2020 (5) TMI 563 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - whether the Adjudicating Authority was justified in ignoring the time frame prescribed under Section 7 of the I B Code and embarking upon an enquiry to determine whether the applications filed under Section 7 contained false information, when the matters were at the very threshold stage? - HELD THAT - I B Code inter alia, consolidates and amends the law relating to insolvency resolution of corporate persons in a time bound manner for various objects sought to be achieved by the statute as specified in the preamble. Section 7 of the I B Code deals with initiation of Corporate Insolvency Resolution Process by the Financial Creditor . The plain language of sub-section (4) of Section 7 leaves no room for doubt that the Adjudicating Authority is required to ascertain existence of default from records of an information utility. The Adjudicating Authority can also ascertain the same from other evidence furnished by the Financial Creditor . This has to be done within 14 days of the receipt of application. The I B Code has specified time frame for conclusion of Corporate Insolvency Resolution Process within 180 days and the extended period prescribed is 270 days. With the latest amendment, provision has been made for inclusion of period of judicial intervention, thereby taking the total extended period upto 330 days. A mere glance at the legal framework governing Corporate Insolvency Resolution Process brings it to the fore that speed is the password and all authorities under the I B Code have to adhere to the prescribed timelines. The impugned orders suffer from grave legal infirmity and cannot be sustained - Appeal allowed.

Summary

Issues:
Appeals against orders passed by Adjudicating Authority under I&B Code - Failure to follow legal provisions and precedents - Adjudicating Authority's decision to appoint Forensic Auditor - Delay in ascertaining default - Violation of time frame under Section 7 of I&B Code - Pre-admission enquiry beyond scope - Corporate Debtors' objections - Liability admitted by Corporate Debtors - Legal infirmities in impugned orders.

Analysis:
The judgment involves twin appeals by a 'Financial Creditor' against two 'Corporate Debtors' challenging orders of the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016. The appeals contest the Authority's failure to adhere to legal provisions and precedents, specifically the decision to appoint a Forensic Auditor and delay in determining default. The Adjudicating Authority's actions were challenged for not following the prescribed time frame under Section 7 of the I&B Code and engaging in a pre-admission enquiry beyond its scope. The Corporate Debtors raised objections, alleging fraudulent initiation of insolvency proceedings. The Authority's decision to appoint a Forensic Auditor was deemed improper, as it prolonged the process and contradicted the objective of the I&B Code.

The judgment highlights the importance of timely resolution under the I&B Code, emphasizing the need for adherence to prescribed timelines. The Adjudicating Authority's role is to ascertain default promptly, either from information utility records or evidence provided by the Financial Creditor, within 14 days of application receipt. The judgment cites the Hon'ble Apex Court's ruling, emphasizing that the Authority must not exceed its mandate and must base its decision on the evidence presented. The judgment clarifies that a pre-admission enquiry regarding default proof, such as directing a forensic audit, is not envisaged by the I&B Code. The judgment underscores that Section 75 of the I&B Code, a penal provision, should not impede the initiation of insolvency proceedings unless forgery or document falsification is evident.

The judgment addresses the liability admitted by the Corporate Debtors, rendering their objections regarding the Financial Creditor's applications under Section 7 at the pre-admission stage futile. It concludes that the impugned orders suffer from legal flaws and are set aside. The Adjudicating Authority is directed to reconsider the admission of the Financial Creditors' applications in light of the observations provided. The parties are given an opportunity to settle claims before further proceedings. Both appeals are allowed without costs, considering the circumstances of the case.