2020 (1) TMI 470 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment - existence of debt and dispute or not - HELD THAT - The procedure in relation to the initiation of Corporate Insolvency Resolution Process by the Financial Creditor is delineated under Section 7 of the Code, wherein only Financial Creditor / Financial Creditors can file an application. As per Section 7(1) of the Code, an application could be maintained by a Financial Creditor either by itself or jointly with other Financial Creditors. The expressions Financial Creditor and Financial debt have been defined in Section 5 (7) and 5 (8) of the Code and precisely Financial debt is a debt along with interest, if any, which is disbursed against the consideration for time value of money. In the present case applicant had sanctioned and disbursed the loan which are recoverable with applicable interest by entering in to loan agreements with the respondent borrower. The corporate debtor had undertaken the liability to repay the loan along with the agreed interest. The loan/financial facility was clearly disbursed against the consideration for time value of money with a clear commercial effect of borrowing. Moreover, the debt claimed in the present application based on the arbitral awards includes both the component of outstanding principal and interest - not only the present claim comes within the purview of 'Financial Debt' but also the applicant can clearly be termed as 'Financial Creditor' of the respondent corporate debtor so as to prefer the present application under Section 7 of the Code. The corporate debtor is entitled to point out to the Adjudicating Authority that a default has not occurred; in the sense that a debt, which may also include a disputed claim is not due i.e. it is not payable in law or in fact. Respondent Corporate Debtor has miserably failed to raise any good defence against the petition and also has failed to place its updated financial statement to show that no financial debt is due. There is no proof to show the re-payment of the entire awarded amount to the financial creditor - The material placed on record confirms that the respondent corporate debtor committed default in repayment of the financial debt. On a bare perusal of Form - I filed under Section 7 of the Code read with Rule 4 of the Rules shows that the form is complete and there is no infirmity in the same. It is also seen that there is no disciplinary proceeding pending against the proposed IRP. All the requirements of Section 7 (5) (a) of the Code stand fulfilled. Application admitted - moratorium declared.

Issues Involved:
1. Territorial jurisdiction of the Tribunal
2. Status of the applicant as a financial creditor
3. Existence of financial debt and default
4. Completeness of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016
5. Objections raised by the respondent regarding arbitral awards
6. Appointment of Interim Resolution Professional (IRP)
7. Declaration of moratorium and its implications

Issue-wise Detailed Analysis:

1. Territorial Jurisdiction of the Tribunal:
The Tribunal established its territorial jurisdiction over the case since the registered office of the respondent corporate debtor, M/s. Delhi Baroda Road Carrier Private Limited, is located in Delhi. This is in accordance with sub-section (1) of Section 60 of the Insolvency and Bankruptcy Code, 2016.

2. Status of the Applicant as a Financial Creditor:
The respondent challenged the applicant's status as a financial creditor. However, the Tribunal noted that the applicant, M/s. Mahindra & Mahindra Financial Services Limited, had sanctioned and disbursed loans to the respondent, which were recoverable with interest. The loans were disbursed against the consideration for the time value of money, fulfilling the definition of "financial debt" under Section 5(8) of the Code. Therefore, the applicant was rightly classified as a financial creditor under Section 5(7) of the Code.

3. Existence of Financial Debt and Default:
The Tribunal confirmed the existence of financial debt based on the arbitral awards, which included the outstanding principal and interest. The total claimed amount was ?29,89,11,205/-. The respondent failed to repay the awarded amount, establishing a default. The Tribunal emphasized that the debt exceeded the threshold limit of ?1 lakh as stipulated under Section 4 of the Code.

4. Completeness of the Application under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The Tribunal examined the application and found it complete, filed in Form-1 as per Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The application included all necessary documents, records, and evidence of default, fulfilling the requirements of sub-section 5(a) of Section 7 of the Code.

5. Objections Raised by the Respondent Regarding Arbitral Awards:
The respondent argued that the arbitral awards were ex parte and included an incorrect additional interest rate. The Tribunal noted that the respondent had unsuccessfully challenged the awards under Section 34 of the Arbitration and Conciliation Act, 1996, before the Hon'ble High Court of Bombay. The awards had attained finality and were enforceable, thus the objections were dismissed.

6. Appointment of Interim Resolution Professional (IRP):
The applicant proposed Mr. Rocky Ravinder Gupta as the IRP, who accepted the appointment and declared that no disciplinary proceedings were pending against him. The Tribunal found the proposal compliant with Section 7(3)(b) of the Code and appointed Mr. Gupta as the IRP.

7. Declaration of Moratorium and Its Implications:
The Tribunal declared a moratorium under Section 14 of the Code, prohibiting:
- Institution or continuation of suits or proceedings against the corporate debtor.
- Transfer, encumbrance, or disposal of any assets of the corporate debtor.
- Actions to foreclose or enforce any security interest.
- Recovery of property in possession of the corporate debtor.

The moratorium did not apply to transactions notified by the Central Government or essential goods and services. The IRP was directed to make a public announcement and manage the corporate debtor's affairs as per Sections 15, 17, 18, 19, 20, and 21 of the Code.

Conclusion:
The Tribunal admitted the application under Section 7 of the Code, satisfied that the default had occurred, the application was complete, and no disciplinary proceedings were pending against the proposed IRP. The IRP was tasked with managing the corporate debtor's affairs, and a moratorium was imposed to protect the debtor's assets and ensure a fair resolution process.

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