2019 (4) TMI 820 - Tri - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - Corporate Debtor - Section 7 of the Insolvency and Bankruptcy Code, 2016 - Held that - In the present proceeding under Section 7(5)(a) of the Code, application of the financial creditor has to be admitted on satisfaction that default has occurred, the application is complete, and that no disciplinary proceeding against the proposed IRP is pending. Respondent corporate debtor has not disputed that the loan was availed and that loan and security documents were executed. Applicant financial creditor has placed on record renewal of working capital facility letter aggregating to ₹ 420 million dated 21.12.2012, which was confirmed and accepted by the respondent company by affixing its seal and also duly supported by its Board Resolution dated 20th December, 2012. The applicant financial creditor has placed on record voluminous and overwhelming evidence in support of the claim as well as to prove the default. Respondent corporate debtor has failed to show that there is no debt or default. In the present case the 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. In the facts, it is seen that 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. 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. Jurisdiction of the Tribunal.
2. Authorization of the application.
3. Appointment of Interim Resolution Professional (IRP).
4. Existence of financial debt and default.
5. Objections by the corporate debtor regarding solvency and interest charges.
6. Classification of the account as Non-Performing Asset (NPA).
7. Allegations of mala fide conduct by the applicant.
8. Willingness of the corporate debtor to settle disputes.
9. Admissibility of the application under Section 7 of the Insolvency and Bankruptcy Code.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Tribunal:
The Tribunal confirmed its jurisdiction over the matter as the registered office of the respondent corporate debtor is located in New Delhi, thus falling within the territorial jurisdiction of the National Company Law Tribunal, Principal Bench, New Delhi, under Section 60(1) of the Insolvency and Bankruptcy Code, 2016.

2. Authorization of the Application:
The application was filed by Mr. Rishi Thakur, Legal Manager of ICICI Bank, authorized by a Board Resolution dated 27.10.2017. The Tribunal acknowledged the authorization and found it compliant with the requirements of the Code.

3. Appointment of Interim Resolution Professional (IRP):
The applicant proposed Shri Vijender Sharma as the IRP, who agreed to the appointment and provided necessary declarations, including that no disciplinary proceedings were pending against him. The Tribunal found the proposal satisfactory under Section 7(3)(b) of the Code and appointed him as the IRP.

4. Existence of Financial Debt and Default:
The applicant bank provided extensive documentation, including credit arrangement letters, master facility agreements, and deeds of guarantee, to establish the existence of a financial debt. The Tribunal noted that the corporate debtor defaulted on repayments, leading to the classification of the account as NPA on 31.03.2017. The total amount of default as of 31.08.2018 was ?29,12,75,997.90. The Tribunal emphasized that the existence of a debt and default is sufficient for admitting the application under Section 7 of the Code.

5. Objections by the Corporate Debtor Regarding Solvency and Interest Charges:
The corporate debtor argued that it was solvent and capable of paying its debts, citing ongoing projects and credit facilities from other banks. However, the Tribunal held that solvency claims are irrelevant if there is a default in repayment. The corporate debtor also disputed the interest charges, but the Tribunal clarified that disputes over the quantum of default do not preclude the admission of an application under Section 7.

6. Classification of the Account as Non-Performing Asset (NPA):
The corporate debtor challenged the NPA classification, alleging non-compliance with RBI guidelines. The applicant bank countered that the classification was done per RBI regulations. The Tribunal stated that the timing of NPA classification is immaterial for Section 7 applications, which focus on the existence of debt and default.

7. Allegations of Mala Fide Conduct by the Applicant:
The corporate debtor accused the applicant of hampering its progress and causing losses. The applicant denied these allegations, stating that its role was limited to providing credit facilities. The Tribunal found these allegations vague and irrelevant to the admission of the application under the Code.

8. Willingness of the Corporate Debtor to Settle Disputes:
The corporate debtor expressed willingness to settle disputes and regularize accounts. The applicant denied any such efforts by the corporate debtor. The Tribunal noted that without a binding compromise agreement, it could not defer the application under Section 7.

9. Admissibility of the Application Under Section 7 of the Insolvency and Bankruptcy Code:
The Tribunal reiterated that an application under Section 7 is admissible if there is a debt of at least ?1 lakh and a default. The Tribunal found the application complete, with no disciplinary proceedings against the proposed IRP, and voluminous evidence supporting the claim and default. The Tribunal admitted the application, appointed the IRP, directed a public announcement, and declared a moratorium as per Section 14 of the Code.

Conclusion:
The Tribunal admitted the application under Section 7 of the Insolvency and Bankruptcy Code, 2016, appointed Shri Vijender Sharma as the IRP, directed a public announcement, and declared a moratorium, thereby initiating the Corporate Insolvency Resolution Process against the corporate debtor.

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