2019 (9) TMI 932 - Tri - Insolvency and Bankruptcy

Maintainability of application - Initiation of CIRP - Corporate Debtor defaulted in repayment of sum - existence of debt or not - HELD THAT - It is apparent on record that debt is in existence, thereafter the Corporate Debtor failed to repay the loan amount by which the account has become NPA. There is no merit in the arguments of this Corporate Debtor counsel saying that Corporate Debtor made efforts to repay the OTS amount within the time limit as mentioned in the OTS sanction letter, whereby we hereby hold that the Creditor Bank established existence of debt and default by filing various documents executed by the Corporate Debtor - Petition admitted - moratorium declared.

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency & Bankruptcy Code, 2016.
2. Objections raised by the Corporate Debtor against the initiation of CIRP.
3. Compliance with the One-Time Settlement (OTS) agreement.
4. Default and non-payment of the loan amount by the Corporate Debtor.
5. Declaration of Moratorium and appointment of Interim Resolution Professional (IRP).

Issue-wise Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP):
The Financial Creditor filed a petition under Section 7 of the Insolvency & Bankruptcy Code, 2016, against the Corporate Debtor for initiating CIRP due to a default in repaying ?175,76,35,263 as of November 30, 2018. The initial loan agreement was executed on 16.03.2007, with subsequent enhancements and renewals of the sanction limit. When the account became Non-Performing Asset (NPA), the Creditor Bank issued a Demand Notice under Section 13 of the SARFAESI Act, 2002, and eventually accepted an OTS offer which was later cancelled due to non-compliance by the Debtor.

2. Objections Raised by the Corporate Debtor:
The Corporate Debtor raised multiple objections against the initiation of CIRP:
- The Creditor Bank's actions under the SARFAESI Act led to the erosion of the Company's net worth.
- The Creditor Bank should not have proceeded with CIRP while the OTS arrangement was in progress and the reference of the Corporate Debtor was pending before BIFR under SICA.
- The Corporate Debtor argued that it had repaid ?5,65,55,947 under the OTS agreement and was only liable to pay the balance of ?1.575 Crores.
- The Debtor faced difficulties in obtaining NOCs from other banks holding pari-passu charges, which hindered compliance with the OTS terms.

3. Compliance with the One-Time Settlement (OTS) Agreement:
The Creditor Bank rebutted the Debtor's objections by stating that the Debtor failed to adhere to the payment schedule under the OTS agreement. The Debtor was supposed to pay ?17 Crores within 12 months from the date of the sanction letter but failed to do so, leading to the cancellation of the OTS on 03.05.2018. The Creditor Bank provided a detailed payment schedule and highlighted the discrepancies in the payments made by the Debtor.

4. Default and Non-payment of the Loan Amount:
Upon reviewing the records and submissions, it was evident that the Corporate Debtor failed to repay the loan amount, resulting in the account becoming NPA. Despite the Bank's efforts to settle the dues through the OTS scheme, the Debtor defaulted on the agreed payments. The Tribunal found no merit in the Debtor's arguments and held that the Creditor Bank established the existence of debt and default.

5. Declaration of Moratorium and Appointment of Interim Resolution Professional (IRP):
The Tribunal admitted the Company Petition and declared a Moratorium prohibiting:
- Institution or continuation of suits or proceedings against the Corporate Debtor.
- Transferring, encumbering, or disposing of the Corporate Debtor's assets.
- Actions to foreclose, recover, or enforce any security interest.
- Recovery of any property occupied by the Corporate Debtor.

The Tribunal appointed Mr. Chinnam Poorna Chandra Rao as the Interim Resolution Professional (IRP) to carry out the functions as per the IBC. The Moratorium would be effective from 01.05.2019 until the completion of the CIRP or approval of the resolution plan or liquidation order.

Conclusion:
The Tribunal admitted the petition for initiating CIRP against the Corporate Debtor, declared a Moratorium, and appointed an IRP. The Registry was directed to communicate the order to the relevant parties immediately.

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