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2024 (11) TMI 998 - AT - IBCDismissal of application filed by the appellant under Section 7 of the Code - Respondent miserably failed to meet its obligation - existence of debt and default - judicious application of mind by the Adjudicating Authority - Appellant assailed the conduct of the Respondent for taking several frivolous grounds including that the application of the Appellant under section 7 of the Code has been rejected earlier and by doctrine of res-judicata the same could not have been filed. Whether there was a debt and default which could trigger Section 7 application filed by the Appellant? - HELD THAT - There was outstanding debt and there was a clear default on the part of the Respondent in meeting its obligation which entitles the Appellant to take suitable remedy as per the Code and therefore, he correctly filed the Application under Section 7 of the Code - there are no meaningful and detailed discussion on this issue in the Adjudicating Authority decision in the Impugned Order, especially on issue of default which is against the spirit of the Code. In view of these discussions, the debt and default is established in favour of the Appellant. Whether, ratio of Vidarbha Industries 2022 (7) TMI 581 - SUPREME COURT was applicable in the present case based on which the Adjudicating Authority rejected the application of the Appellant filed under Section 7 of the Code? - Whether, there was judicious application of mind by the Adjudicating Authority as evident in the Impugned Order while rejecting the application of the Appellant under Section 7 of the Code? - HELD THAT - In the present case, the total outstanding of all lenders was thousands of crores and debt claims of Appellant was itself Rs. 646.38 Crores, whereas the Respondent is now hopeful of Rs. 1271 Crores to be recovered from other telecom companies based on Arbitration etc., which are at present at different stages of being finalised, thus, perception of the Respondent looks far from finality. It is anybody s guess as to when this money, if at all, will come to the Respondent s account after all sort of claims, counter claims and litigations at various legal fora. The Adjudicating Authority has not even discussed the nature of this repayment of Rs. 16915 Crores i.e., whether it was paid in cash component as per loan agreements or major chunk as deemed payable due to conversion of debt into equity as per CDR/ SDR in terms of RBI Guidelines, which Lenders/ Bank had to follow without any option. We note that both the CDR/SDR failed due to default of the Respondent. This could have been relevant factor to determine viability of the Corporate Debtor in terms of Vidarbha Industries - It would have been desirable for the Adjudicating Authority to go into details as what was the total outstanding claims all the lenders pre CDR/SDR as well as post CDR/SDR and what was the total payment made thereon. This would have given a clear picture in terms of total payment made by the Respondent on account of principals, interest and other ancillary charges like penal interest, if any, happened due to non payment on part of the Respondent to the Lenders. The Adjudicating Authority has not gone into any of these details, as such we are not in position to support the Impugned Order rejecting Section 7 application of the Appellant only on the ground of Vidarbha Industries. The Adjudicating Authority has not applied the ratio of Vidarbha Industries correctly in the present case while rejecting the application of the Appellant, filed under Section 7 of the Code. Whether the Adjudicating Authority ignored the acknowledgements of debt and default by the Respondent in its various statements, books of accounts, affidavit in reply and Written Submissions filed before the Adjudicating Authority? - HELD THAT - There are several acknowledgements of debt and default on the part of the Corporate Debtor - there is a clear debt and default backed several acknowledgements by the Respondent which entitled the Appellant to file application under Section 7 of the Code before the Adjudicating Authority. Whether the Appellant is permitted to raise any disputed issues of facts before this Appellate Tribunal through Rejoinder dated 11.04.2023 to the Affidavit in Reply and Additional Affidavit in reply and whether it is an impediment in the present appeal? - HELD THAT - The Appellant pleaded that in the present case, the question as to the applicability of Vidarbha Industries is not a new plea set out by the Appellant. It has its basis in the pleadings of the Respondent as well as the Appellant before the Adjudicating Authority - it is already noted the relevant para of Vidarbha Industries 2022 (7) TMI 581 - SUPREME COURT , Innoventive Industries Ltd. 2017 (9) TMI 58 - SUPREME COURT , Vidarbha Review Order and it is already noted the various financial facts and figures regarding viability of the Corporate Debtor, as such the contentions raised by the Respondent does not hold good. Even without considering the Rejoinder filed by the Appellant, the ratio and applicably of Vidarbha Industries is in the present appeal is required to be taken into consideration along with various financial facts which are found in the pleadings made as well as written submissions and which are based on the financial statements of the Corporate Debtor which are in public domain. Whether, the Appellant was duty bound to agree with majority of the lenders to assign its debts to EARC? - HELD THAT - The Appellant is not duty bound to agree with majority of the lenders to assign its debts to EARC - It is clear that it is the commercial wisdom of the lenders is paramount in deciding to assign its debts or to pursue other remedies including filing under Section 7 of the Code or otherwise and these can t be any judicial intervention on this aspect by the Adjudicating Authority or this Appellate Tribunal. The case is remanded back to the Adjudicating Authority to hear the original petition of the Appellant a fresh, taking into consideration all the relevant facts - Appeal allowed by way of remand.
