2019 (5) TMI 389 - Tri - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - corporate debtor - Section 7 of the Insolvency and Bankruptcy Code, 2016 - It is alleged that the respondent corporate debtor had availed various credit facilities but failed to pay- its dues to the Applicant Bank - the objection of the respondent that bank has not acted in terms of circular and guidelines of RBI and determined the account as NPA illegally; cannot be a ground to reject the application preferred by financial creditors under Section 7 of the Code, there being default in payment of financial debt. HELD THAT - 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. 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 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. In terms of Section 7(5)(a) of the Code, the present application is admitted - Moratorium also declared.

Issues Involved:
1. Jurisdiction of the Tribunal.
2. Validity of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
3. Classification of the account as Non-Performing Asset (NPA).
4. Allegations of discrepancies and defects in the petition.
5. Compliance with the requirements of the Code and Rules.
6. Appointment of Interim Resolution Professional (IRP).
7. Declaration of moratorium.

Issue-Wise Detailed Analysis:

1. Jurisdiction of the Tribunal:
The Tribunal confirmed its territorial jurisdiction over the NCT of Delhi as the registered office of the respondent corporate debtor is located in New Delhi. This is in accordance with sub-section (1) of Section 60 of the Insolvency and Bankruptcy Code, 2016.

2. Validity of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The application was filed by Dena Bank, a financial creditor, under Section 7 of the Code, seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the respondent company. The Tribunal noted that the application was complete, and all necessary documents, such as sanction letters, loan agreements, and statements of account, were duly filed.

3. Classification of the account as Non-Performing Asset (NPA):
The respondent argued that the account was wrongly classified as NPA. However, the Tribunal clarified that it is beyond its jurisdiction to examine the correctness of the NPA classification in a Section 7 application. The Tribunal's role is to determine whether there is a debt and default in payment of the financial debt. The Tribunal cited the National Company Law Appellate Tribunal's decision in Ranjit Kapoor v. Asset Reconstruction Co. (India) Ltd., which stated that the provision of NPA relates to the SARFAESI Act, 2002, and has nothing to do with the Code.

4. Allegations of discrepancies and defects in the petition:
The respondent raised objections regarding the quantum of default and alleged discrepancies in the petition. The Tribunal held that disputes over the quantum of default cannot be a ground for rejecting a Section 7 application. The Tribunal's duty is to ascertain the occurrence of default and not to determine the exact amount of debt. The Tribunal found that the application was complete and met the requirements of the Code and Rules.

5. Compliance with the requirements of the Code and Rules:
The Tribunal confirmed that the application was filed in Form-1 as per Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. All necessary information, documents, and records were provided, including sanction letters, loan agreements, security documents, and statements of account. The Tribunal found no infirmity in the application.

6. Appointment of Interim Resolution Professional (IRP):
The applicant proposed Mr. Alok Kumar Agarwal as the IRP, and he consented to the appointment. The Tribunal verified that no disciplinary proceedings were pending against him and appointed him as the IRP. The IRP was directed to make a public announcement regarding the admission of the application and to perform his functions as per the Code.

7. Declaration of moratorium:
The Tribunal declared a moratorium as per Section 14 of the Code, imposing prohibitions on the institution or continuation of suits, transferring or disposing of assets, and recovery of property by owners or lessors. The moratorium does not apply to transactions notified by the Central Government or the supply of essential goods or services to the corporate debtor.

Conclusion:
The Tribunal admitted the application under Section 7 of the Code, appointed Mr. Alok Kumar Agarwal as the IRP, and declared a moratorium. The Tribunal directed the office to communicate the order to relevant parties and update the status of the corporate debtor on the Registrar of Companies' website.

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