2019 (9) TMI 1109 - AT - Insolvency and Bankruptcy

Maintainability of application - Initiation of CIRP - debt payable by Corporate Debtor - existing of debt or not - application dismissed on the ground that the Circular issued by the Reserve Bank of India dated 12 th February, 2018 to file Corporate Insolvency Resolution Process has been declared to be ultra vires and illegal by Hon ble Supreme Court in DHARANI SUGARS AND CHEMICALS LTD. VERSUS UNION OF INDIA ORS. 2019 (4) TMI 230 - SUPREME COURT . HELD THAT - There being debt payable by the Corporate Debtor and having committed default, the Appellant has made out a case for initiation of Corporate Insolvency Resolution Process against the Corporate Debtor . Petition under Section 7 of the I B Code is to be considered by the Adjudicating Authority on its own merits taking into consideration the records and in absence of any evidence to show that the State Bank of India filed the application only because of the Circular issued by Reserve Bank of India, it was not open to the Adjudicating Authority to reject the application. Case remitted back to the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata with direction to admit the application under Section 7 after notice to the Corporate Debtor , so as to enable the Corporate Debtor to settle the matter, if it so choses before admission - appeal allowed.

Issues Involved:
1. Validity of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Impact of the Reserve Bank of India's Circular dated 12th February 2018.
3. Authorization of the person filing the application.
4. Existence of parallel winding-up proceedings.
5. Requirement of a default certificate from an Information Utility.

Issue-wise Detailed Analysis:

1. Validity of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The State Bank of India (Appellant) filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) for initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Adjudicating Authority acknowledged the existence of debt and default but dismissed the application based on the Supreme Court's judgment in Dharani Sugars and Chemicals Ltd. vs. Union of India and Ors., which declared the RBI Circular dated 12th February 2018 ultra vires and illegal. The Tribunal, however, found that the application was not filed pursuant to the RBI Circular and that the Corporate Debtor had not requested restructuring of its loan. Consequently, the Tribunal held that the Appellant had made a valid case for initiating CIRP against the Corporate Debtor.

2. Impact of the Reserve Bank of India's Circular dated 12th February 2018:
The Adjudicating Authority initially dismissed the application under Section 7 of the I&B Code, citing the Supreme Court's ruling that declared the RBI Circular dated 12th February 2018 ultra vires. The Tribunal clarified that the application was not filed in response to this Circular, and thus, the dismissal based on this ground was incorrect. The Tribunal emphasized that the application was filed before the 180-day deadline prescribed by the Circular, making the Circular inapplicable in this case.

3. Authorization of the person filing the application:
The Corporate Debtor challenged the proceeding on the ground that Mr. Bishwatosh Misra, Assistant General Manager, Head Office, SBI, was not properly authorized to initiate the proceeding under Section 7 of the I&B Code. The Tribunal rejected this submission, affirming that the application was filed by an authorized officer of the State Bank of India.

4. Existence of parallel winding-up proceedings:
The Corporate Debtor argued that a winding-up petition was already filed in the High Court, and thus, the parallel proceeding under the I&B Code could not be entertained. The Tribunal did not find this argument persuasive enough to dismiss the Section 7 application, focusing instead on the merits of the insolvency resolution process.

5. Requirement of a default certificate from an Information Utility:
The Corporate Debtor contended that the financial creditor did not produce a certificate of default issued by an Information Utility. The Tribunal did not address this issue in detail but proceeded to evaluate the existence of debt and default based on the records and evidence presented.

Conclusion:
The Tribunal concluded that the Appellant had established a case for initiating CIRP against the Corporate Debtor due to the existence of debt and default. The Tribunal set aside the impugned order dated 28th June 2019 and remitted the case to the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, with instructions to admit the application under Section 7 after notifying the Corporate Debtor. This would allow the Corporate Debtor an opportunity to settle the matter before admission. The appeal was allowed with no costs.

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