2020 (9) TMI 1079 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Debt or not - novation of Contract or not - pending civil suit for recoveries of the amount dues before the Hon'ble Bombay High Court - HELD THAT - While admitting the petition under Section 7, the only aspect relevant is that there is a debt and default and in the instant case, we find an express provision and obligation of repayment under the Debenture Trust Deed and further that the Corporate Debtor defaulted in paying monies under the Debenture trust deed and also under the Pari Passu agreement executed by the parties to facilitate and secure payment of monies due to the Petitioner. The primary agreement of loan namely the Debenture Trust Deed executed by parties under which the Debentures were issued to the Debenture Holders was sought to be confirmed by execution of Pari Passu Agreement and therefore it can be said that two distinct Agreement ensures to the benefit of petitioner's right of receiving payments and non-payment of monies by the Corporate Debtor or PNB demonstrates a clear liability and default, thus an action to initiate CIRP can be triggered. The nature of Debt is a Financial Debt as defined under section 5(8) of the Code. It has also been established that there is a Default as defined under section 3(12) of the Code on the part of the Debtor. The two essential requirements, i.e. existence of 'debt' and 'default', for admission of a petition under section 7 of the I B Code, have been met in this case. Petition admitted.

Summary

Issues Involved:

1. Whether there was novation of contract?
2. Whether the petition under Section 7 of the Insolvency and Bankruptcy Code (IBC) is barred by law due to the pending civil suit for recovery of amounts before the Bombay High Court?
3. Whether technicalities make a material change in summary proceedings under IBC?

Detailed Analysis:

1. Novation of Contract:

The tribunal examined the rights of the Petitioner under the Debenture Trust Deed and the events of default. The Corporate Debtor failed to repay the monies/interest due on 31st December 2018, constituting a default under clause 24.6 of the Debenture Trust Deed. The Petitioner was entitled to declare the outstanding Non-Convertible Debentures (NCDs) due and payable. The tribunal concluded that the Pari Passu Agreement dated 31.01.2018 did not novate the original Debenture Trust Deed but was merely an arrangement to share security on a pari-passu basis. The statutory rights of enforcement of the contract cannot be taken away by any contractual arrangement.

2. Barred by Pending Civil Suit:

The Corporate Debtor argued that the petition under Section 7 of the IBC is barred due to the pending civil suit in the Bombay High Court. The tribunal found this objection untenable, citing the Hon'ble NCLAT's decision in "Karan Goel Vs. M/s. Pashupati Jewellers," which held that a pending suit cannot be a ground to reject an application under Section 7 of the IBC. The tribunal emphasized that the petition under the IBC is independent of the civil suit and can proceed concurrently.

3. Technicalities in Summary Proceedings:

The Corporate Debtor contended that the Petitioner is not a financial creditor and that the petition was filed based on a purported power of attorney without specific instructions from the debenture holders. The tribunal referred to the notification by the Ministry of Corporate Affairs dated 27.02.2019, which allows a debenture trustee to file an application for initiating corporate insolvency resolution process (CIRP) on behalf of the financial creditor. The tribunal held that the rights of parties to seek CIRP cannot be subjected to technicalities and formalities. The Debenture Trustee, acting on behalf of the debenture holder with requisite authorization, is entitled to file the petition. The tribunal further noted that the procedural formality of obtaining written consent from the debenture holders does not negate the statutory rights to seek initiation of CIRP under the IBC.

Findings:

The tribunal found that the nature of the debt is a "Financial Debt" under Section 5(8) of the IBC and that there is a "Default" under Section 3(12) of the IBC. The essential requirements for admission of a petition under Section 7 of the IBC, i.e., existence of debt and default, were met. The tribunal appointed Mr. Jayesh Sanghrajka as the Interim Resolution Professional (IRP) and declared a moratorium under Section 14 of the IBC. The IRP is to carry out the public announcement of the initiation of CIRP and perform duties under Sections 18 and 15 of the IBC.

Conclusion:

The petition was admitted, and the commencement of the Corporate Insolvency Resolution Process was made effective from the date of the order. The tribunal emphasized that the objections raised by the Corporate Debtor were untenable and that the petitioner's rights under the Debenture Trust Deed and the Pari Passu Agreement were enforceable. The tribunal ordered the initiation of CIRP and the appointment of an IRP to oversee the process.