2021 (9) TMI 433 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existing dispute or not - quantum of default - pendency of arbitration proceeding - HELD THAT - An application under Section 7 of the Code is acceptable so long as the debt is proved to be due and there has been occurrence of existence of default. What is material is that the default is at least ₹ 100 lakhs. In view of Section 4 of the Code, the moment default is of Rupees one hundred lakhs or more, the application to trigger Corporate Insolvency Resolution Process under the Code is maintainable. In the present matter the applicant has produced loan agreement executed between the parties, according to which the respondent has failed to repay the loan within stipulated time. The respondent has not denied the same. The objections raised by respondent regarding sufficient security is not sustainable as proceeding under this Code is not money recovery proceeding. The other objection raised about removal of loan amount from Balance Sheet will also not help respondent - Fact still remains that the respondent has enjoyed the loan amount and failed to clear the dues on time. It is clear that the family member of applicant put forth their money in the company against the loan of the respondent company, however no assignment is made and admittedly the applicant is still a financial creditor of the respondent. The same fact has not been denied by the respondent itself. If a debt become due and payable and not paid by-Corporate Debtor, it will be said that the Corporate Debtor has committed default. When we apply the aforesaid judgment in the present matter it is seen that the debt become due and payable on 31.03.2019 as per the loan agreement and the respondent itself has admitted that the payment has not been made to the applicant. Therefore, existence of debt and default cannot be ruled out in the present matter. The respondent also placed reliance of Arbitration Clause, i.e., Clause 25 of the loan agreement. However, it is a settled preposition that the pendency of arbitration proceeding is not a defense in case of Section 7 application. In fact, no evidence is placed to show that any arbitration proceeding is pending in the present matter. The respondent has not raised any dispute over quantum of default or existence of loan amount. Therefore, this objection is also not sustainable. The present application is complete in all respects and the applicant is entitled to claim outstanding financial debts from the respondent and that there has been default in payment of the financial debt - Application admitted - moratorium declared.

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP)
2. Default in repayment of loan
3. Interpretation of loan agreement clauses
4. Validity of financial statements and reclassification of loan
5. Admissibility of evidence and Information Utility report
6. Objections regarding arbitration clause and ongoing arbitration
7. Appointment of Interim Resolution Professional (IRP)
8. Declaration of moratorium and its effects

Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP):
M/s Techno Electric & Engineering Co. Ltd. filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, to initiate CIRP against M/s. McLeod Russel India Limited. The application was transferred from the Kolkata Bench to the New Delhi Bench.

2. Default in Repayment of Loan:
The applicant and the corporate debtor entered into a loan agreement on 28.09.2018 for an inter-corporate deposit of ?100 crores. The corporate debtor failed to repay the loan by the due date of 31st March 2019. Despite a demand letter issued on April 5, 2019, the corporate debtor did not repay the loan.

3. Interpretation of Loan Agreement Clauses:
The respondent argued that under clauses 16 and 17 of the loan agreement, the loan amount was not yet due as the recovery should first be done from secured assets. The applicant countered that the default occurred due to the violation of clause 9 and other clauses, and clause 17's pre-requisite is the default committed by the respondent.

4. Validity of Financial Statements and Reclassification of Loan:
The respondent claimed that the loan of ?100 crores was not reflected in the applicant's balance sheet for the year ended 31 March 2020, implying a refund or assignment. The applicant clarified that the loan was reclassified under 'other financial assets' and 'other assets,' which did not affect the creditor's rights.

5. Admissibility of Evidence and Information Utility Report:
The applicant provided a certificate of record of default from Information Utility, showing the outstanding amount. The respondent objected to the report, claiming it was addressed to former employees and not the corporate debtor's registered email. The tribunal deemed the certificate valid as the respondent did not challenge it before the appropriate authority.

6. Objections Regarding Arbitration Clause and Ongoing Arbitration:
The respondent cited the arbitration clause in the loan agreement as a defense. However, the tribunal noted that the pendency of arbitration proceedings is not a defense against a Section 7 application, and no evidence of ongoing arbitration was presented.

7. Appointment of Interim Resolution Professional (IRP):
The tribunal appointed Mr. Kanchan Dutta as the IRP, directing him to make a public announcement and perform his functions as per the Code. The applicant was directed to deposit a fee of ?2 lakh for the IRP's immediate expenses.

8. Declaration of Moratorium and Its Effects:
A moratorium was declared under Section 14 of the Code, prohibiting:
- Institution or continuation of suits or proceedings against the respondent.
- Transferring, encumbering, or disposing of the respondent's assets.
- Actions to foreclose, recover, or enforce any security interest.
- Recovery of property occupied by the respondent.

The supply of essential goods or services to the respondent was not to be terminated during the moratorium period. The IRP was tasked with protecting and preserving the value of the respondent's property and conducting proceedings with utmost dedication and honesty.

Conclusion:
The tribunal found the application complete and the default amount exceeding ?100 lakhs. The objections raised by the respondent were not sustainable, and the application to initiate CIRP was admitted.

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