dismissed this objection, noting that the FDRs were specifically charged in favor of the financial creditor and had been appropriated after the account turned NPA.
- Insurance Cover: The corporate debtor contended that the bank should claim the amount from the Export Credit Guarantee Corporation (ECGC) instead of the corporate debtor. The Tribunal clarified that the ECGC insurance is for the bank's benefit, not the defaulter's, and the financial creditor is obligated to refund any amount recovered from the borrower to the ECGC.
- Forum Shopping: The corporate debtor alleged forum shopping, as proceedings had already been initiated under the SARFAESI Act. The Tribunal held that the pendency of SARFAESI proceedings does not bar the initiation of CIRP under Section 7 of the Code.
- Discrepancies in Amount Claimed: The corporate debtor pointed out discrepancies between the amounts claimed in the application and the balance confirmation certificate. The Tribunal noted that the variance was due to uncharged interest and that the exact amount due is not within the Tribunal's purview to determine.

5. Appointment of Interim Resolution Professional (IRP) and Declaration of Moratorium:
The Tribunal appointed Mr. Anup Sood as the IRP and declared a moratorium in terms of Section 14 of the Code. The moratorium prohibits:
- Institution or continuation of suits or proceedings against the corporate debtor.
- Transfer, encumbrance, or disposal of the corporate debtor's assets.
- Foreclosure, recovery, or enforcement of any security interest.
- Recovery of property by an owner or lessor.

The IRP is directed to perform his duties as per the Code, and all personnel associated with the corporate debtor are required to cooperate with the IRP.

Conclusion:
The Tribunal admitted the application under Section 7 of the Code, satisfied that the default had occurred, the application was complete, and no disciplinary proceedings were pending against the proposed IRP. The Tribunal emphasized that the existence of default exceeding ?1 lakh is sufficient to trigger the CIRP.