2017 (8) TMI 491 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - Insolvency and Bankruptcy Code, 2016 - Held that - On examination of the balance sheet (provisional) it transpires that there is a contrast between the assets disclosed and the corresponding liabilities shown. The provision for realization of debt appears to be significantly insufficient comparing the assets (whether tangible or intangible) of the Company. The Insolvency Professional can iron out all these creases. It is of the view that by the assistance of an expert such discrepancy can be resolved. For this reason as well the Admission is hereby approved. Nevertheless, the decision on Admission as pronounced hereinabove is subject to a qualification. Referring to verbatim the provisions of Section 14 of the Code is that on the commencement of the Insolvency process the Moratorium shall be declared for prohibiting any action to recover or enforce any security interest created by the Corporate Debtor in respect of its property. Relevant section which needs in-depth examination is section 14(1)(c) of The Code. The outcome of this discussion is that the Moratorium shall prohibit the action against the properties reflected in the Balance Sheet of the Corporate Debtor. The Moratorium has no application on the properties beyond the ownership of the Corporate Debtor. For the sake of completeness it is worth to refer that the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (the SARFAESI Act) may be having different criteria for enforcement of recovery of outstanding debt, which is not the subject matter of this Bench. Before I part with it is necessary to clarify my humble view that The SARFAESI Act may come within the ambits of Moratorium if an action is to foreclose or to recover or to create any interest in respect of the property belonged to or owned by a Corporate Debtor, otherwise not. To conclude the Application under Section 10 of The Code is hereby Admitted subject to the exception as carved out supra. The consequential directions shall be that the provisions of Section 14 of The Code i.e. Moratorium shall come into operation.

Summary

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 10 of the Insolvency and Bankruptcy Code, 2016.
2. Examination of the debtor's financial status and the inclusion of assets in the balance sheet.
3. Application of the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016.
4. Role and responsibilities of the Interim Resolution Professional (IRP).

Issue-wise Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 10 of the Insolvency and Bankruptcy Code, 2016:
The Corporate Debtor filed a petition on 19th June 2017, invoking Section 10 of the Insolvency and Bankruptcy Code, 2016, to initiate CIRP against itself. The application aimed at commencing the insolvency resolution process due to the debtor's inability to repay a financial debt amounting to ?4,43,70,739/-. The debt was initially provided by the Oriental Bank of Commerce and later assigned to Asset Reconstruction Company of India Limited (ARCIL). The debtor argued that admitting the petition would trigger the moratorium under Section 14, halting all recovery actions under the SARFAESI Act.

2. Examination of the debtor's financial status and the inclusion of assets in the balance sheet:
The debtor's provisional balance sheet as of 5th June 2017 was examined, showing liabilities and assets. The assets did not include the immovable properties mortgaged to the bank. The balance sheet reflected liabilities under "Short Term Borrowings," "Trade Payable," and "Current Liabilities," but lacked detailed schedules. The debtor attempted to demonstrate ongoing business operations and potential for revival, supported by revenue generation and profit figures.

3. Application of the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016:
The moratorium under Section 14 prohibits actions to recover or enforce security interest against the corporate debtor's property. However, the tribunal clarified that the moratorium applies only to properties owned by the corporate debtor, as indicated by the term "its" in Section 14(1)(c). Properties not owned by the corporate debtor, such as personal properties of promoters given as security, do not fall within the moratorium's ambit. The tribunal emphasized that the statutory language must be interpreted as it stands, without adding or substituting words.

4. Role and responsibilities of the Interim Resolution Professional (IRP):
The tribunal approved the appointment of Mr. Rajendra Karanmal Bhuta as the Interim Resolution Professional (IRP). The IRP is tasked with managing the corporate debtor's affairs, ensuring cooperation from the debtor's personnel, and maintaining the operations as a going concern. The IRP is also responsible for public announcements and submitting a progress report within one month of the commencement of the insolvency resolution process.

Conclusion:
The application under Section 10 was admitted, initiating the Corporate Insolvency Resolution Process. The moratorium under Section 14 came into effect, but only applied to properties owned by the corporate debtor. The IRP was directed to take necessary actions to expedite the insolvency resolution process and submit a progress report within one month.