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2021 (6) TMI 951 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - Principle of Waiver - Estoppel by Election - Estoppel by Record - Aspect of NPA - HELD THAT - It is to be remembered that the Code was enacted to consolidate and amend the laws related to reorganisation and Insolvency Resolution of Corporate Persons, Partnership firms, Individuals in a time bound fashion. (a) for maximisation of value of assets of such individuals (b) to promote entrepreneurship (c) for availability of credit and balance the interests of all stakeholders etc. Speed is gist of I B Code. The Resolution Plan is not a sale/an auction/not recovery/not liquidation. No one is selling or buying the Corporate Debtor through Resolution Plan. It is resolution of the Corporate Debtor as going concern. The Code permits liquidation only on failure of CIRP. Indeed, the I B Code, does not permit Liquidation of a Corporate Debtor . Undoubtedly, the recovery bleeds the Corporate Debtor to Death . But the Resolution endeavours to keep the Corporate Debtor alive. Significantly, Satisfaction of the Adjudicating Authority is a condition precedent for the approval of a Resolution Plan. Section 12 of the Code provides that the CIRP shall be completed within the period of 180 days etc, from the date of admission of application and further that process is to be completed within 330 days provided in the statute. Initiation of CIRP - HELD THAT - A Financial Creditor may initiate the CIRP under section 7 of the Code by filing application before the Adjudicating Authority as per the procedure prescribed, when the default had occurred. The occurrence of default is the pivotal point of commencement of CIRP. An application will be admitted when the Adjudicating Authority is satisfied that among other things the default had occurred and the application was complete. Admission Acknowledgement - HELD THAT - As matter of fact, in the instant case when once the Company has/had defaulted and after the initiation of legal proceedings as available to the Lender on that date (Before the Debt Recovery Tribunal) and when the Financial Creditor/Lender had obtained the order(s) in the Original Applications and later recovery certificates were issued, and when the Original Applications filed before the Debt Recovery Tribunal(s) had attained finality, thereafter it is for the Lender/Financial Creditor/Decree Holder as matter of Election to pursue the recovery mechanism for his/its personal benefits before a competent forum or to initiate Insolvency Proceedings for the benefit of stakeholders and one and all . In the event of the Decree Holder/Lender/Financial Creditor has/had resorted to the initiation of Insolvency Proceedings under relevant section of the I B Code (after coming into force of the Code) he/it cannot be found fault with, since there is no fetter in Law , in this regard. The instant case there is a Financial Debt which is due and payable by the Corporate Debtor . Moreover, as against the Corporate Debtor/Totem Infrastructure Limited, orders were passed by the Debt Recovery Tribunal(s) and the three Recovery Certificates dated 17.10.2017, 04.08.2017 and 08.09.2015 clearly establish the factum of Financial Debt, due and payable, and that default being committed by the Corporate Debtor . To put precisely, the onus of proving the debt and default on the part of the First Respondent/Bank in the instant case, has been duly discharged. Application dismissed.
Issues Involved:
1. Existence of debt and default. 2. Classification of loan accounts as Non-Performing Assets (NPA). 3. Validity of the Recovery Certificates issued by the Debt Recovery Tribunal (DRT). 4. Limitation period for filing the Section 7 application under the Insolvency and Bankruptcy Code (IBC). 5. Impact of the Supreme Court's decision in Dharani Sugars & Chemicals Ltd. v. Union of India on the Section 7 application. 6. Whether the Section 7 application was filed based on an RBI circular declared ultra vires. 7. Acknowledgment of debt by the Corporate Debtor. 8. Whether the IBC can be used as a recovery mechanism. Detailed Analysis: 1. Existence of Debt and Default: The Adjudicating Authority observed that the Corporate Debtor did not dispute the existence of debt and default, although there were differences regarding the dates of default. The Corporate Debtor acknowledged its debt in a letter dated 29.01.2020 to Union Bank of India and State Bank of India, requesting support and waiver of penal interest, and sought a One Time Settlement (OTS). 2. Classification of Loan Accounts as NPA: The Appellant contended that the loans were not disbursed per the Sanction Letter, leading to financial difficulties and the classification of loan accounts as NPAs. The Appellant argued that the adverse market conditions and other factors beyond their control contributed to operational losses and the NPA classification. 3. Validity of the Recovery Certificates Issued by the DRT: The DRT issued multiple Recovery Certificates against the Corporate Debtor, including: - RC I dated 17.10.2017 for ?1408,03,14,857.40, - RC II dated 04.08.2017 for ?5,22,21,750, - RC III dated 08.09.2015 for ?14,50,06,349.23. These certificates provided a distinct course of action under the IBC, and the Section 7 application was filed based on these certificates. 4. Limitation Period for Filing the Section 7 Application: The Appellant argued that the Section 7 application was barred by limitation, as the loan accounts were classified as NPAs in 2012-2013, and the three-year limitation period would have expired by 2015-2016. However, the Tribunal held that the Recovery Certificates extended the limitation period, and the Section 7 application filed on 06.09.2019 was within the three-year period from the dates of the Recovery Certificates. 5. Impact of the Supreme Court's Decision in Dharani Sugars & Chemicals Ltd. v. Union of India: The Appellant contended that the Section 7 application was filed under the compulsion of the RBI circular dated 12.02.2018, which was declared ultra vires by the Supreme Court. However, the Tribunal noted that the Recovery Certificates were issued before the RBI circular, and the Section 7 application was based on these certificates, not the circular. 6. Whether the Section 7 Application was Filed Based on an RBI Circular Declared Ultra Vires: The Tribunal found no evidence that the Section 7 application was filed due to the RBI circular. The application was based on the Recovery Certificates issued by the DRT, which provided a separate course of action under the IBC. 7. Acknowledgment of Debt by the Corporate Debtor: The Tribunal held that the letter dated 29.01.2020 from the Corporate Debtor to Union Bank of India, requesting an OTS, amounted to an acknowledgment of debt within the limitation period from the dates of the Recovery Certificates. 8. Whether the IBC Can Be Used as a Recovery Mechanism: The Tribunal emphasized that the IBC aims to resolve insolvency and not merely to recover debts. The Code provides a framework for the reorganization and insolvency resolution of corporate persons in a time-bound manner to maximize the value of assets and balance the interests of stakeholders. Conclusion: The Tribunal concluded that there was a financial debt due and payable by the Corporate Debtor, and the default was established through the Recovery Certificates. The Section 7 application was filed within the limitation period and was not influenced by the ultra vires RBI circular. The appeal was dismissed, and the Adjudicating Authority's order admitting the Section 7 application was upheld.
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