2020 (3) TMI 777 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - existence of debt and dispute or not - HELD THAT - It is not the case of the Corporate Debtor that there is no default, but they are submitting that right of the Petitioner to bring action under the Code is subject to and controlled by Inter-Creditor Agreement wherein the Creditors has set out certain procedures before taking any action. In a nutshell, the Corporate Debtor is trying to say that the Code is subservient to the Inter-Creditor Agreement, comply with the conditions in the Inter-Creditor Agreement and ignore the Code at least for the time being. The issued raised by the Corporate Debtor cannot come in the way of admission of this Petition in view of the fact that the Petitioner has established debt and default beyond doubt as provided under section 7 of the Code - This Adjudicating Authority, on perusal of the documents filed by the Petitioner, is of the view that the Corporate Debtor defaulted in repaying the loan availed and also placed the name of the Insolvency Resolution Professional to act as Interim Resolution Professional and there being no disciplinary proceedings pending against the proposed resolution professional, therefore the Application under sub-section (2) of section 7 is taken as complete, accordingly this Bench hereby admits this Petition. Application admitted - moratorium declared.

Summary

Issues Involved:
1. Default in repayment by the Corporate Debtor.
2. Contentions raised by the Corporate Debtor regarding the applicability of the Inter-Creditor Agreement.
3. Admissibility of the petition under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016.

Issue-wise Detailed Analysis:

1. Default in repayment by the Corporate Debtor:
The Petitioner, Bank of India, sought the initiation of the Corporate Insolvency Resolution Process (CIRP) against TD Toll Road Private Limited (the Corporate Debtor) under Section 7 of the Insolvency and Bankruptcy Code, 2016. The Corporate Debtor defaulted on 16.07.2019, with an outstanding amount of ?21,68,44,477/-. The Corporate Debtor had executed a Common Rupee Loan Agreement with multiple lenders, including the Petitioner, for an aggregate loan amount of ?322.40 Crores. The Petitioner provided evidence of the loan and default through various documents, including the Common Loan Agreement, Security Trustee Agreement, Deed of Hypothecation, and statements of the loan account.

2. Contentions raised by the Corporate Debtor regarding the applicability of the Inter-Creditor Agreement:
The Corporate Debtor acknowledged the default but raised several contentions:
- The Corporate Debtor faced cash flow mismatches and proposed a resolution plan under RBI Circulars.
- The Consortium members had an Inter-Creditor Agreement that required collective action for any default, and the Petitioner acted independently.
- Specific clauses in the Common Loan Agreement and Inter-Creditor Agreement mandated collective action by all Rupee Lenders before initiating enforcement actions.
- The Corporate Debtor argued that the Petitioner's action was barred by the transaction documents and that the Petition under Section 7 was contrary to the agreed terms.
- The Petitioner initiated proceedings without the consent of other consortium members and during the formulation of a resolution plan.
- The Corporate Debtor cited Section 12A of the Code, suggesting that the tribunal seek views from other consortium members before admitting the petition.
- The Corporate Debtor referenced public statements by banking officials and government ministers advocating for resolution mechanisms over insolvency proceedings.

3. Admissibility of the petition under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016:
The tribunal considered the arguments and found that the Corporate Debtor did not dispute the default but argued that the Petitioner's right to take action was subject to the Inter-Creditor Agreement. However, the tribunal referred to the Supreme Court's decision in "Innoventive Industries Ltd. v. ICICI Bank Ltd." which clarified that under Section 7, once a default is established, the application must be admitted unless it is incomplete. The tribunal emphasized that the Code has an overriding effect as per Section 238, which states that the Code prevails over any inconsistent provisions in other laws or instruments. Therefore, the Inter-Creditor Agreement could not impede the admission of the petition under Section 7 when debt and default were proven.

Conclusion:
The tribunal admitted the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, and initiated the Corporate Insolvency Resolution Process against the Corporate Debtor. The tribunal appointed an Interim Resolution Professional and imposed a moratorium prohibiting suits, transferring assets, and other actions against the Corporate Debtor. The order of moratorium would remain in effect until the completion of the CIRP or approval of a resolution plan. The tribunal directed the Registry to communicate the order to both parties and the Interim Resolution Professional immediately.