2019 (11) TMI 186 - AT - Insolvency and Bankruptcy

Admissibility of petition - initiation of CIRP - Failure on part of corporate Debtor to make repayment of loan - Section 7 of the Insolvency and Bankruptcy Code, 2016 - HELD THAT - At the stage of admission of Application under Section 7, the requirement is to give limited Notice and the considerations would be to see whether or not satisfaction by Adjudicating Authority could be reflected on the basis of Sub-Section (5) of Section 7. If there is a financial debt, which is more than ₹ 1 Lakh and there is a default and if the Application is complete, the Application would have to be admitted. The Corporate Debtor is entitled to point out that a default has not occurred in the sense that the debt which may include a disputed claim is not due. Corporate Debtor may point out that the debt is not due by showing that it is not payable in law or in fact. There is no substance in this claim made by the Appellant that if it appears that there is no possibility of keeping the Company a going concern, IBC cannot be invoked - appeal dismissed.

Issues Involved:

1. Jurisdiction of the Resolution Professional in the presence of pending disputes before another judicial forum.
2. Invocation of IBC when the financial creditor aims to liquidate the remaining assets.
3. Respect for the comity of courts concerning the legality of the debt assignment.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Resolution Professional in the presence of pending disputes before another judicial forum:

The Appellant argued that the resolution of disputes between the financial creditor and the corporate debtor should not be adjudicated by the Resolution Professional if such disputes are already pending before another judicial forum like the Debt Recovery Tribunal (DRT). The Appellant contended that this would result in the Resolution Professional replacing the judicial forum considering the dispute.

The Tribunal rejected this argument, stating that there is no provision barring the initiation of proceedings under the Insolvency and Bankruptcy Code (IBC) if relief has already been sought or is pending in another forum. Under Section 238 of the IBC, the provisions of the IBC have overriding effect notwithstanding any inconsistency with other laws. Once an application under Section 7 is admitted, a moratorium under Section 14 prohibits the continuation of pending suits or proceedings against the corporate debtor. Thus, the Tribunal concluded that the existence of pending disputes in another forum does not preclude the initiation of proceedings under the IBC.

2. Invocation of IBC when the financial creditor aims to liquidate the remaining assets:

The Appellant argued that the primary purpose of the IBC is to provide a mechanism for the resolution of claims to keep the company as a "going concern." The Appellant claimed that the financial creditor's sole aim was to liquidate the remaining assets of the corporate debtor, which contradicts the objective of the IBC.

The Tribunal dismissed this argument, emphasizing that at the stage of admission of an application under Section 7, the Adjudicating Authority is not required to consider the feasibility of keeping the company as a going concern. The Tribunal referenced its previous judgment in "Y. Shivram Prasad Vs. S. Dhanapal & Ors." which indicated that efforts to keep a company as a going concern could be made even at the stage of liquidation. The Tribunal concluded that the argument regarding the impossibility of keeping the company as a going concern does not hold merit and rejected the claim.

3. Respect for the comity of courts concerning the legality of the debt assignment:

The Appellant contended that the National Company Law Tribunal (NCLT) should have awaited the decision of the DRT regarding the legality of the debt assignment from Exim Bank to Edelweiss. The Appellant argued that the NCLT should not have decided on the question of assignment due to the principle of comity of courts.

The Tribunal found no force in this argument, stating that the Adjudicating Authority had the jurisdiction to look into the question of whether the debt had been duly assigned to Edelweiss. The Tribunal referred to the assignment deed and the provisions under Section 5(7) of the IBC to conclude that the financial debt had been legally assigned and that Edelweiss qualified as a financial creditor. The Tribunal cited its previous judgment in "Edelweiss Asset Reconstruction Company Ltd. Versus Synergies Dooray Automotive Ltd. & Ors." which held that the Adjudicating Authority cannot enter into a roving enquiry based on mere apprehensions and baseless allegations regarding the assignment agreements. The Tribunal upheld the findings of the Adjudicating Authority and found no reason to interfere.

Conclusion:

The Tribunal dismissed the appeal, finding no substance in the arguments presented by the Appellant. The Tribunal upheld the Adjudicating Authority's decision to admit the application under Section 7 of the IBC, emphasizing that the initiation of IBC proceedings is not barred by the existence of pending disputes in other forums, and the feasibility of keeping the company as a going concern is not a consideration at the stage of admission. The Tribunal also affirmed the legality of the debt assignment to Edelweiss.

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