2019 (7) TMI 506 - Tri - Insolvency and Bankruptcy

Admissibility of petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 - Initiation of Corporate Insolvency Resolution Process - corporate debtor - Default of debt - HELD THAT - Section 7(1) of the Code says that the financial creditor may file an application against the corporate debtor in the event of default of debt and as per sub-section (2) of Section 7 of the Code, the application has to be filed in Form No.1, as prescribed in the Rules. This compliance has been duly made by the petitioner. The petitioner-bank has brought abundant evidence of default, as discussed hereinabove, and the requirement of Section 7(3)(a) is fulfilled - the conditions provided for in Section 7(5) (a) of the Code are fulfilled and the petition for initiation of the Corporate Insolvency Resolution Process against the corporate debtor, Ria Constructions Limited, is admitted. Petition admitted - moratorium declared.

Summary

Issues Involved:
1. Initiation of Insolvency Resolution Process under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Evidence of default and compliance with Section 7(3) of the Code.
3. Acceptance of the One-Time Settlement (OTS) proposal.
4. Conduct of the financial creditor in issuing notices to the debtors of the corporate debtor.
5. Appointment of Interim Resolution Professional and declaration of moratorium.

Detailed Analysis:

1. Initiation of Insolvency Resolution Process under Section 7 of the Insolvency and Bankruptcy Code, 2016:
Punjab National Bank filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, to initiate the Insolvency Resolution Process against the respondent-corporate debtor. The application was filed in Form-1 as prescribed under Rule 4(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, providing all necessary particulars. The corporate debtor had committed default in making payments, leading to the account being declared NPA on 14.07.2016. The financial creditor issued several notices under the SARFAESI Act, 2002, and filed an application under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, for recovery of the outstanding amount.

2. Evidence of default and compliance with Section 7(3) of the Code:
The petitioner provided abundant evidence of default, including sanction letters, loan agreements, hypothecation agreements, mortgage deeds, balance confirmation letters, and certified statements of account. The evidence was further supported by the statement of account of cash credit and term loan, certified under the Bankers Book Evidence Act, 1891. The Tribunal found that the petitioner had fulfilled the requirements of Section 7(3)(a) of the Code by providing sufficient evidence of default.

3. Acceptance of the One-Time Settlement (OTS) proposal:
The respondent-corporate debtor had proposed an OTS to settle the outstanding dues, which was rejected by the bank. The Tribunal held that it could not go into the validity or decision taken by the bank regarding the OTS proposal.

4. Conduct of the financial creditor in issuing notices to the debtors of the corporate debtor:
The financial creditor had issued legal notices to the sundry debtors of the corporate debtor, advising them not to make payments to the respondent after the account was declared NPA. The Tribunal decried such conduct, stating that the bank had exceeded its competence by issuing such directives. However, this did not justify the respondent-corporate debtor's contention against the petition.

5. Appointment of Interim Resolution Professional and declaration of moratorium:
The Tribunal appointed Mr. Desh Deepak as the Interim Resolution Professional and declared a moratorium in terms of Section 14(1) of the Code. The moratorium included the suspension of suits or proceedings against the corporate debtor, prohibition on transferring or disposing of assets, and protection of essential goods or services to the corporate debtor during the moratorium period. The Interim Resolution Professional was directed to manage the affairs of the corporate debtor, prepare an inventory of assets, and constitute a committee of creditors within thirty days of appointment.

Conclusion:
The Tribunal admitted the petition for initiating the Corporate Insolvency Resolution Process against the corporate debtor, declared a moratorium, and appointed Mr. Desh Deepak as the Interim Resolution Professional. The Tribunal found that the petitioner had provided sufficient evidence of default and fulfilled the requirements of Section 7 of the Insolvency and Bankruptcy Code, 2016. The conduct of the financial creditor in issuing notices to the debtors of the corporate debtor was decried, but it did not affect the decision to admit the petition.