Issues Involved:
1. Whether there was a debt and default which could trigger Section 7 application filed by the Appellant. 2. Whether the ratio of Vidarbha Industries was applicable in the present case, and whether there was judicious application of mind by the Adjudicating Authority while rejecting the application of the Appellant under Section 7 of the Code. 3. Whether the Adjudicating Authority ignored the acknowledgements of debt and default by the Respondent. 4. Whether the Appellant is permitted to raise any disputed issues of facts before this Appellate Tribunal through the Rejoinder. 5. Whether the Appellant was duty bound to agree with the majority of the lenders to assign its debts to EARC. Detailed Analysis: Issue 1: Debt and Default The Appellant filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, claiming a default amount of Rs. 646,38,06,271/- as of 01.07.2011. The financial distress of the Corporate Debtor led to the classification of the account as Non-Performing Asset (NPA) on 17.06.2016. Subsequent restructuring attempts, including Corporate Debt Restructuring (CDR) and Strategic Debt Restructuring (SDR), failed, leading to further defaults. The Appellant presented evidence of debt and default through various financial statements and acknowledgments by the Respondent, which were not disputed. The Appellate Tribunal found clear evidence of debt and default, entitling the Appellant to file the application under Section 7 of the Code. Issue 2: Applicability of Vidarbha Industries Ratio The Adjudicating Authority based its decision on the Vidarbha Industries case, which allows discretion in admitting Section 7 applications. However, the Appellate Tribunal noted that the circumstances in Vidarbha Industries involved a clear award in favor of the debtor, which was not the case here. The Respondent's claims of recovering Rs. 1271 Crores were speculative and not comparable to the concrete award in Vidarbha Industries. The Tribunal also referred to the Innoventive Industries case, which mandates the admission of Section 7 applications upon establishing debt and default. The Tribunal concluded that the Adjudicating Authority misapplied the Vidarbha Industries ratio, as the Respondent's financial situation did not justify discretion against admitting the application. Issue 3: Ignoring Acknowledgements of Debt and Default The Appellant provided multiple acknowledgments of debt and default by the Respondent, including statements of accounts, annual reports, and utility reports. The Adjudicating Authority's decision lacked detailed analysis of these acknowledgments. The Tribunal found that the Adjudicating Authority ignored clear evidence of debt and default, which should have led to the admission of the Section 7 application. Issue 4: Raising Disputed Issues in Rejoinder The Respondent argued that the Appellant could not raise new issues in the Rejoinder. The Tribunal noted that the primary issue was the applicability of the Vidarbha Industries ratio, which was central to the appeal. The Tribunal determined that the Rejoinder did not introduce new issues but addressed the applicability of the Vidarbha Industries ratio, which was already part of the proceedings. Issue 5: Duty to Agree with Majority Lenders The Respondent claimed that the Appellant was bound to assign its debts to EARC, as per RBI guidelines, because the majority of lenders had done so. However, the Bombay High Court and the Supreme Court clarified that these guidelines are not mandatory and each lender retains discretion. The Tribunal upheld that the Appellant was not obligated to follow the majority and could pursue its legal remedies independently. Conclusion: The Appellate Tribunal allowed the appeal, set aside the Impugned Order, and remanded the case back to the Adjudicating Authority for fresh consideration, directing both parties to appear before the Adjudicating Authority on 11.11.2024. The Tribunal emphasized the need for expeditious disposal of the matter, given its prolonged pendency.
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