2021 (12) TMI 343 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Corporate Applicant - existence of debt and dispute or not - HELD THAT - On perusal of the averments by Corporate Applicant and reply by its employees, it is clear that Corporate Applicant is in financial distress since January 2019 It has been reflected' in the provisional financial of the Corporate applicant as well. The application is complete and there is an existence of default on the part of Corporate Applicant. Corporate Applicant's business is actually in very downfall condition since inception'. Corporate Applicant is unable to pay off his debts and that's why he came before us to initiate CIRP against it. There is no disciplinary proceedings pending against the RP. Therefore, the application is admitted under Section 10(4)(a) of the IBC, 2016. Application admitted - moratorium declared.

Issues:
1. Initiation of Corporate Insolvency Resolution Process by Corporate Debtor.
2. Allegations of malafide intention and financial misconduct by the employees.
3. Compliance with essential elements for admitting the application under Section 10 of IBC, 2016.
4. Appointment of Interim Resolution Professional (IRP) and related directions.
5. Imposition of moratorium and its implications.
6. Direction for depositing funds for IRP's expenses.

Issue 1: Initiation of Corporate Insolvency Resolution Process by Corporate Debtor
The Corporate Debtor, a company registered under the Companies Act, 2013, filed an application under Section 10 of the Insolvency and Bankruptcy Code, 2016 (IBC) through its Authorized Representative due to financial distress since January 2019. The application highlighted the absence of financial creditors and ongoing operational debt, leading to the decision to engage professionals and initiate the insolvency process.

Issue 2: Allegations of Malafide Intention and Financial Misconduct by Employees
Employees of the Corporate Debtor alleged that the application was filed with malafide intentions, accusing the Corporate Debtor of reducing operational debt due to them and potentially siphoning money to other companies. The employees contended that the Corporate Debtor misrepresented facts, violated provisions of the IBC, and suppressed the true quantum of operational debt, leading to a lack of transparency regarding the company's financial condition.

Issue 3: Compliance with Essential Elements for Admitting the Application under Section 10 of IBC, 2016
The Tribunal evaluated the application's completeness based on essential elements, including default by the Corporate Debtor, filing in accordance with prescribed rules, and submission of required documents. The Tribunal noted the absence of pending disciplinary proceedings against the proposed Resolution Professional and admitted the application under Section 10(4)(a) of the IBC, 2016, considering the Corporate Debtor's financial distress and inability to pay debts.

Issue 4: Appointment of Interim Resolution Professional (IRP) and Related Directions
The Tribunal appointed an IRP as proposed by the Corporate Debtor and directed the IRP to undertake necessary steps as mandated by the IBC. The IRP was instructed to file a report before the Adjudicating Authority, and the Corporate Debtor was directed to deposit funds to cover the IRP's immediate expenses, which would be reimbursed as part of the Corporate Insolvency Resolution Process (CIRP) costs.

Issue 5: Imposition of Moratorium and Its Implications
Upon admission of the application, a moratorium under Section 14 of the IBC, 2016 was imposed, staying legal actions against the Corporate Debtor, prohibiting asset transfers, and ensuring the continuity of essential goods or services. Exceptions to the moratorium were specified, and its duration was linked to the completion of the CIRP, with provisions for its cessation upon approval of a resolution plan or liquidation order.

Issue 6: Direction for Depositing Funds for IRP's Expenses
The Corporate Debtor was directed to deposit a specified sum to cover the IRP's immediate expenses, ensuring proper accounting and reimbursement by the Committee of Creditors (CoC) as part of the CIRP costs. The order was to be communicated to all relevant parties, including the IRP, for further compliance and consideration in the insolvency resolution process.

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