2022 (12) TMI 728 - AT - Insolvency and Bankruptcy

Initiation of CIRP - Financial Creditors - requirement of filing of statutory certificate as required by Section 65B(4) of the Evidence Act, 1872 - NCLT admitted the application - It is submitted that application under Section 7 was incomplete, hence, deserved rejection. - HELD THAT - The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 provides for filing of Section 7 application in Form1 accompanied with the documents and records required therein - The Part V also contemplates other documents in order to prove the existence of Financial Debt, the amount and date of default, on basis of which the Adjudicating Authority has come to the conclusion that the Financial Creditor has successfully proved the debt and default. The most important factor to be taken into consideration is that the Corporate Debtor in its reply has neither denied debt nor the default. What is contended by the Corporate Debtor is that it was not proved by the documents as envisaged by Section 7 application. Section 7 application envisage other documents also to prove the debt and default. The Corporate Debtor has also made allegations against the Financial Creditor that the Financial Creditor itself is undergoing insolvency resolution and there are serious allegations of fraud and concealing information. Allegations of fraud and forgery are very easy to make but very difficult to prove. In event, the case of the Corporate Debtor is that the insolvency proceedings were initiated fraudulently or with malicious intent for any purpose other than for resolution of insolvency , it is always open for the Appellant to make application under Section 65 of the Code before the Adjudicating Authority and it is for the Adjudicating Authority to consider such application. Appeal dismissed.

Summary

Issues:
Admission of Section 7 application without certified copies and balance sheet. Compliance with Section 65B(4) of the Evidence Act. Denial of documents by the Corporate Debtor. Requirement of certified copies of entries in Bankers Book. Compliance with Regulation 2A of IBBI Regulations. Proof of debt and default by the Financial Creditor. Allegations of fraud and insolvency by the Corporate Debtor.

Analysis:
The judgment revolves around an appeal filed by the Suspended Director of a Corporate Debtor against the order admitting a Section 7 application by a Financial Creditor. The Financial Creditor had sanctioned Infrastructure Term Loans to the Corporate Debtor, leading to a default in payment of interest and subsequent demand notices. The Adjudicating Authority admitted the Section 7 application, prompting the appeal.

The Appellant argued that the Financial Creditor failed to provide the necessary statutory certificate under Section 65B(4) of the Evidence Act and did not attach a balance sheet to the application, making it incomplete and liable for rejection. They contended that the statement of disbursement was prepared by the Financial Creditor, not a bank, thus lacking credibility. The Appellant emphasized the importance of compliance with Section 7(3) of the Code, requiring specific documents for admission.

The Respondent countered by stating that there was sufficient evidence to prove debt and default, and the Adjudicating Authority rightly admitted the application. They highlighted that the requirement for certified copies of entries in the Bankers Book was added later and not applicable at the time of application. The Corporate Debtor did not deny the executed agreements and disbursement amounts, weakening their argument against the application.

The Tribunal analyzed Regulation 2A of the IBBI Regulations, emphasizing that the Appellant's insistence on certified bank entries was unnecessary based on the timeline of events. They noted that the documents provided by the Financial Creditor, including sanction letters and agreements, were crucial in proving the debt and default. The Corporate Debtor's failure to deny these documents further supported the admission of the application.

The judgment referenced Section 7(3) of the Code and the required documents for proving debt and default, emphasizing the importance of the Corporate Debtor's lack of denial. The Tribunal dismissed the Appellant's reliance on a Supreme Court judgment related to a different context, stating it did not apply to the present case. Additionally, the Tribunal addressed the Corporate Debtor's allegations of fraud and insolvency, suggesting the appropriate legal recourse for such claims.

In conclusion, the Tribunal dismissed the appeal, considering the evidence provided by the Financial Creditor as sufficient to support the admission of the Section 7 application. The judgment highlighted the importance of compliance with relevant regulations and the significance of documentary evidence in insolvency proceedings.