2021 (3) TMI 62 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of loans - Financial Debt - scope of section 7 of the Insolvency and Bankruptcy Code, 2016 as compared to section 9 of the Insolvency and Bankruptcy Code, 2016 - HELD THAT - Although, the corporate debtor claimed that the present application is not maintainable but in paragraph 7(c), he admits that he executed the loan agreement of ₹ 1 crore as sanctioned is received by the company and also issued the cheques. In paragraph 7(f) of reply, the corporate debtor admit that the financial creditor got transferred ₹ 20 lakhs on January 30, 2019 to the corporate debtor and thereafter ₹ 25 lakhs were also transferred on February 25, 2019. He further claimed in the same paragraph that total amount of ₹ 65 lakhs were transferred by the financial creditor to the account of corporate debtor. He further stated in the reply that the financial creditor has not released the entire loan amount. He further stated in paragraph 7(l) of the reply that in the sanction letter dated January 23, 2019 (in clause 15) it is mentioned that bullet payment of entire loan at the end of six (6) months from the debt of disbursement, hence the corporate debtor has not committed the default in repayment and so there is no default in repayment of loan. Mere plain reading of the provision show that under section 7 of the Insolvency and Bankruptcy Code, 2016, the Adjudicating Authority to see whether there is a financial debt and default has occurred in repayment of that debt or not, the application is complete or whether any disciplinary proceedings is pending against the proposed RP or not. So far dispute is concerned like section 9 of the Insolvency and Bankruptcy Code, 2016, in section 7 of the Insolvency and Bankruptcy Code, 2016, proceedings, there is no scope to raise the disputes. Therefore, the averments made in the reply regarding the dispute raised by the corporate debtor is concerned, is not liable to accepted. Thus, the application is complete and the loan has been disbursed and the same has not been not paid by the corporate debtor, therefore there is default in payment of debt, there is no disciplinary proceedings pending against the RP. Therefore, there are no option but to admit the application under section 7(5)(a) of the Insolvency and Bankruptcy Code, 2016. Petition admitted - moratorium declared.

Summary

Issues Involved:
1. Financial Creditor's Claim under Section 7 of the Insolvency and Bankruptcy Code, 2016
2. Disbursement and Default of Loan
3. Corporate Debtor's Defense and Allegations
4. Admissibility of the Application under Section 7 of the Insolvency and Bankruptcy Code, 2016
5. Appointment of Interim Resolution Professional (IRP) and Moratorium

Issue-wise Detailed Analysis:

1. Financial Creditor's Claim under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The applicant, claiming to be a financial creditor, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016. The financial creditor is a non-banking finance company (NBFC) registered with the RBI, engaged in providing loans and advances to business entities and individuals.

2. Disbursement and Default of Loan:
The corporate debtor sought a loan of ?1 crore to meet short-term capital requirements. The financial creditor sanctioned the loan on January 23, 2019, with a tenure of six months and bullet repayment at the end of the term. The corporate debtor received ?65 lakhs directly and ?35 lakhs were paid to creditors on the corporate debtor’s instruction. The corporate debtor issued post-dated cheques for interest and principal repayment, which were dishonored. The financial creditor initiated criminal proceedings under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881, due to cheque dishonor.

3. Corporate Debtor's Defense and Allegations:
The corporate debtor contended that:
- No default was committed.
- The interest rate charged violated RBI and Ministry of Finance guidelines.
- The accounts provided by the financial creditor were not certified under the Bankers' Books Evidence Act.
- There were personal dealings and assurances involving Rajeev Aggarwal, which influenced the loan agreement.
- Only ?65 lakhs were disbursed, not the full ?1 crore.
- The financial creditor and associates coerced the corporate debtor into signing blank and semi-blank documents.
- The corporate debtor filed complaints against Rajeev Aggarwal and the financial creditor for coercion and fraud.

4. Admissibility of the Application under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The Tribunal found that the corporate debtor admitted to executing the loan agreement and receiving ?65 lakhs. Despite the debtor's claims of incomplete disbursement, the Tribunal noted the existence of a financial debt and default. Referring to Section 7 of the Insolvency and Bankruptcy Code, 2016, and the decision in Innoventive Industries Ltd. v. ICICI Bank, the Tribunal emphasized that it only needs to ascertain the existence of a financial debt and default, not the disputes raised by the corporate debtor.

5. Appointment of Interim Resolution Professional (IRP) and Moratorium:
The Tribunal admitted the application under Section 7(5)(a) of the Insolvency and Bankruptcy Code, 2016, as the financial debt and default were established, and no disciplinary proceedings were pending against the proposed IRP. A moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016, was imposed, staying various actions against the corporate debtor. The Tribunal appointed Mr. Atul Kumar Jain as the IRP and directed the financial creditor to deposit ?2,00,000 to cover immediate IRP expenses, to be reimbursed by the Committee of Creditors (CoC).

Conclusion:
The Tribunal admitted the insolvency application filed by the financial creditor, imposed a moratorium, and appointed an IRP, directing further actions as mandated under the Insolvency and Bankruptcy Code, 2016. The corporate debtor's defenses and allegations were not sufficient to prevent the admission of the application.