2024 (2) TMI 622 - AT - Insolvency and Bankruptcy

Admission of section 7 application - initiation of CIRP against the Corporate Debtor - existence of debt and default or not - parties had reached an out of court amicable settlement - It is also been strenuously contended that the Financial Creditor has misused the provisions of IBC to use the Adjudicating Authority as a recovery forum - HELD THAT - Having examined the terms and conditions of the Settlement Agreement, there are no hesitation in mind that the Settlement Agreement does not make any mention of any form of NoC to be provided by the Financial Creditor with respect to mortgaged properties or any release of security by the Financial Creditor before the payment of the settlement amount. The Settlement Agreement at Clause 3(ii)(b) makes it amply clear that the security was to be released only on payment of the entire settlement amount. Furthermore, when the security provided by the Corporate Debtor had been charged to the Financial Creditor to secure the loan facility, the Financial Creditor cannot be compelled to accede to issue of NoC for sale of these mortgaged properties prior to payment of debt and that too sans any such specific arrangement provided for in the Settlement Agreement. When the Financial Creditor had repeatedly made it clear that they were strictly relying on the terms and conditions of the Settlement Agreement and that NoC would be released only after settlement amount was received, levelling of allegation by the Corporate Debtor that the Financial Creditor was responsible for their default is devoid of force and substance. It is a well settled proposition of law that only two alternative courses of action are available to the Adjudicating Authority under Section 7(5) of the IBC which is to either admit the application under Section 7(5)(a) or reject the petition under Section 7(5)(b). The moment the Adjudicating Authority is satisfied that a default has occurred, the Application is to be admitted unless it is incomplete. On the question as to whether debt and default was adequately demonstrated before the Adjudicating Authority, basis the records made available before it, the Adjudicating Authority has rightly concluded that it was satisfied with the evidence and material produced before it by the Financial Creditor to prove that a debt had arisen; that a default has occurred and the default is above the threshold limit of Rs. 1 crore. Since debt and default is clearly established, it is opined that there is no infirmity in the impugned order admitting the Section 7 application. Thus, no error has been committed by the Adjudicating Authority in allowing the Section 7 application and admitting the Corporate Debtor into the rigours of CIRP - there are no reason to interfere with the Impugned Order - appeal dismissed.

Summary

Issues Involved:

1. Admission of Section 7 application under IBC against the Corporate Debtor.
2. Alleged violation of principles of natural justice.
3. Impact of pending SARFAESI proceedings on IBC proceedings.
4. Interpretation and adherence to the Settlement Agreement.
5. Financial Creditor's obligation to issue NoC before payment of settlement amount.

Summary:

1. Admission of Section 7 application under IBC against the Corporate Debtor:

The appeal was filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the order dated 20.10.2023 by the National Company Law Tribunal (NCLT), Mumbai Bench-IV, which admitted the Section 7 application filed by ICICI Bank Ltd. for initiating Corporate Insolvency Resolution Process (CIRP) against Darode Jog Realties Pvt. Ltd. The Corporate Debtor had defaulted on a term loan facility of Rs.130 crore sanctioned in August 2015. Despite settlement talks and a Settlement Agreement dated 08.02.2023, the Corporate Debtor failed to pay the agreed Rs.17 crore within the stipulated time, leading to the admission of the Section 7 application.

2. Alleged violation of principles of natural justice:

The Appellant contended that the Restoration Application was allowed without giving the Corporate Debtor an opportunity to file a reply, thus violating the principles of natural justice. However, the tribunal found that the Corporate Debtor was represented during the hearing, and the matter was reserved for orders after considering additional documents. The tribunal concluded that there was no violation of natural justice principles.

3. Impact of pending SARFAESI proceedings on IBC proceedings:

The Appellant argued that since proceedings under the SARFAESI Act, 2002 were pending, the IBC proceedings should not have been pressed. The tribunal held that the pendency of SARFAESI proceedings does not erode the statutory rights of a financial creditor to seek remedy under IBC or create any obstruction for filing an application under Section 7 of IBC.

4. Interpretation and adherence to the Settlement Agreement:

The tribunal examined the Settlement Agreement dated 08.02.2023, which acknowledged the debt of Rs.192.87 crore and stipulated a settlement amount of Rs.17 crore payable within 90 days. The agreement clearly stated that the release of security and issuance of a no-dues certificate would occur only after the receipt of the settlement amount. The tribunal found that the Corporate Debtor had breached the Settlement Agreement by not paying the settlement amount within the agreed timeframe.

5. Financial Creditor's obligation to issue NoC before payment of settlement amount:

The Appellant claimed that the Financial Creditor was obligated to issue a provisional No Objection Certificate (NoC) for mortgaged properties before the payment of the settlement amount. The tribunal found no such obligation in the Settlement Agreement and held that the Financial Creditor was not required to issue NoCs before receiving the settlement amount. The Financial Creditor's refusal to issue NoCs was consistent with the terms of the Settlement Agreement.

Conclusion:

The tribunal concluded that the Adjudicating Authority correctly admitted the Section 7 application, as the debt and default were clearly established. The appeal was dismissed with no costs, affirming the initiation of CIRP against the Corporate Debtor.