2019 (5) TMI 821 - Tri - Insolvency and Bankruptcy

Admissibility of petition - corporate debtor - amount due to the financial creditor from the corporate debtor - matter heard ex-parte - HELD THAT - There is existence of default in the sense that debt is due. The default is defined in section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount, as the debt is a liability and obligation on the part of the corporate debtor towards financial creditor. The Code gets triggered the moment default is of rupees one lakh or more (section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor. A financial creditor has been defined under section 5(7) as a person to whom a financial debt is owned and a financial debt is defined in section 5(8) to mean a debt which is disbursed against consideration for the time value of money. The application is complete in all respect as per the Rules and in such a form and manner as prescribed in the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The petitioner/financial creditor having fulfilled all the requirements of section 7 of the Code, the instant petition deserves to be admitted.

Summary

Issues Involved:
1. Default in repayment of credit facilities.
2. Classification of the account as a non-performing asset (NPA).
3. Failure of the One-Time Settlement (OTS) proposal.
4. Admissibility of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
5. Declaration of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016.

Detailed Analysis:

1. Default in Repayment of Credit Facilities:
The corporate debtor availed various credit facilities from the financial creditor, which were renewed, modified, and restructured over time. Despite the support, the corporate debtor failed to comply with the repayment obligations. The financial creditor sent repeated reminders and demand notices to the corporate debtor and guarantors to clear the outstanding dues.

2. Classification of the Account as a Non-Performing Asset (NPA):
Due to persistent financial and non-financial irregularities in repayment, the corporate debtor's account was classified as a non-performing asset (NPA) by the financial creditor on May 31, 2015, as per the applicable RBI guidelines. The State Bank of India, as the lead bank, issued a notice under Section 13(2) of the SARFAESI Act on December 23, 2016, demanding the discharge of full liabilities amounting to ?434.68 crores.

3. Failure of the One-Time Settlement (OTS) Proposal:
The corporate debtor submitted a compromise proposal on November 30, 2017, for the settlement of the loan account with an amount of ?135 crores. The consortium lenders accepted the proposal on February 23, 2018, with the condition that the balance payment be made by September 30, 2018. However, the OTS failed due to non-compliance by the corporate debtor, confirmed in the consortium meeting on June 26, 2018. The total outstanding liabilities were confirmed to be ?500.82 crores as of March 31, 2018, and the corporate debtor admitted to having no resolution plan to pay off the dues.

4. Admissibility of the Application under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The financial creditor filed the application under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of the corporate insolvency resolution process. The application was furnished in the prescribed Form 1, accompanied by the necessary documents and records. The proposed interim resolution professional, C. A. Shikhar Chand Jain, was declared with no disciplinary proceedings pending against him.

Upon perusal, the Adjudicating Authority found the application complete and held that there was an existence of default. The debt was due and payable, and the default amount exceeded the threshold of ?1 lakh as stipulated under Section 4 of the Code.

5. Declaration of Moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016:
The petition was admitted, and a moratorium was declared prohibiting:
- The institution or continuation of suits or proceedings against the corporate debtor.
- Transferring, encumbering, alienating, or disposing of any assets of the corporate debtor.
- Actions to foreclose, recover, or enforce any security interest created by the corporate debtor.
- Recovery of any property occupied by the corporate debtor.

The moratorium ensures that the supply of goods and essential services to the corporate debtor shall not be terminated during the moratorium period. The moratorium is effective from the date of receipt of the order until the completion of the corporate insolvency resolution process or until the resolution plan is approved or liquidation is ordered.

Conclusion:
The petition was admitted, and the moratorium was declared, with the order communicated to all relevant parties. The corporate debtor's failure to comply with repayment obligations and the unsuccessful OTS proposal led to the initiation of the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016.