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2023 (1) TMI 812 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP with a malicious intent or not - grievance of the Appellant is that, the 1st Respondent / Bank had declared the account of the 2nd Respondent / Corporate Debtor as Fraud, without any cogent proof and later, lodged a complaint with the Enforcement Agencies, which was a violation of the Corporate Debtor s basic rights, guaranteed under the Constitution of India - case making out for insolvency or not - HELD THAT - It cannot be forgotten that an Application for initiation of Corporate Insolvency Resolution Process, was made on 19.08.2021, by the 1st Respondent / Bank, and the Date of Default, was 31.10.2018. As such, the Application, filed under Section 7 of the Code, by the 1st Respondent / Bank, before the Adjudicating Authority, is well within time and its Ex-facie, is maintainable in Law, as held by this Tribunal. In the instant case, the Corporate Debtor, had admitted the Debt and not disputed the same. Even the Appellant s offer of Rs. 6 Crores, in respect of the dues of Rs.24 Crores, was not acceptable to the 1st Respondent / Bank, and the last letter for One Time Settlement, was made on 25.05.2021. It is not out of place for this Tribunal, to make a pertinent mention that the ability / inability of the Appellant, to settle his account(s), is not germane, in regard to the commencement of the Corporate Insolvency and Resolution Process proceedings. Because of the latent and patent fact, that the I B Code, 2016, is for Resolution, and not a Recovery Mechanism, in the earnest opinion of this Tribunal - It cannot be gainsaid that Classification of an Account as Fraud, by the 1st Respondent / Financial Creditor / Bank, does not hinder the Bank, from considering the OTS Proposal, and the Offer of Rs.6 Crores, as against the due of Rs.24 Crores, was not acceptable to the 1st Respondent / Financial Creditor / Bank. Although, a Notice, was issued to the Appellant, to improve his Offer, the Appellant, had not availed the same. As for as the present case is concerned, the Corporate Debtor, had not disputed the Debt, but admitted the same. There is no Dispute, in regard to the grant of Term Loan Facilities or about the Corporate Debtor, being in Default - The amount of Debt, given to the Corporate Debtor was Rs.23,21,89,000/- and that a Sum of Rs.31,17,20,210.16 was the amount in Default, as on 19.08.2021. - The Default occurred when the Account of the Corporate Debtor, was classified as Non Performing Asset, on 31.10.2018. Keeping in mind of the fact that the Financial Debt and Default of the Corporate Debtor, were established by the 1st Respondent / Financial Creditor / Bank, based on the facts and circumstances of the instant case which float on the surface, on going through the the impugned order dated 09.06.2022, passed by the Adjudicating Authority, (National Company Law Tribunal, Division Bench I, Chennai) in CP(IB)/203(CHE)/2021 (Filed by the 1st Respondent / Petitioner / Financial Creditor), under Section 7 of the I B Code, 2016, read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, comes to a consequent conclusion that the Adjudicating Authority (Tribunal), had rightly exercised its subjective discretion in a right thinking and sound manner, in admitting the Application in CP(IB)/203(CHE)/2021, which is free from any Legal Errors. Accordingly, the instant Appeal fails. Appeal dismissed.
Issues Involved:
1. Validity of the Financial Creditor's claim and debt default by the Corporate Debtor. 2. Classification of the Corporate Debtor's account as a "Fraud Account". 3. The applicability of the Insolvency and Bankruptcy Code (IBC) for recovery proceedings. 4. Discretionary power of the Adjudicating Authority under Section 7(5)(a) of the IBC. 5. The impact of the Corporate Debtor's financial health and viability on the initiation of CIRP. Detailed Analysis: 1. Validity of the Financial Creditor's Claim and Debt Default by the Corporate Debtor: The Adjudicating Authority observed that the Financial Creditor claimed a sum of Rs. 31,17,20,210.16 as due and payable by the Corporate Debtor, with the date of default being 31.10.2018. The debt and default were proven beyond reasonable doubt, and the application was admitted, declaring a moratorium and appointing an Interim Resolution Professional. The Corporate Debtor admitted the debt and default, and the application was within the limitation period, making it maintainable in law. 2. Classification of the Corporate Debtor's Account as a "Fraud Account": The Corporate Debtor argued that the account was classified as fraud without proper notification or evidence, impairing its ability to engage in settlement talks. The CBI investigation did not find any diversion of funds. However, the classification of the account as fraud did not hinder the bank from considering a One Time Settlement (OTS) proposal. The bank's refusal to accept the Corporate Debtor's OTS offer was based on its discretion and the offer's inadequacy. 3. The Applicability of the Insolvency and Bankruptcy Code (IBC) for Recovery Proceedings: The Appellant contended that the IBC proceedings were used as a pressure tool for recovery, which is not the intent of the Code. The IBC aims for resolution rather than recovery, and the Corporate Debtor's financial health should be considered. The Tribunal noted that the IBC is not a money recovery legislation but aims to place the Corporate Debtor on its feet. 4. Discretionary Power of the Adjudicating Authority under Section 7(5)(a) of the IBC: The Appellant argued that Section 7(5)(a) of the IBC is discretionary, allowing the Adjudicating Authority to consider the Corporate Debtor's financial health and viability. The Tribunal referred to the Supreme Court's judgment in Vidarbha Industries Power Limited v. Axis Bank Limited, emphasizing that the Adjudicating Authority must apply its mind to relevant factors, including the overall financial health of the Corporate Debtor. The Tribunal found that the Adjudicating Authority exercised its discretion soundly in admitting the application. 5. The Impact of the Corporate Debtor's Financial Health and Viability on the Initiation of CIRP: The Corporate Debtor's financial health and viability were considered, but the Tribunal found that the debt and default were established, justifying the initiation of CIRP. The Corporate Debtor's willingness to honor its repayment obligations was noted, but the inability to settle the account was not germane to the commencement of CIRP proceedings. Conclusion: The Tribunal concluded that the Financial Debt and Default were established by the Financial Creditor, and the Adjudicating Authority rightly exercised its discretion in admitting the application. The appeal was dismissed, and the connected interim applications were closed.
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