2019 (10) TMI 276 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - default in repayment - failure to discharge duty of a Guarantor in respect to the loans given - existence of debt and default or not - HELD THAT - The Corporate Debtor Counsel having not disputed existence of debt and default, this Bench being satisfied that the Petitioner has proved existence of debt and default, I am of the view that this case is fit for admission whereby this Bench hereby admits this petition by appointing Mr. Savan Godiawala, as Interim Resolution Professional (IRP) looking at the consent given by the Insolvency Professional with directions. Application admitted - moratorium declared.

Issues:
1. Initiation of Corporate Insolvency Process (CIRP) under section 7 of the Insolvency & Bankruptcy Code, 2016.
2. Default by the Corporate Debtor in repaying loans and guarantor obligations.
3. Merger of companies and transfer of liabilities.
4. Recall notices and demands issued by the Financial Creditor.
5. Acknowledgment of debt to prove non-limitation.
6. Appointment of Interim Resolution Professional (IRP) and declaration of moratorium.

Issue 1: Initiation of Corporate Insolvency Process (CIRP) under section 7 of the Insolvency & Bankruptcy Code, 2016:
The Financial Creditor filed a Company Application seeking initiation of CIRP against the Corporate Debtor for defaulting in repayment of loans. The application was based on the grounds that the Corporate Debtor failed to repay significant amounts and discharge guarantor duties, leading to the initiation of the insolvency process under section 7 of the Code.

Issue 2: Default by the Corporate Debtor in repaying loans and guarantor obligations:
The Corporate Debtor, through mergers and transfers of liabilities, became liable for loans availed by other companies. Despite multiple recall notices and demands issued by the Financial Creditor, the Corporate Debtor failed to service the debts, leading to the Financial Creditor demanding repayment from the Corporate Debtor as a guarantor for the defaulted loans.

Issue 3: Merger of companies and transfer of liabilities:
The merger of companies resulted in the Corporate Debtor inheriting the liabilities of the transferor company, making it responsible for the repayment of loans and guarantees issued by the transferor. This transfer of liabilities was approved by the High Court, establishing the Corporate Debtor's obligation to repay the debts.

Issue 4: Recall notices and demands issued by the Financial Creditor:
The Financial Creditor issued recall notices and demands to both the Corporate Debtor and the Principal Borrower for defaulting on loans and failing to maintain financial discipline. Despite the notices, the debts remained unpaid, prompting the Financial Creditor to seek repayment through legal action.

Issue 5: Acknowledgment of debt to prove non-limitation:
To establish that the debt was not barred by limitation, the Financial Creditor provided acknowledgments of the loans within the statutory period before filing the case. The submission of acknowledgment documents, including a recent acknowledgment by the Principal Borrower, aimed to demonstrate the ongoing validity of the debts.

Issue 6: Appointment of Interim Resolution Professional (IRP) and declaration of moratorium:
Upon finding the existence of debt and default, the Tribunal admitted the petition and appointed an Interim Resolution Professional (IRP) to oversee the insolvency resolution process. A moratorium was declared to prevent actions against the Corporate Debtor's assets, ensuring the continuation of essential services and initiating the corporate insolvency resolution process.

This detailed analysis of the judgment highlights the key legal issues addressed in the case, including the grounds for initiating insolvency proceedings, default on loans and guarantor obligations, implications of company mergers on liabilities, recall notices issued by the Financial Creditor, acknowledgment of debts, and the appointment of an Interim Resolution Professional with the declaration of a moratorium to facilitate the resolution process.

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