2020 (7) TMI 533 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - pendency of SARFAESI proceeding - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - HELD THAT - It is a settled legal position that the pendency of the SARFAESI proceeding or other dispute does not prevent a financial creditor to trigger the corporate insolvency resolution process because the nature of remedy being sought for under the provisions of the I and B Code is Remedy in Rem in respect of the CD. This Adjudicating Authority is satisfied that corporate debtor availed the loan/credit facilities from the financial creditor; Existence of debt is above Rs. one lakh; Debt is due; Default has occurred on May 1, 2000; The petition has been filed within the limitation period as entire matter entangled in the court cases and clear cause of action arouse only after vacation of the stay by the hon'ble High Court on March 7, 2018. Both the corporate debtor and the guarantors are acknowledging the debts by offering repeated one-time settlement proposals after the application is filed before the Adjudicating Authority on August 21, 2018. Charges filed in the Registrar of Companies has not been satisfied; Copy of the application filed before the Tribunal has been sent to the corporate debtor and the application filed by the petitioner-bank under section 7 of the IBC is found to be complete for the purpose of initiation of the corporate insolvency resolution process against the corporate debtor. Application admitted.

Summary

Issues Involved:

1. Default in repayment of term loans and cash credit facilities.
2. Pendency of one-time settlement proposals.
3. Limitation period for filing the petition.
4. Appointment of Interim Resolution Professional (IRP).
5. Declaration of moratorium.

Detailed Analysis:

1. Default in Repayment of Term Loans and Cash Credit Facilities:
The financial creditor, Bank of Baroda (erstwhile Dena Bank), filed an application under section 7 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of the corporate insolvency resolution process (CIRP) against the corporate debtor, Pithampur Poly Products Ltd., due to default in repayment of term loans and cash credit facilities. The bank sanctioned term loans of ?7,01,49,000 and a cash credit limit of ?4,34,00,000, totaling ?11,35,49,000. The corporate debtor defaulted on May 1, 2000, with total dues claimed at ?2,87,87,58,545.91 as of August 8, 2018.

2. Pendency of One-Time Settlement Proposals:
The corporate debtor submitted multiple one-time settlement proposals to the financial creditor, with the latest proposal dated February 21, 2019, offering ?3.725 crores. The proposals were rejected by the financial creditor. The corporate debtor argued that the settlement negotiations indicated acknowledgment of debt and requested adjournment of the proceedings.

3. Limitation Period for Filing the Petition:
The corporate debtor contended that the claim was barred by limitation based on the Supreme Court judgment in B. K. Educational Services P. Ltd. v. Parag Gupta and Associates. However, the financial creditor argued that the limitation period was tolled due to a stay order by the High Court of Madhya Pradesh, which was vacated on March 7, 2018, allowing the financial creditor to take recovery steps. The application was filed on August 21, 2018, within the limitation period.

4. Appointment of Interim Resolution Professional (IRP):
The financial creditor proposed the name of Mr. Jagdish Kumar as the IRP, who consented to the appointment. The Tribunal appointed Mr. Jagdish Kumar as the IRP and directed him to make a public announcement of the moratorium and follow the provisions of the Insolvency and Bankruptcy Code, 2016.

5. Declaration of Moratorium:
The Tribunal declared a moratorium effective from the date of the order, prohibiting the institution or continuation of suits or proceedings against the corporate debtor, transferring or disposing of its assets, and recovery of property by owners or lessors. The moratorium will remain in effect until the completion of the CIRP.

Observations:
The Tribunal observed that the financial creditor had submitted the necessary documents, including loan agreements, statements of accounts, and CIBIL reports, confirming the default. The corporate debtor's acknowledgment of debt through repeated settlement offers indicated a continuous cause of action. The Tribunal emphasized the need for a viable resolution plan, suggesting the committee of creditors consider loading interest at the bank's base rate plus 1% from the date of default to the implementation of MCLR and further at one year MCLR or one year MCLR plus 1% without penal interest.

Order:
The Tribunal admitted the petition under section 7 of the IBC, initiating the CIRP against the corporate debtor. The IRP was directed to adhere to the timeline for completing the CIRP and perform duties as specified under the IBC. The registry was instructed to communicate the order to the financial creditor, corporate debtor, IRP, and Registrar of Companies, Gwalior, Madhya Pradesh.