2020 (5) TMI 421 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of default or not - time limitation - only defence taken by the respondent is that the debt being barred by limitation an application under section 7 of the Code could not be maintained - HELD THAT - In view of the order of the DRT-I the debt became due and payable with effect from August 17, 2018. The present petition was filed on March 25, 2019 within three years of the date of the order. An application under section 7 can be filed within 3 years as provided under article 137 of the Limitation Act - Admittedly the respondent had committed default in payment of the debt. In view of the orders of the DRT-I, Hyderabad the debt became due and payable subsequent to August 17, 2018. Therefore, the defence contention that the debt was time barred cannot be accepted. The issue is answered in the negative. Existence of default or not - HELD THAT - In an application under section 7 of the Code the reason for the inability of the respondent in paying off the debt is not required to be looked into by the Adjudicating Authority. What is required to be seen is the default - In this case the default has been satisfactorily proved. Thus the petition needs to be admitted. Petition admitted - moratorium declared.

Summary

Issues:
1. Whether the petition is barred by limitation?

Analysis:
The financial creditor sought corporate insolvency resolution process against the corporate debtor under section 7 of the Insolvency and Bankruptcy Code, 2016. The respondent had availed credit facilities from IDBI and defaulted on repayment. The petitioner filed the application for insolvency resolution process after the respondent's default. The respondent contested the petition, claiming the debt was barred by limitation. The respondent cited reasons like a slump in the textile sector and a natural calamity for the default. The respondent argued that the debt claimed by the petitioner was not due and payable, invoking section 238A of the Code. The respondent referred to a legal case to support its defense. The Tribunal considered the rival pleadings and admitted facts and analyzed the issue of limitation.

The Tribunal noted that the respondent had availed credit facilities and defaulted, leading to the debt being declared non-performing. The IDBI transferred the loans to the petitioner. The Debts Recovery Tribunal-I allowed the application for recovery of the debt with interest. The petitioner claimed the debt amount had increased by a certain date. The respondent's defense centered on the debt being barred by limitation. The Tribunal analyzed the definitions of "debt" and "default" under the Code. It found that the debt became due and payable based on the DRT-I's order. The petition was filed within three years of the order, as per the Limitation Act. The Tribunal referred to a Supreme Court case to support its decision. The Tribunal concluded that the debt was not time-barred, as the default occurred after the DRT-I's order, and the petition was filed within the limitation period.

In an application under section 7 of the Code, the reason for the debtor's inability to pay is not crucial; the focus is on the default. The Tribunal found the default was proven, and the petition needed to be admitted. An interim resolution professional (IRP) was appointed, and no disciplinary proceedings were pending against the proposed IRP. The Tribunal issued orders for the commencement of the insolvency resolution process, appointment of the IRP, declaration of moratorium, and directed cooperation from the management of the corporate debtor for effective discharge of functions. The order was communicated to the parties involved for necessary compliance.