2024 (6) TMI 1425 - Tri - IBC

Maintainability of application - default within the meaning of IBC and whether Application can be admitted after restructuring of loans, especially when approval for the Scheme of Arrangement for restructuring of the loans is pending in NCLT - Applicability of the decision of the Ho ble Supreme Court in Vidarbha Industries Power Ltd. vs. Axis Bank Ltd. 2022 (7) TMI 581 - SUPREME COURT . Maintainability of the Application - HELD THAT - The CA No. 120/2019 in CP(IB) No. 330/ALD/2018 filed in this respect has been decide by us by a separate order dated 03.06.2024 holding that the Judgment of the Hon ble Supreme Court in case of Dharani Sugars and Chemicals Limited vs. Union of India 2019 (4) TMI 230 - SUPREME COURT is not applicable in the present case and the present Application filed on the direction of the RBI issued vide its letter dated 14.08.2018 in compliance of the order of the Supreme Court in case of Chitra Sharma 2018 (8) TMI 661 - SUPREME COURT , is legally maintainable and accordingly , CA 120/2019 has been dismissed . Therefore, the present Application under consideration is held to be legally maintainable. Whether there is Debt and Default? - HELD THAT - In the present case, default has occurred and ICICI Bank s Section 7 Petition is complete providing all the details of debts and default as required in Part IV of the Application and attaching all the necessary supporting documents including ROD from NeSL along with CIBIL Report and CIRLC Report from RBI portal as required in Part V of the Application and there is no disciplinary proceeding against the proposed IRP. Considering that all the elements are fulfilled as required under IBC, it is found that this Application deserves to be admitted u/s 7 for starting CIRP against the Corporate Debtor. Applicability of the decision of the Ho ble Supreme Court in Vidarbha Industries Power Ltd. vs. Axis Bank Ltd. 2022 (7) TMI 581 - SUPREME COURT - HELD THAT - If the Corporate Debtor feels about its viability, feasibility and financial health , it would be more beneficial for it after its resolution under IBC is done expeditiously before its assets get depleted. Therefore, it is opined that its fast resolution would be in its best of interest to put it back on feet to enable it to pay its debt fast and revive its business. Therefore , we are not inclined to accept the contention of Feasibility , Viability and Financial Health being good reasons to apply our discretion for not admitting the application u/s 7(5) after we have determined that default has occurred. On the review petition in case of Vidarbha Industries Power Ltd., the Hon ble Supreme Court has held in order dated 22.09.2022 that it is well settled that the judgements and observations in judgments are not to be read as provisions of statute and judicial utterances and/or pronouncements are in the setting of the facts of a particular case. Therefore, after clarification by the Hon ble Supreme Court in the review petition of its decision in the case of Vidarbha Industries Power Ltd., it has been made clear that the decision given by the Hon ble Supreme Court in the case of Vidarbha Industries Power Ltd. was on the facts of that particular case and no ratio was laid down about Section 7(5) of the I B Code, 2016 being mandatory or discretionary. Conclusion - The Applicant/Financial Creditor has proved the debt and the default, which is more than the threshold limit of one lakh at the relevant time and even more than Rs. 1crore the limit applicable at present. The application is also filed within limitation period and complete in all respect and a resolution professional is also proposed as per section 7(3)(b). Accordingly, the present application under Section 7, has been found fit to be admitted as per Section 7(5) of the I B Code, 2016. Application admitted.

Summary

1. ISSUES PRESENTED and CONSIDERED

(a) Maintainability of the Application, especially in light of the decision of the Supreme Court in Dharni Sugar And Chemicals Ltd. vs. Union of India.

(b) Whether there is a default within the meaning of IBC and whether the Application can be admitted after the restructuring of loans, especially when approval for the Scheme of Arrangement for restructuring of the loans is pending in NCLT.

(c) Applicability of the decision of the Supreme Court in Vidarbha Industries Power Ltd. vs. Axis Bank Ltd.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Maintainability of the Application:

The Corporate Debtor argued that the Application filed under the direction of the RBI was not maintainable. However, the Tribunal held that the Application was legally maintainable as the validity of its filing had been upheld by the Allahabad High Court and the Supreme Court. The judgment of the Supreme Court in Dharni Sugars was found not applicable to the present case.

(b) Whether there is Debt and Default:

• Relevant legal framework and precedents: The Tribunal referred to the provisions of the Insolvency and Bankruptcy Code (IBC) and relevant precedents, including Innoventive Industries Ltd. v. ICICI Bank and E.S. Krishnamurthy v. Bharath Hi-Tecch Builders.
• Court's interpretation and reasoning: The Tribunal found that there was a clear default in the repayment of the loan. The Corporate Debtor had admitted to liquidity issues and default in its reply. The Tribunal rejected the argument that the default ceased to exist after the restructuring plan and the Scheme of Arrangement were finalized.
• Key evidence and findings: The Tribunal relied on evidence such as NeSL records, CRILC reports, and admissions by the Corporate Debtor regarding default and restructuring plans.
• Application of law to facts: The Tribunal applied the legal provisions of IBC to the facts, finding that the default was established, and the application was complete, fulfilling the requirements for admission under Section 7.
• Treatment of competing arguments: The Tribunal considered and rejected the Corporate Debtor's arguments regarding the non-existence of default due to restructuring and pending approval of the Scheme of Arrangement.
• Conclusions: The Tribunal concluded that there was a debt and default, and the Application was complete, leading to its admission under Section 7 of the IBC.

(c) Applicability of the decision of the Supreme Court in Vidarbha Industries Power Ltd. vs. Axis Bank Ltd.:

• Relevant legal framework and precedents: The Tribunal considered the Vidarbha judgment and subsequent clarifications by the Supreme Court.
• Court's interpretation and reasoning: The Tribunal found that the Vidarbha judgment was specific to its facts and did not lay down a general principle regarding discretion under Section 7(5) of the IBC.
• Key evidence and findings: The Tribunal noted the Supreme Court's clarification that the decision in Vidarbha was not contrary to the principles established in Innoventive Industries.
• Application of law to facts: The Tribunal applied the principles from Innoventive Industries, finding that once a default is established, the application must be admitted.
• Treatment of competing arguments: The Tribunal rejected the Corporate Debtor's arguments for exercising discretion to reject the Application based on the Vidarbha judgment.
• Conclusions: The Tribunal concluded that the Vidarbha decision did not apply to the present case, and the Application should be admitted based on established default.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete."
• Core principles established: The Tribunal reinforced the principle that once a default is established, and the application is complete, it must be admitted under Section 7 of the IBC.
• Final determinations on each issue: The Application was found to be maintainable, the default was established, and the Vidarbha judgment was not applicable, leading to the admission of the Application and initiation of CIRP against the Corporate Debtor.

The Tribunal appointed Mr. Bhuvan Madan as the Interim Resolution Professional and directed the commencement of CIRP against the Corporate Debtor, imposing a moratorium as per Section 14 of the IBC.