2022 (4) TMI 521 - 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 - time limitation - HELD THAT - It is found that the corporate debtor had sent an email on 12.01.2022 proposing a settlement which was rejected by the applicant vide email dated 17.01.2022. Subsequently, the corporate debtor had sent another email dated 23.01.2022 proposing a modified settlement which was also rejected by the applicant on 25.01.2022. Lastly, vide letter dated 07.02.2022, the corporate debtor has sent a settlement proposal which is available on record. This amounts to acknowledgement of debt time and again. All the above documents clearly reflect that the corporate debtor had availed loan being financial debt and has failed to repay the same. Default has occurred which is also admitted on various occasions by the corporate debtor, leaving no scope to reject the application. The present application is complete in terms of Section 7(5) of the Code. The applicant is entitled to claim its dues, establishing the default in payment of the financial debt beyond doubt which is acknowledged and admitted in writing by the corporate debtor. In light of the above facts and records the present application is admitted and CIRP is ordered to be initiated against corporate debtor. Petition admitted - moratorium declared.

Issues Involved:
1. Whether the debt in question qualifies as a financial debt under the Insolvency and Bankruptcy Code, 2016 (IBC).
2. Whether the application under Section 7 of the IBC is maintainable in the absence of a written loan agreement.
3. Whether the application is barred by limitation.
4. Whether the applicant is entitled to initiate Corporate Insolvency Resolution Process (CIRP) against the corporate debtor.

Issue-wise Detailed Analysis:

1. Whether the debt in question qualifies as a financial debt under the Insolvency and Bankruptcy Code, 2016 (IBC):
The applicant, a financial creditor, claimed that the corporate debtor had borrowed funds based on a verbal agreement with an assured interest rate of 18% per annum. The corporate debtor, however, disputed the existence of a financial debt, arguing that there was no written loan agreement or terms and conditions specifying the loan amount, tenure, interest payable, and repayment terms. The tribunal examined the ledger accounts maintained by the corporate debtor, which showed entries acknowledging the debt and interest payments. Additionally, the tribunal noted that the corporate debtor had proposed settlement offers, further acknowledging the debt. Therefore, the tribunal concluded that the debt qualifies as a financial debt under the IBC.

2. Whether the application under Section 7 of the IBC is maintainable in the absence of a written loan agreement:
The corporate debtor contended that in the absence of a written loan agreement, the application under Section 7 of the IBC is not maintainable. The tribunal, however, emphasized that the entries in the corporate debtor's books of account and the settlement proposals amounted to an acknowledgment of the debt. The tribunal referred to various judgments, including Mahabir Cold Storage vs. C.I.T. Patna, which held that entries in the books of accounts constitute an acknowledgment of liability under Section 18 of the Limitation Act, 1963. Consequently, the tribunal held that the application is maintainable despite the absence of a written loan agreement.

3. Whether the application is barred by limitation:
The corporate debtor argued that the application is barred by limitation. The tribunal noted that the date of default was 17.05.2019, and the application was filed on 11.08.2020, which is within the three-year limitation period prescribed under the Limitation Act, 1963. The tribunal also referred to the acknowledgment of debt in the corporate debtor's books of account and the settlement proposals, which extended the limitation period. Therefore, the tribunal held that the application is not barred by limitation.

4. Whether the applicant is entitled to initiate Corporate Insolvency Resolution Process (CIRP) against the corporate debtor:
The tribunal found that the applicant had established the existence of a financial debt and the default in payment by the corporate debtor. The corporate debtor's acknowledgments of debt in its books of account and the settlement proposals further supported the applicant's claim. The tribunal concluded that the application was complete in terms of Section 7(5) of the IBC and that the applicant was entitled to initiate CIRP against the corporate debtor. Consequently, the tribunal admitted the application and ordered the initiation of CIRP against the corporate debtor.

Additional Orders:
The tribunal appointed Mr. Bhaskar Gopal Shetty as the Interim Resolution Professional (IRP) and directed the financial creditor to deposit a sum of ?2 lacs with the IRP to cover expenses. The tribunal also imposed a moratorium as per Section 14(1) of the IBC, prohibiting certain actions against the corporate debtor during the CIRP. The tribunal directed the Registry to communicate the order to the applicant, corporate debtor, and IRP, and to forward a copy to the Insolvency and Bankruptcy Board of India (IBBI) and the Registrar of Companies (ROC) for updating the Master Data.

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