2021 (3) TMI 124 - AT - Insolvency and Bankruptcy

Seeking stay of further proceedings in the Company Petition by projecting its inability in servicing the debts in respect whereof default was alleged by the Financial Creditor - disputes between the Corporate Debtor and the recipient of energy as well as change in supply chain management of the recipient of energy hindering it from carrying on its business - HELD THAT - Admittedly, Petition under Section 7 of I B Code filed by the Respondent Bank is still at the pre-admission stage and the Appellant- Corporate Debtor has, by raising the issue of problems confronted by the Power Sector resulting in inflicting of heavy financial loss to the power generating Companies like the Appellant, been able to stall the CIRP proceedings initiated by the Respondent (Financial Creditor) against it by filing Application under Section 7 of I B Code. It is flabbergasting to find that by raising the liquidity issue and pending litigation proceedings the Corporate Debtor put a spoke in the wheel of Corporate Insolvency Resolution Process stalling its commencement at the hands of Adjudicating Authority who was required, in terms of mandate of Section 7(4) (5) of I B Code to pass an order of admission or rejection of such Application within fourteen days of the receipt of the Application. The commencement of CIRP takes effect from the date of admission of Application as specifically laid down under sub-section (6) of Section 7 of the I B Code. All that the Adjudicating Authority is required to do is to ascertain the existence of default and on being satisfied that a default has occurred and the Application is complete, the Adjudicating Authority is required to admit the Application. The existence of default in respect of financial debt would be ascertainable from the records of an Information Utility or on the basis of other evidence furnished by the Financial Creditor. Where the Adjudicating Authority is satisfied that there is no financial debt payable in law or infact or that default has not occurred, it may reject such Application but if the Application is incomplete, the Financial Creditor has to be provided an opportunity of rectifying the defect in the Application within seven days of notice received from the Adjudicating Authority. All that should be present to the mind of Adjudicating Authority is that there is an obligation on the part of Corporate Debtor to pay the financial debt and that the Corporate Debtor has failed in such obligation - The fortunes of Corporate Debtor may wax or wane depending upon the outcome of litigation but same cannot be permitted to impede the course of insolvency resolution proceedings contemplated under the I B Code, object whereof, inter alia, is maximisation of value of assets of corporate person by reorganization and insolvency resolution in a time bound manner. It is significant to notice that the Application filed by the Corporate Debtor seeking stay of proceedings before the Adjudicating Authority did neither dispute the existence of debt owed to the Respondent Bank nor did it raise any issue in regard to the event of default as alleged by the Respondent Bank. Its therefore, clear that debt and default are not disputed. The financial woes of the Appellant and the liquidity problems faced by it, whether forced upon it or of its own making, have no bearing on commencement of insolvency resolution and cannot be permitted to be a stumbling block in triggering of CIRP at the instance of Financial Creditor. The commencement of CIRP proceedings has already been delayed by one year much to the chagrin of Respondent (Financial Creditor) who has been virtually compelled to be a spectator helplessly watching the assets of Corporate Debtor getting depleted in value. The Appellant has no justification in stalling the process and seeking stay of CIRP, which in essence has manifested in blocking the passing of order of admission of Application of Respondent under Section 7 of I B Code - Appeal dismissed.

Summary

Issues:
1. Stay of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Dispute regarding debt repayment and default in servicing debts.
3. Impact of pending litigations on CIRP initiation.
4. Adjudicating Authority's decision on admission of CIRP application.

Analysis:

1. The Respondent, a Financial Creditor, initiated CIRP against the Corporate Debtor under Section 7 of the Insolvency and Bankruptcy Code. The Corporate Debtor sought a stay on further proceedings, citing disputes with the energy recipient and challenges in servicing debts due to financial stress. The Adjudicating Authority rejected the stay application, emphasizing that disputes unrelated to the debt default do not hinder CIRP proceedings. The Corporate Debtor appealed this decision.

2. The Corporate Debtor, a power generating company, claimed financial stress due to sectoral issues and pending litigations impacting its ability to repay debts. It highlighted disputes with regulators and coal suppliers, seeking resolution through pending legal actions. The Financial Creditor claimed debt existence and default, emphasizing that the Corporate Debtor's financial challenges do not negate the debt obligation or default occurrence.

3. The Corporate Debtor's arguments regarding sectoral challenges and pending litigations were deemed irrelevant to the CIRP initiation process. The Adjudicating Authority's role is to ascertain debt default promptly upon application receipt, as mandated by the Code. The Corporate Debtor's financial difficulties, though significant, do not absolve it from debt obligations or delay CIRP commencement.

4. The Tribunal upheld the Adjudicating Authority's decision, emphasizing the need for timely CIRP initiation based on debt default confirmation. The Corporate Debtor's attempts to stall the process were deemed unjustified, as the law mandates swift action upon debt default confirmation. The Appeal was dismissed, affirming the importance of adhering to the Code's provisions for efficient insolvency resolution without imposing costs.

This detailed analysis of the judgment covers the issues involved comprehensively, highlighting the legal arguments, decisions, and implications for the parties involved.