2019 (4) TMI 798 - Tri - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - Corporate debtor - sub-section (1) of Section 60 of the Code - repayment of loan - scope of Financial Debt and Financial Creditor - Held that - The Code requires the Adjudicating authority to only ascertain and record satisfaction in a summary adjudication as to the occurrence of default before admitting the application. The material on record clearly goes to show that respondent had availed the loan facilities which was duly disbursed and has committed default in repayment of the outstanding loan amount. The procedure in relation to the Initiation of Corporate Insolvency Resolution Process by the Financial Creditor is delineated under Section 7 of the Code, wherein only Financial Creditor / Financial Creditors can file an application. As per Section 7(1) of the Code an application could be maintained by a Financial Creditor either by itself or jointly with other Financial Creditors - The expressions Financial Creditor and Financial debt have been defined in Section 5 (7) and 5 (8) of the Code and precisely Financial debt is a debt along with interest, if any, which is disbursed against the consideration for time value of money. In the present case the applicant bank had sanctioned and disbursed the loan amount recoverable with applicable interest by entering into 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 can clearly be termed as Financial Creditor so as to prefer the present application under Section 7 of the Code. An application of financial creditor under Section 7 of the Code is acceptable so long as the debt is proved to be due and there has been occurrence of existence of default. It is reiterated that the material on record clearly goes to show that respondent had availed the loan facilities and has committed default in repayment of the huge outstanding loan amount. In terms of Section 7 (5) (a) of the Code, the present application is admitted - moratorium in terms of Section 14 of the Code also declared.

Issues Involved:
1. Legal authority of the applicant bank to file the application individually.
2. Completeness and validity of the application and supporting documents.
3. Allegations of excess interest charged and incorrect amount claimed.
4. Validity of declaring the account as Non-Performing Asset (NPA).
5. Authorization of the representative to file the application.
6. Request for financial restructuring by the respondent.
7. Existence of debt and default.

Issue-wise Detailed Analysis:

1. Legal Authority of the Applicant Bank:
The respondent objected that the applicant bank, being part of a consortium, lacked the authority to file the application without the consent of other lenders. The tribunal clarified that under Section 7(1) of the Insolvency and Bankruptcy Code, 2016 (the Code), a financial creditor can file an application individually or jointly. The inter-se agreement among financial creditors cannot override the provisions of the Code. Therefore, the applicant bank had the right to file the application independently.

2. Completeness and Validity of the Application and Supporting Documents:
The respondent claimed that the application was defective and lacked necessary documents. The tribunal found that the application was filed in Form-1 as per Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, and was complete with all required information and evidence of default. The applicant provided sanction letters, loan agreements, security documents, and other relevant documents, confirming the application's completeness.

3. Allegations of Excess Interest Charged and Incorrect Amount Claimed:
The respondent alleged that excess interest was charged and the claimed amount was incorrect. The tribunal noted that disputes over the quantum of default do not justify rejecting an application under Section 7 of the Code. The tribunal's role is to ascertain the occurrence of default, not to determine the exact amount due. The applicant clarified that interest was charged as per the sanction letters and the claimed amount was based on the bank's statements.

4. Validity of Declaring the Account as Non-Performing Asset (NPA):
The respondent argued that the account was wrongly declared as NPA. The tribunal stated that the declaration of an account as NPA is immaterial for an application under Section 7 of the Code. The focus is on the existence of a debt and default. The tribunal cited a precedent where it was held that NPA status under the SARFAESI Act, 2002, does not affect proceedings under the Code.

5. Authorization of the Representative to File the Application:
The respondent questioned the authorization of Mr. Debraj Bag, the Assistant General Manager of the applicant bank, to file the application. The tribunal confirmed that Mr. Bag was duly authorized and competent to file the application on behalf of the applicant bank. The tribunal referenced a precedent where it was held that an officer authorized to grant loans also has the authority to recover them and initiate insolvency proceedings.

6. Request for Financial Restructuring by the Respondent:
The respondent claimed that it requested financial restructuring, which was denied by the applicant. The tribunal noted that financial adjustments and compromises are at the discretion of the parties involved. In the absence of a binding compromise agreement, the tribunal cannot defer the application under Section 7 of the Code.

7. Existence of Debt and Default:
The tribunal reviewed the evidence and found that the applicant bank had provided substantial proof of the loan facilities and the respondent's default in repayment. The tribunal emphasized that an application under Section 7 of the Code is maintainable if the debt is due and there is a default of at least ?1 lakh. The tribunal was satisfied with the evidence provided by the applicant, including balance confirmations and statements of accounts.

Conclusion:
The tribunal admitted the application under Section 7(5)(a) of the Code, finding that the default had occurred, the application was complete, and there were no disciplinary proceedings against the proposed Interim Resolution Professional (IRP). The tribunal appointed Mr. Vivek Raheja as the IRP and directed a public announcement and declaration of a moratorium as per Section 14 of the Code. The tribunal also instructed the IRP to perform duties as per the Code and directed all personnel connected with the corporate debtor to cooperate with the IRP.

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