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2025 (4) TMI 379 - AT - IBCAdmission of Section 7 petition - debt and default above the threshold level - Section 7 application was maintainable for the original amount of debt prior to the GSA or not. Whether there was a debt and default by the Corporate Debtor qua ARC which had arisen on account of the breach of the GSA? - HELD THAT - The ARC has in clear and unambiguous terms stated that NDCs have been issued for those companies whose settlement amount has been paid while the amounts payable by Uniworth Textiles Ltd of Rs. 21.40 crore as per terms of GSA had still not been paid. The letter also clearly stated that if payments were not made by 23.11.2018 ARC would proceed with legal action for recovery of the outstanding dues against the Corporate Debtor. The Corporate Debtor had only adverted attention to the fact that the ARC had already given NDC in respect of Indoworth India Ltd. and Uniworth International Ltd. besides requesting for issue of NDC for Uniworth Ltd. for which substantial payment had been made. However there is no objection made whatsoever to the outstanding settlement amount claimed by the ARC as payable in respect of the Corporate Debtor-Uniworth Textiles and the resultant default. In such a situation where the Corporate Debtor did not make the payments as contemplated in the GSA allowing them to take a stance that the ARC cannot claim revocation of GSA is an illogical and absurd argument - The tone and tenor of the response does not indicate even a muted objection to the revocation of the GSA thus betraying undertone of implicit acceptance. In these circumstances it is inclined to agree with the Adjudicating Authority the Corporate Debtor had acknowledged that the settlement was revoked by the ARC. Perusal of the Section 7 application makes it clear that it is not based on the default of the GSA but founded on the original financial debt which was extended by the ICICI and IFCI to the Corporate Debtor which had been subsequently assigned to the ARC. The Respondent cannot be held to be precluded in any manner from being entitled to initiate a Section 7 application against the Corporate Debtor in the facts of the present case. The nature of debt which has been claimed under Section 7 application is a financial debt. Simply because an GSA was entered into between the parties which GSA suffered breach the nature of debt shall not get changed - The right of the financial creditor would not be wiped out nor the nature and character of the financial debt would change by the mere fact of entering into the GSA and any contrary interpretation would provide undue advantage to the Corporate Debtor and frustrate the objective of IBC. Whether there was debt which was due and payable and default in the payment thereof? - HELD THAT - It is an admitted fact that the GSA entered into both parties provided for a settlement amount of Rs 75 Cr. of which the amount paid by the Corporate Debtor was only Rs 51.10 Cr. Only part payment had been made towards satisfaction of the full and final claim of the financial creditor in terms of the settlement agreement. The ARC in their letter of 22.11.2018 as at para 13 supra had clearly pointed out that the amounts payable by the Corporate Debtor was Rs. 21.40 cr. There has been no specific denial that this amount was not due nor has any proof been submitted of payments to the tune of Rs. 21.40 cr. having been made - the DRT decree clearly establishes debt and default. Even though the order of DRT has been appealed against the order of the DRT has not been stayed by the DRAT. This does not in any way obliterate the fact that debt qua the ARC subsists. More significantly when the DRT decree passed on 04.12.2018 has been noticed also by the highest court of the land in Civil Appeal No.6175/2023 it does not lie in the mouth of the Appellant to state that this decree has not been referred to by the Adjudicating Authority in coming to the decision of debt and default. Under the ambit of Section 7 of the IBC the Adjudicating Authority is to only determine whether a default has occurred and whether the debt which even if disputed remains due and unpaid. The moment the Adjudicating Authority is satisfied that a default has occurred the Section 7 application is to be admitted unless it is incomplete. In the present matter the Adjudicating Authority has rightly concluded that it was satisfied that a debt had arisen qua ARC; that a default on the part of the Financial Creditor-Appellant has occurred and the default is above the threshold limit of Rs. 1 crore. Since debt and default is clearly established there is no infirmity in the impugned order admitting the Section 7 application. Conclusion - The debt and default are established and the application is maintainable. There are no good reasons to interfere with the impugned order - appeal dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS Debt and Default by the Corporate Debtor: The Tribunal examined whether there was a debt and default by the Corporate Debtor towards ARC due to the breach of the GSA. The Appellant argued that the Section 7 application was wrongly admitted based on the alleged failure of the GSA, asserting that substantial payment had been made under the GSA. The Appellant contended that the ARC was estopped from resiling from the GSA terms, having accepted a significant portion of the settlement amount. However, the Tribunal found that the Corporate Debtor had acknowledged the revocation of the GSA and had not contested the outstanding settlement amount claimed by ARC. Legal Framework and Precedents: The Tribunal referred to the IBC provisions, particularly Section 7, which allows financial creditors to initiate insolvency proceedings against a corporate debtor upon default. The Tribunal also considered precedents where the breach of a settlement agreement did not preclude the filing of a Section 7 application based on the original financial debt. Interpretation and Reasoning: The Tribunal held that the original financial debt subsisted despite the GSA, and ARC was entitled to file a Section 7 application based on the original debt. The Tribunal noted that the Section 7 application was not based on the default of the GSA but on the original financial debt extended by ICICI and IFCI to the Corporate Debtor, subsequently assigned to ARC. Competing Arguments and Conclusions: The Tribunal rejected the Appellant's argument that the original debt ceased to exist upon entering into the GSA. It concluded that the nature of the debt did not change due to the GSA, and ARC's right to initiate insolvency proceedings was not affected. Acknowledgment of Debt in Balance Sheet: The Tribunal addressed whether the acknowledgment of debt in the Corporate Debtor's balance sheet constituted an admission of debt for the purposes of a Section 7 application. The Appellant argued that such acknowledgment was insufficient for admitting the application, as it only established the jural relationship for limitation purposes. The Tribunal, however, found that the acknowledgment in the balance sheet, coupled with the part payments made under the GSA, amounted to an admission of liability. Significant Holdings: The Tribunal upheld the Adjudicating Authority's decision to admit the Section 7 application, concluding that debt and default were established, and the application was maintainable. The Tribunal emphasized that the existence of debt and default, even if disputed, triggers the insolvency resolution process under the IBC. Final Determinations: The appeal was dismissed, affirming the Adjudicating Authority's order admitting the Corporate Debtor into the Corporate Insolvency Resolution Process (CIRP). The Tribunal found no merit in the Appellant's contentions and upheld the findings of debt and default above the threshold limit, justifying the initiation of insolvency proceedings.
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