2021 (1) TMI 812 - AT - Insolvency and Bankruptcy

Maintainability od application - initiation of CIRP - borrower defaulted in its repayment obligations to the financial creditor - Existence of debt and default or not - Whether Rule 7 of Adjudicating Authority Rules empowers the Adjudicating Authority to examine the documents filed with the application under section 10 of I B Code? - HELD THAT - The Adjudicating Authority is satisfied that there is a debt and a default has occurred, the application must be admitted unless it is incomplete. Section 10 of I B Code does not empower the Adjudicating Authority to go beyond the records as prescribed under Section 10 and the information as required to be submitted in Form 6 of Adjudicating Authority Rules. Rule 7 provides the procedure for filing the application under Section 10 of I B Code. It does not empower the Adjudicating Authority to examine the financial statements annexed with the application - The applicant being a guarantor has filed the application under Section 10 of I B Code hence the Adjudicating Authority has drawn an inference that the corporate applicant has filed the application under Section 10 with an intention to defeat the SARFAESI measures initiated by the financial creditor. Thus the application is filed with an ulterior motive. We are unable to agree with the finding of ld. Adjudicating Authority and hold that this fact is unrelated and beyond the requirement under I B Code or forms prescribed under the Adjudicating Authority Rules. Therefore, the application cannot be rejected on this ground. The existence of debt and default is established and no winding up proceedings against the appellant and appellant is not covered by the ineligibilities provided under Section 11 of the I B Code. However, the adjudicating authority has rejected the application on extraneous grounds. Therefore, the impugned order is set aside. The case is remitted back to the adjudicating authority (NCLT, Chennai) to admit the application under Section 10 after notice to the parties if there is no defect. In case of any defect, appellant may be allowed time to remove the defects - Appeal allowed.

Summary

Issues:
- Rejection of application under section 10 of the Insolvency & Bankruptcy Code, 2016 by the Adjudicating Authority
- Examination of documents filed with the application under section 10 of I&B Code by the Adjudicating Authority
- Interpretation of Rule 7 of the Adjudicating Authority Rules
- Admissibility of application under section 10 of I&B Code

Analysis:

1. The appeal was filed by the Corporate Applicant against the rejection of its application under section 10 of the Insolvency & Bankruptcy Code, 2016 by the Adjudicating Authority. The Corporate Applicant, a Guarantor to a Financial creditor, sought initiation of the corporate insolvency resolution process (CIRP) due to the borrower's default on repayment obligations.

2. The Adjudicating Authority rejected the application citing discrepancies in the audited balance sheets and a depletion in general reserves. The Corporate Applicant contended that all prerequisites for admission under section 10 were met, including the existence of debt, default, and shareholder approval for CIRP initiation.

3. The key issue revolved around the Adjudicating Authority's power to examine documents filed with the application under section 10. The Adjudicating Authority invoked Rule 7 of the Adjudicating Authority Rules to analyze financial statements, leading to the application's rejection.

4. The Appellate Tribunal referenced the judgment in Unigreen Global Pvt. Ltd. to establish that the Adjudicating Authority's jurisdiction is limited to verifying information as required under section 10 and Form 6, without delving into unrelated details or financial statements.

5. The Tribunal concluded that the Adjudicating Authority overstepped its jurisdiction by analyzing the financial statements and rejecting the application on extraneous grounds. The existence of debt and default was established, and the Corporate Applicant met all conditions under section 10, leading to the setting aside of the impugned order.

6. The case was remitted back to the Adjudicating Authority with directions to admit the application under section 10 if no defects were found, allowing the appellant time to rectify any issues. The appeal was allowed with no order as to costs, emphasizing adherence to the statutory requirements for admitting applications under the Insolvency & Bankruptcy Code.