2021 (6) TMI 21 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - HELD THAT - Mere plain reading of the provision under section 7 of IBC, shows that in order to initiate CIRP Under Section 7 the applicant is required to establish that there is a financial debt and that a default has been committed in respect of that financial debt. That while dealing with an application under section 7 the Adjudicating Authority is not required to consider the question of dispute between the parties as long as the 'debt' and 'default' is proved. Corporate Debtor submitted that the terms of the loan Agreement could not be honoured by the Corporate Debtor as defaults were committed in making the payment of interest amount to the Financial Creditor owing to the financial crisis and a difficult financial position of the corporate debtor due to unforeseen circumstances - the documents submitted by the Financial Creditor and the Corporate Debtor clearly substantiate the Financial Creditor's claim that the Corporate Debtor has defaulted on repayment of loan amount. Application admitted - CIRP is initiated - moratorium declared.

Issues:
1. Alleged default on the part of the Respondent in settling a loan amount.
2. Contention by the Respondent that no liability is due under the Insolvency and Bankruptcy Code, 2016.
3. Dispute regarding the occurrence of a default and financial crisis faced by the Respondent.
4. Consideration of debt and default under Section 7 of the Insolvency and Bankruptcy Code, 2016.
5. Decision to admit the petition and initiate Corporate Insolvency Resolution Process (CIRP).
6. Imposition of a moratorium under Section 14 of the Code.
7. Appointment of an interim resolution professional (IRP) to carry forward the CIRP process.

Analysis:

1. The application filed sought to initiate Corporate Insolvency Resolution Process against the Respondent due to an alleged default in settling a loan amount. The Applicant claimed that the Respondent failed to repay the loan amount and interest as per the agreement, leading to the initiation of the process.

2. The Respondent contended that no liability was due under the Insolvency and Bankruptcy Code, 2016, arguing that the alleged liabilities could not be termed as financial debt within the meaning of the Code. The Respondent emphasized ongoing negotiations and efforts to settle the account amidst financial difficulties.

3. The Respondent highlighted a financial crisis and unforeseen circumstances that led to difficulties in honoring the terms of the agreement, resulting in defaults in payment. The Respondent asserted genuine intentions to repay the debt and requested understanding due to the challenging economic situation.

4. The Tribunal emphasized the need to establish a financial debt and default to initiate CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016. It clarified that the Adjudicating Authority is not required to delve into disputes between parties as long as debt and default are proven.

5. After reviewing the documents and arguments presented by both parties, the Tribunal found that the Respondent had defaulted on the repayment of the loan amount, leading to the admission of the petition and initiation of the Corporate Insolvency Resolution Process against the Respondent.

6. In line with the decision to initiate CIRP, a moratorium was imposed under Section 14 of the Code. The moratorium included restrictions on legal proceedings, asset transfers, and property recovery against the Respondent, aiming to facilitate the resolution process without external disruptions.

7. An interim resolution professional (IRP) was appointed to oversee the CIRP process. The IRP was tasked with taking necessary steps as per the Code and submitting a report within 30 days, ensuring the effective management and resolution of the insolvency proceedings.

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