2019 (1) TMI 728 - Tri - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - default committed by the Corporate Debtor - Held that - The proceedings under the Code are not in the nature of recovery. In the present application the Financial Creditors are seeking initiation of Corporate Insolvency Resolution Process by making prayer that all the Financial Creditors, Operational Creditors and others may raise their claims and if Corporate Financial Restructuring is possible then within the stipulated period it may be explored failing which the due process of law is to take its course. By initiation of Corporate Insolvency Resolution Process the Financial Creditors are only highlighting the default committed by the Corporate Debtor with respect to its inability to pay. The same is required to be remedied. Therefore, it cannot be concluded that the filing of the present petition would amount to recovery of the debts by the Financial Creditor. On 23.10.2018, we have granted time to the Corporate Debtor to come forward and prevail upon the Financial Creditors to accept its offer and fixed the date for hearing on 05.12.2018. However, on 05.12.2018 there was no whisper of settlement. We further granted time to the Corporate Debtor to do so and fixed the date for hearing on 02.01.2019. However, again on 02.01.2019 there was no whisper of settlement. Corporate Debtor did not appear to argue the matter. We heard the arguments and reserved the order. During the previous interregnum period between 23.10.2018 to 02.01.2019 and again after lapse of four days no meaningful results have followed. The object of the Code is to resolve the insolvency issue which cannot be achieved unless the petition is admitted. The resolution as against liquidation would only be possible if the Corporate Insolvency Resolution Process is triggered and efforts in that direction are made. The admission of the petition cannot be successfully resisted on such a flimsy ground. Therefore, we have no hesitation to reject the defence raised on behalf of the Corporate Debtor. Discussion and the material placed on record it is confirmed that applicants-financial creditors had disbursed the money to the respondent corporate debtor as consideration for purchase of a residential flat. Though a considerable long period has lapsed even the principal amount disbursed has not been repaid by the respondent corporate debtor as per the provision of clause II of the Flat Buyer s Agreement. It is accordingly held that respondent corporate debtor has committed default in repayment of the outstanding financial debt which exceeds the statutory limit of rupees one Lakh. Thus, the application warrant admission as it is complete in all respects. Accordingly, in terms of Section 7 (5) (a) of the Code, the present application is admitted.

Summary

Issues Involved:
1. Maintainability of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Mis-joinder of parties.
3. Allegations of forum shopping.
4. Premature demand due to pending approvals and clearances.
5. Existence of comprehensive disputes warranting an elaborate trial.
6. Nature of IBC proceedings not being recovery proceedings.

Issue-wise Detailed Analysis:

1. Maintainability of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The petitioners, claiming to be 'Financial Creditors,' filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against Parsvnath Landmark Developers Private Limited. The application was complete as per the requirements of Section 7 (2) of the Code and other conditions prescribed by Rule 4 (1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The Tribunal found overwhelming evidence to prove default and noted that the name of the Resolution Professional was clearly specified. The Tribunal was satisfied that a default amounting to lacs of rupees had occurred, and the application was complete with no disciplinary proceedings pending against the proposed Interim Resolution Professional.

2. Mis-joinder of parties:
The Corporate Debtor argued that there was a mis-joinder of parties as the Directors of the Respondent Company were impleaded, which is impermissible under the Code. The Tribunal noted that the proceedings to initiate CIRP can be initiated only against a company and not against the Directors. However, this argument was not sufficient to dismiss the application.

3. Allegations of forum shopping:
The Corporate Debtor contended that the petitioners were indulging in forum shopping by filing a consumer complaint before the National Consumer Disputes Redressal Commission, which was pending adjudication. The Tribunal observed that the pendency of the consumer complaint did not preclude the petitioners from invoking CIRP under the Code as the two proceedings had different objectives.

4. Premature demand due to pending approvals and clearances:
The Corporate Debtor argued that the demand was premature as the construction of the flat was delayed due to pending approvals and clearances from various authorities. The Tribunal noted that despite the delays, the petitioners had paid almost the entire sale consideration, and the Corporate Debtor had failed to deliver possession or refund the amount. The Tribunal found that the delay in completion of the project was beyond the control of the Respondent company but did not absolve it from its obligations under the agreement.

5. Existence of comprehensive disputes warranting an elaborate trial:
The Corporate Debtor claimed that comprehensive disputes existed, warranting an elaborate trial, which could not be decided by the Tribunal with limited jurisdiction under Section 7 of the Code. The Tribunal rejected this argument, stating that the proceedings under the Code were not in the nature of recovery but aimed at resolving insolvency issues.

6. Nature of IBC proceedings not being recovery proceedings:
The Tribunal emphasized that the proceedings under the Code were not for recovery of debts but for resolving insolvency issues. The Financial Creditors were highlighting the default committed by the Corporate Debtor with respect to its inability to pay, which needed to be remedied. The Tribunal concluded that the filing of the petition did not amount to recovery of debts by the Financial Creditors.

Conclusion:
The Tribunal admitted the application under Section 7 of the Code, appointed Mr. Yash Jeet Basrar as the Interim Resolution Professional, and declared a moratorium in terms of Section 14 of the Code. The Tribunal directed the Interim Resolution Professional to make a public announcement regarding the admission of the application and perform all his functions as per the provisions of the Code. The Tribunal also directed the Registrar of Companies to update the status of the Corporate Debtor on its website.