2023 (5) TMI 980 - AT - Insolvency and Bankruptcy

Initiation of CIRP - NCLT admitted the application filed u/s 7 - status / locus of Debenture Trustee - Corporate Debtor failed to make repayment of its dues - assignment of debt to assignment holder - admission of debt and default - HELD THAT - The present is a case where in the reply filed before the Adjudicating Authority the Corporate Debtor did not dispute the debt and default. In the reply filed by the Corporate Debtor it was mentioned that due to COVID-19 there was standstill in the business activities of the Corporate Debtor. The debt and default was an admitted position in the reply filed by the Corporate Debtor. The submission which is much pressed by learned counsel for the Appellant is that the Respondent No.1 had no locus to issue Acceleration Notice dated 26.07.2022. It is submitted that it was only Debenture Trustee who could have taken action in event of default as per the Debenture Trustee Document. In the facts of the present case there is no dispute that event of default took place. After looking into the different clauses of the Debenture Trust Document and Inter-Creditor Agreement it is clear that the Financial Creditor was fully entitled to issue Acceleration Notice issued on 26.07.2022. The Debenture Trustee having already issued Notice of Demand on 13.07.2022 the argument of the Appellant that action has to be taken by Debenture Trustee loses its significance - there are substance in submission of learned counsel for the Appellant that the Financial Creditor was not entitled to issue Acceleration Notice dated 26.07.2022. We do not find any infirmity in the initiating proceeding against the Corporate Debtor under Section 7 there being debt and default undisputed and clearly proved by the fact as noted above. The Financial Creditor stepped in the shoes of the Debenture Holder on the basis of Assignment Deed dated 04.03.2021. There are no substance in grounds raised by the Appellant to interfere with the impugned order - appeal dismissed.

Summary

Issues Involved:
1. Maintainability of Section 7 Application by Financial Creditor.
2. Locus Standi of Financial Creditor to Issue Acceleration Notice.
3. Admissibility of Debt and Default by Corporate Debtor.
4. Compliance with Debenture Trustee Document and Inter-Creditor Agreement.

Summary:

Issue 1: Maintainability of Section 7 Application by Financial Creditor
The Appellant challenged the maintainability of the Section 7 application filed by Catalyst Trusteeship Ltd., arguing that only the Debenture Trustee, Vistra ITCL, was entitled to initiate proceedings against the Corporate Debtor. The Adjudicating Authority admitted the Section 7 application, leading to the present appeal.

Issue 2: Locus Standi of Financial Creditor to Issue Acceleration Notice
The Appellant contended that Respondent No.1 lacked the locus to issue the Acceleration Notice dated 26.07.2022, asserting that only the Debenture Trustee could act in the event of default. However, the Tribunal found that the Financial Creditor was fully entitled to issue the Acceleration Notice as per Clause 9.8 of the Debenture Trustee Document, which allows the lender to take all actions and seek remedies available under applicable laws. The Debenture Trustee had already issued a Demand Notice on 13.07.2022, making the Corporate Debtor liable to comply.

Issue 3: Admissibility of Debt and Default by Corporate Debtor
The Corporate Debtor did not dispute the debt and default in its reply before the Adjudicating Authority. The Tribunal noted that the Corporate Debtor admitted the debt and default, citing business standstill due to COVID-19. The Tribunal concluded that the debt and default were undisputed and clearly proved.

Issue 4: Compliance with Debenture Trustee Document and Inter-Creditor Agreement
The Tribunal examined clauses from the Debenture Trustee Document and the Inter-Creditor Agreement. It concluded that the Financial Creditor had the right to issue the Acceleration Notice and initiate proceedings under Section 7. The Tribunal highlighted that the Financial Creditor had stepped into the shoes of the Debenture Holder based on the Assignment Deed dated 04.03.2021.

In conclusion, the Tribunal found no merit in the Appellant's arguments and dismissed the appeal, upholding the Adjudicating Authority's order admitting the Section 7 application.