2020 (10) TMI 586 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - HELD THAT - Rule 7 of the Insolvency Bankruptcy (Application to Adjudicating Authority) Rules, 2016, empowers this Adjudicating Authority to look into the documents which are being filed by the Corporate Applicant and to ascertain whether the said documents are in order. It must be noted here that this Adjudicating Authority is not a mere stamping authority and is required to apply its mind in relation to the veracity of the documents filed correlating with Annexures required to be enclosed under the prescribed form, namely Form 6 under the Insolvency Bankruptcy (Application to Adjudicating Authority) Rules, 2016. It is evident from the record or proceedings that the matters were initially reserved for orders on 08.11.2019 and thereafter, it was posted for clarifications on 18.11.2019 and an opportunity to rectify the defects in the Application as per proviso the sub - section (4) of Section 10 of IBC, 2016. In spite of the same the discrepancies in the documents in relation to the Audited Balance Sheet as on 31.03.2018 31.03.2019 and for the period ending 15.09.2019 still persists and as such the present Application filed by the Corporate Applicant is being surrounded with doubts. Hon'ble Supreme Court in a catena of decisions has held that the purpose and object of the I B Code, 2016 is only for Resolution and not otherwise. However, a perusal of the present Application would go on to show that it has been filed by the Applicant with an ulterior motive to usurp the provisions of Section 10 of the I B Code, 2016 for the purpose of protection of the asset which has been given for the benefit of a group company, in order to secure the loan availed from the Financial Creditor. The reason stated by the Corporate Applicant for filing its Application under Section 10 of the I B Code/2016, is viewed by this Authority as a process of subverting the primary object of the I B Code, 2016. This Authority does not deem fit and appropriate for considering this Application under Section 10 of I B Code, 2016 - Application dismissed.

Summary

Issues:
- Application filed under Section 10 of the Insolvency and Bankruptcy Code, 2016 by a Corporate Applicant seeking to initiate the Corporate Insolvency Resolution Process (CIRP) on its own.

Detailed Analysis:
1. The Applicant, a Private Limited Company, filed an Application invoking Section 10 of the I&B Code, 2016, due to a default by a principal borrower to Bank of Baroda, for which the Applicant had guaranteed repayment. The Applicant sought to declare moratorium and appoint an Interim Resolution Professional.
2. The Applicant owns a property under development in Pondicherry and, due to guarantee obligations, filed the Application to protect the asset. The Application detailed the Corporate Applicant's incorporation, capital, and registered office.
3. The Application disclosed financial/operational debt details totaling ?55,18,00,000, with ?42,74,57,817 in default as of January 31, 2019. The consolidated statement of dues listed Financial Creditors, Operational Creditors, and Statutory Dues.
4. The Financial Creditor, Bank of Baroda, issued an E-auction Sale Notice mentioning the Corporate Guarantors, including the Corporate Applicant. The Financial Creditor supported initiating CIRP against the Corporate Debtor under Section 10 of the Code.
5. The Financial Creditor highlighted discrepancies in the amount mentioned and the failure to disclose collateral securities, alleging the Applicant's intention to defeat recovery measures. The Financial Creditor initiated SARFAESI measures and auctioned Secured Assets.
6. The Tribunal referred to a judgment emphasizing adherence to prescribed records and information under Section 10 and Form 6 rules. The Applicant's financial statements raised concerns about revenue, stock, and purchases.
7. Discrepancies in records, especially in Audited Balance Sheets, raised doubts about the Application's veracity. The Tribunal noted its duty to scrutinize documents filed by the Applicant and ensure compliance with prescribed forms and rules.
8. Despite opportunities to rectify defects, persistent discrepancies in documents related to financial statements cast doubts on the Application's credibility. The Tribunal emphasized the I&B Code's purpose for resolution, not asset protection through ulterior motives.
9. Considering the discrepancies and ulterior motives, the Tribunal dismissed the Application under Section 10 of the I&B Code, 2016, without costs, as it deemed unfit for consideration based on the circumstances presented.