2020 (3) TMI 1209 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - time limitation - existence of debt and dispute or not - HELD THAT - In view of section 238A of the IBC, 2016 mandating the application of the Limitation Act to the proceedings before this Tribunal and there being an acknowledgment of debt on the part of the corporate debtor in excess of ₹ 1,00,000 in its financial statement for the year ended March 31, 2018 thereby holding out to all the stakeholders as to the true and fair financial status of the corporate debtor as on the said date, the claim is not barred by limitation. Also, despite proceedings pending before the Debts Recovery Tribunal, this Tribunal designated as an Adjudicating Authority in relation to corporate persons under the I and B Code, 2016 can entertain an application filed by a financial creditor in case of a financial debt and default in existence and in the circumstances we are unable to consider the said ground having any force. The application as filed by the applicant-financial creditor is required to be admitted under section 7(5) of the I and B Code, 2016 - Petition admitted - moratorium declared.

Issues Involved:
1. Authorization of the applicant-bank to initiate proceedings.
2. Whether the claim is barred by limitation.
3. Alleged mala fide initiation of proceedings by the applicant-bank.
4. Impact of the corporate debtor's counterclaim on the proceedings.

Detailed Analysis:

Issue 1: Authorization of the Applicant-Bank
The corporate debtor contended that the application lacked a proper authorization letter, violating rule 4(3) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. They argued that the power of attorney dated May 15, 1997, predated the IBC, 2016, and thus was invalid for this application. However, the Tribunal found that the application was signed by Mr. S. T. Nadarajan, Assistant General Manager of the applicant-bank, with an authorization letter dated October 6, 2018. Citing the NCLAT judgment in Palogix Infrastructure P. Ltd. v. ICICI Bank Ltd., the Tribunal ruled that an officer authorized to grant loans could also initiate insolvency proceedings. Hence, this objection was overruled.

Issue 2: Whether the Claim is Barred by Limitation
The corporate debtor argued that the claim was time-barred, noting that the balance-sheet for the year ended 2015 was beyond the three-year limitation period from the default date. They also contended that entries in the balance-sheet do not constitute an acknowledgment of debt. The Tribunal, however, found several acknowledgments of debt, including the corporate debtor's financial statements for the year ended March 31, 2018, and a one-time settlement offer made in April 2019. The Tribunal cited the Delhi High Court's decision in Bhajan Singh Samra v. Wimpy International Ltd., which held that entries in balance-sheets could extend the limitation period. Consequently, the Tribunal concluded that the claim was not barred by limitation.

Issue 3: Alleged Mala Fide Initiation of Proceedings by the Applicant-Bank
The corporate debtor claimed that the applicant-bank's initiation of multiple proceedings, including those before the Debts Recovery Tribunal (DRT) and under the SARFAESI Act, constituted an abuse of process. The Tribunal noted that despite pending proceedings before the DRT, the IBC, 2016, allows for concurrent insolvency proceedings if there is a financial debt and default. The Tribunal found no merit in the argument of mala fide initiation and ruled that the proceedings were valid.

Issue 4: Impact of the Corporate Debtor's Counterclaim
The corporate debtor highlighted a counterclaim of ?308.04 crores against the applicant-bank, which exceeded the amount claimed by the bank. The Tribunal, referencing the Supreme Court's rulings in Innoventive Industries Ltd. v. ICICI Bank and Mobilox Innovations P. Ltd. v. Kirusa Software P. Ltd., held that a counterclaim does not negate the existence of a financial debt and default. The Tribunal emphasized that the presence of a counterclaim does not invalidate the insolvency application under section 7 of the IBC, 2016.

Conclusion:
The Tribunal admitted the application under section 7 of the IBC, 2016, initiating the corporate insolvency resolution process (CIRP) against the corporate debtor. Mr. Chandramouli Ramasubramaniam was appointed as the interim resolution professional (IRP). The Tribunal declared a moratorium, effective immediately, as per section 14 of the IBC, 2016, halting all suits, asset transfers, and recovery actions against the corporate debtor. The IRP was directed to take necessary steps under sections 15, 17, and 18 of the Code and file a report within 20 days. The powers of the board of directors of the corporate debtor stood superseded.

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