2019 (3) TMI 618 - Tri - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - corporate debtor - credit facilities availed - default in repayment of the outstanding huge debt to the applicant financial creditor - main objection raised by the respondent corporate debtor is that despite several request the applicant financial creditor failed to provide no objection Certificate (NOC) in favour of buyers of the corporate debtor for registration of the ownership of the commercial space in respect of the buyers. Respondent company has also raised objection of forum shopping and submitted that applicant has already initiated action under the provisions of SARFAESI Act and also has filed original application for adjudication of the claim before DRT which is still sub judice - Held that - Insolvency and Bankruptcy Code, 2016 being a complete Code and Union Law, will prevail over other later laws like the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and SARFAESI Act, 2002. As per Section 238 of the Code, the provisions of the Code are to be given effect to notwithstanding anything contrary contained in any other later laws - the objection in this regard will not sustain as initiation and pendency of proceedings in different forums is no bar for initiation of Corporate Insolvency Resolution Process under Section 7 of the Code in view of the overriding effect given to the provisions of Section 238 of the Code. Respondent has raised another objection that the present application is not maintainable as applicant bank can only act through its authorized representative - Held that - In the present case Applicant bank has filed specific power of attorney in favour of Shri Rajesh Kumar dated 11th August, 2017 stating that pursuant to board resolution dated 27th July, 2017 passed by board of directors of applicant bank the specific power of attorney dated 27th August, 2017 has been executed in favour of Shri Rajesh Kumar. Admittedly Shri Rajesh Kumar is working in a senior post in Scale-V as Asst. General Manager of the applicant bank and has preferred the present application on behalf of the applicant bank. In the facts there is no doubt that Shri Rajesh Kumar not only has been authorized but is also competent to file the present application on behalf of the applicant bank. Respondents have also taken a stand that the Corporate Debtor has valuable asset for future earnings and shall meet the default - Held that - Such contention has no force when respondent company has committed default and has failed to repay the dues as per the loan agreement. Mere contention that the corporate debtor will clear the dues in future would not help the corporate debtor as admittedly default continues. Once there is a default in repayment of debt the applicant has a right to press for initiation of Corporate Insolvency resolution Process under the Code. The procedure in relation to the Initiation of Corporate Insolvency Resolution Process by the Financial Creditor is delineated under Section 7 of the Code, wherein only Financial Creditor / Financial Creditors can file an application. As per Section 7(1) of the Code an application could be maintained by a Financial Creditor either by itself or jointly with other Financial Creditors. The expressions Financial Creditor and Financial debt have been defined in Section 5 (7) and 5 (8) of the Code and precisely Financial debt is a debt along with interest, if any, which is disbursed against the consideration for time value of money - In the present case applicant bank had sanctioned and disbursed loan amounts recoverable with applicable interest by entering in to loan agreements with the corporate debtor. The corporate debtor had borrowed the credit facilities against payment of interest as agreed between the parties. The loan was disbursed against the consideration of time value of money with a clear commercial effect of borrowing. Moreover the debt claimed in the present application includes both the component of outstanding principal and interest. In that view of the matter not only the present claim will come within the purview of Financial Debt but also the applicant bank can clearly be termed as Financial Creditor so as to prefer the present application under Section 7 of the Code. In the case on hand, it is seen that respondent corporate debtor has committed default in repayment of the outstanding financial debt. On a bare perusal of Form - I filed under Section 7 of the Code read with Rule 4 of the Rules shows that the form is complete and there is no infirmity in the same. Accordingly, it is seen that the application of the financial creditor is complete and there is no disciplinary proceeding pending against the proposed IRP. We are satisfied that the present application is complete and the applicant financial creditor is entitled to claim its outstanding financial debt from the corporate debtor and that there has been a default in payment of the financial debt - thus in terms of Section 7(5)(a) of the Code, the present application is admitted. Application allowed - public announcement shall be made by the Interim Resolution Professional immediately (3 days as prescribed by the IBBI Regulations) - moratorium in terms of Section 14 of the Code declared.

Summary

Issues Involved:

1. Initiation of Corporate Insolvency Resolution Process (CIRP)
2. Authorization to file the application
3. Non-issuance of No Objection Certificate (NOC) by the financial creditor
4. Pendency of proceedings under SARFAESI Act and DRT
5. Viability of restructuring the loan
6. Admissibility of application under Section 7 of the Insolvency and Bankruptcy Code, 2016

Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP):
The Union Bank of India, as a financial creditor, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, to initiate the Corporate Insolvency Resolution Process (CIRP) against M/s IP Construction Pvt. Ltd., the corporate debtor. The application was duly filed by an authorized representative of the bank, and the proposed Interim Resolution Professional (IRP), Ms. Anju Agarwal, was found to meet the requirements of Section 7(3)(b) of the Code.

2. Authorization to file the application:
The respondent contended that the authorization was solely based on a specific power of attorney without a Board resolution. However, the tribunal found that a specific power of attorney dated 11th August 2017, executed by three General Managers of the applicant bank, authorized Shri Rajesh Kumar to file the application. This was pursuant to a Board Resolution dated 27th July 2017. The tribunal held that the authorization was valid and Shri Rajesh Kumar was competent to file the application.

3. Non-issuance of No Objection Certificate (NOC) by the financial creditor:
The respondent alleged that the financial creditor failed to provide NOC for the registration of ownership of commercial spaces, resulting in unsold properties. The tribunal noted that the procedure for issuing NOC was clearly laid out in the sanction letter, which required the deposit of sale proceeds in an escrow account. The corporate debtor failed to comply with these terms and did not request NOC as per the agreed procedure. Therefore, the objection regarding the non-issuance of NOC was not sustained.

4. Pendency of proceedings under SARFAESI Act and DRT:
The respondent argued that since proceedings under the SARFAESI Act and a recovery suit before the DRT were already initiated, the present application under the Insolvency and Bankruptcy Code was not maintainable. The tribunal clarified that the pendency of proceedings under other laws does not bar the initiation of CIRP under the Code. Section 238 of the Code provides an overriding effect, and the tribunal cited precedents affirming that the Code prevails over other laws.

5. Viability of restructuring the loan:
The respondent claimed that a viable restructuring plan could be achieved with the financial creditor's cooperation. The tribunal emphasized that financial transactions and compromises are to be settled by the parties themselves. In the absence of a binding restructuring agreement, the tribunal cannot indefinitely extend time or defer the application. The tribunal stressed that time is of the essence under the Code, and further time for restructuring could not be granted.

6. Admissibility of application under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The tribunal examined whether the application met the requirements of Section 7(5)(a) of the Code, which includes the occurrence of default, completeness of the application, and no pending disciplinary proceedings against the proposed IRP. The tribunal found that the applicant bank had provided sufficient evidence of the financial debt and default. The application was complete, and no disciplinary proceedings were pending against the proposed IRP. Consequently, the tribunal admitted the application and initiated the CIRP against the corporate debtor.

Conclusion:
The tribunal admitted the application under Section 7 of the Insolvency and Bankruptcy Code, 2016, and appointed Ms. Anju Agarwal as the Interim Resolution Professional. A public announcement was directed to be made, and a moratorium was declared in terms of Section 14 of the Code. The tribunal also instructed all personnel connected with the corporate debtor to cooperate with the IRP in managing the company's affairs.