2020 (10) TMI 821 - Tri - 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 - HELD THAT - This Adjudicating Authority has to satisfy itself with the facts of the case and especially the fact that a clear case is made out for the initiation of CIRP under this provision and then exercise its discretion as to the fitness of a case for triggering the same. In this exercise, the Adjudicating Authority has to tread carefully to keep a balance between the Financial Creditor to whom monies are owed, and on the other hand, the Corporate Debtor and his business, and that its value should be maximised or at least not diminish to the detriment of all stake holders, including the financial creditor. It is also well settled that the provisions of the Code cannot be invoked for recovery of outstanding amount but can be invoked to initiate CIRP for justified reasons as per the Code - the Petitioner's recovery exercise had begun and is continuing when it has chosen to come prematurely before this Tribunal, although the Agreement itself provides other options for recovering its dues, such as by sale of the assets taken as security from the Respondent/Corporate Debtor. It is clear that the Petitioner intends to use this process for recovery alone, without making out a case for initiation of CIRP, which is not permissible. Since the Financial Creditor and the Corporate Debtor were seriously engaged in a settlement exercise, a more proactive approach would help, such as approaching the higher Authorities or Committees set up under the Banking Regulation (Amendment) Act, 2017, by the RBI to seek advice on the resolution of stressed assets, or taking recourse to the options available under the Agreement for recovery, by appropriating the assets held as security. Instead of exercising these options for recovery of its debt, the Financial Creditor has opted to hastily come to this Authority seeking initiation of CIRP against an otherwise solvent company. The Petition is therefore premature. Petition is disposed of with the directions that the Petitioner/Financial Creditor and the Respondent/Corporate Debtor should continue their settlement efforts, allowing reasonable time to the Corporate Debtor to organise funds from the proceeds of sold/ready for sale houses/plots, failing which it may pursue recovery of its debt through the mechanism mentioned and mutually agreed to in the Agreement dated 19.05.2016.

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the I&B Code, 2016.
2. Maintainability of the Petition.
3. Financial health and solvency of the Corporate Debtor.
4. Adequacy of security and alternative remedies available to the Financial Creditor.
5. Impact of CIRP on ongoing projects and stakeholders.
6. Settlement efforts between the Financial Creditor and Corporate Debtor.

Issue-wise Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the I&B Code, 2016:
The Petitioner, Sir M. Visveswaraya Co-operative Bank Limited, filed a petition under Section 7 of the I&B Code, 2016, seeking to initiate CIRP against M/s. Golden Gate Properties Limited for defaulting on a loan amounting to ?15,95,02,995/- as of 31.07.2018. The Corporate Debtor had borrowed ?13,00,00,000/- in 2016 for part funding of developmental charges for a residential layout and subsequently defaulted on repayment.

2. Maintainability of the Petition:
The Respondent opposed the petition, arguing that the petition is not maintainable as the Financial Creditor is a secured creditor and has not exhausted the remedies available under the loan agreement, such as selling the mortgaged property. The Tribunal noted discrepancies in the petition regarding the specific loan being pursued and considered the petition defective on these grounds.

3. Financial Health and Solvency of the Corporate Debtor:
The Respondent contended that it is a solvent company with assets exceeding liabilities and ongoing projects. It argued that the default was due to external factors such as changes in the CDP Master Plan and delays in plan approvals, which were beyond its control. The Tribunal found that the Corporate Debtor is not a willful defaulter and has the potential to repay the debt given more time.

4. Adequacy of Security and Alternative Remedies Available to the Financial Creditor:
The Corporate Debtor had mortgaged land valued at ?40-42 Crores as security for the loan, which is significantly higher than the loan amount. The Tribunal noted that the Financial Creditor had sufficient security and other remedies available under the loan agreement for debt recovery, making the petition premature.

5. Impact of CIRP on Ongoing Projects and Stakeholders:
The Tribunal emphasized that initiating CIRP would adversely affect the Corporate Debtor's ongoing projects, impacting hundreds of home buyers and employees. It highlighted that CIRP could reduce the value of assets and disrupt the business, which would be detrimental to all stakeholders, including the Financial Creditor.

6. Settlement Efforts Between the Financial Creditor and Corporate Debtor:
The Tribunal observed that both parties had engaged in settlement negotiations and were close to reaching an agreement. The Corporate Debtor had agreed to repay the principal amount and reasonable interest, but the Financial Creditor insisted on initiating CIRP. The Tribunal encouraged continued settlement efforts and suggested alternative recovery mechanisms as per the loan agreement.

Conclusion:
The Tribunal dismissed the petition as premature, directing both parties to continue settlement efforts and allowing the Corporate Debtor reasonable time to organize funds. The Financial Creditor was granted liberty to approach the Tribunal again if the debt remained unpaid, while ensuring the protection of the Financial Creditor's interests as a custodian of public money. No order as to costs was made.

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