2022 (5) TMI 14 - 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 - The main objections raised by the proposed interveners and loan recall notice dated 17.01.2018 is baseless, illegal and hence, there is no default committed by the respondent corporate debtor. There is also an issue raised of limitation in respect of financial debt which according to Corporate debtor is time barred since corporate debtor was declared NPA on 31.03.2012 and this application is filed in 2018 much later after expiry of the limitation. Further, the respondent/interveners have raised objection regarding legality of the loan agreement dated 27.04.2017. Further, to note that the interveners/respondent corporate debtor never disputed that the loan amounts were disbursed by the applicant financial creditor, even the loan disbursal after the execution of additional loan agreement dated 27.04.2017 have never been denied by the corporate debtor. On the contrary corporate debtor, promoters and strategic investors are shouting loud that money was disbursed after due diligence and on GOMP standing as guarantors along with recommendation from Ministry of Power and Finance. The only objection is that debt is not due, because of the conduct of the applicant while sitting in management of corporate debtor, causing such default which does not hold any water. In the present matter the applicant has succeeded in demonstrating that the debt is payable and default is committed by the respondent time and again. The default of financial facilities of various other financial creditors are also committed by corporate debtor who also have filed various applications under section 7 of the Code pending before this Bench. The main objection of the respondent is that the default is committed by applicant itself, while sitting in management of the corporate debtor since, applicant had major equity in the corporate debtor - Admittedly, as in reply, the respondent never denied the fact of debt and default, but has also admitted debt and default stating default is time barred in view of all of Corporate debtor becoming NPA in 2012 and application filed in 2018. The Corporate debtor pointed out the conduct of applicant because of which default had occurred, which cannot be determined in the proceeding under Section 7 of the Code. The registered office of the Corporate Debtor is situated at Madhya Pradesh and therefore this tribunal has jurisdiction to entertain and try this application - The date of default as per Form 1 part IV is 15/01/2018 and application is filed in February, 2018 hence is within limitation and not barred by limitation It is evident from the record that the application has been filed on the proforma prescribed under Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read with Section 7 of IBC and is complete. Evidently, a default has occurred and the application under Section 7 is complete - application admitted - moratorium declared.

Issues Involved:
1. Application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Financial default and debt acknowledgment.
3. Legality of loan agreements and their execution.
4. Limitation period for filing the application.
5. Allegations of mismanagement and fraud.
6. Role and actions of the promoters and financial creditors.
7. Jurisdiction and procedural compliance.

Issue-wise Detailed Analysis:

1. Application under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The application was filed by Power Finance Corporation Ltd. (PFCL) under Section 7 of the Insolvency and Bankruptcy Code, 2016, to initiate the Corporate Insolvency Resolution Process (CIRP) against Shree Maheshwar Hydel Power Corporation Limited (SMHPCL). The applicant sought to trigger CIRP due to the corporate debtor's failure to repay loans and maintain financial discipline.

2. Financial default and debt acknowledgment:
The corporate debtor defaulted on multiple loans and financial agreements, including a term loan, foreign currency loan, and additional standby loans. The total debt owed by the corporate debtor as of January 15, 2018, was Rs. 2789.42 crores. The debt was acknowledged in the corporate debtor's balance sheets for FY 2013-14 and FY 2016-17, signed by one of the promoters, thus extending the limitation period.

3. Legality of loan agreements and their execution:
The corporate debtor argued that the loan agreements were executed while PFCL was in control of the corporate debtor, making them illegal. However, the tribunal found that the debt was acknowledged and defaulted, and the legality of the loan agreements could not be determined in this proceeding.

4. Limitation period for filing the application:
The corporate debtor was declared a Non-Performing Asset (NPA) on March 31, 2012. However, the debt was acknowledged in subsequent balance sheets, extending the limitation period. The application filed on February 16, 2018, was within the extended limitation period, making it valid.

5. Allegations of mismanagement and fraud:
The promoters and interveners alleged that PFCL mismanaged the corporate debtor and committed fraud by controlling its management and causing defaults. The tribunal found no evidence of fraud or malicious intent by PFCL and rejected the application under Section 65 of the Code, which deals with fraudulent or malicious initiation of proceedings.

6. Role and actions of the promoters and financial creditors:
The promoters failed to infuse the required equity, leading to project delays and financial difficulties. PFCL, along with other lenders, provided financial assistance and guarantees but faced continuous defaults by the corporate debtor. The tribunal emphasized the need for CIRP to bring discipline and resolution to the corporate debtor's affairs.

7. Jurisdiction and procedural compliance:
The tribunal confirmed its jurisdiction to entertain the application as the corporate debtor's registered office is in Madhya Pradesh. The application was found to be complete and in the prescribed format, fulfilling the requirements under Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

Conclusion:
The application under Section 7 of the Insolvency and Bankruptcy Code, 2016, was admitted. Mr. Rishi Parkash Vats was appointed as the Interim Resolution Professional (IRP). A moratorium was declared in relation to the corporate debtor, prohibiting certain actions as per the Code. The financial creditor was directed to deposit a sum of Rs. 2 lacs with the IRP for expenses. The tribunal's order emphasized the need for CIRP to resolve the corporate debtor's financial issues and ensure accountability among all parties involved.

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