2021 (6) TMI 123 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - HELD THAT - The matters were reserved for orders on 22.10.2020 and thereafter the Corporate Debtor filed IA/1152/IB/2020 before this Tribunal on 22.10.2020 itself seeking relief to direct the Financial Creditor to accept the One - Time settlement proposal dated 21.10.2020 by accepting the token payment of ₹ 30,00,000/-. Subsequently, it is seen that the Corporate Debtor has filed another IA/170/CHE/2021 before this Tribunal on 28.01.2021 seeking thereof to reopen the matter and take the One - Time Settlement letter issued by the Corporate Debtor and to pass suitable orders - When the aforesaid IA's came up for hearing before this Tribunal on 09.03.2021, it was represented by the Learned Counsel for the Financial Creditor that the OTS proposal as given by the Corporate Debtor is not acceptable to the Financial Creditor and as such they are willing to proceed with the matter. Thus, in view of the same, nothing survives in IA/1152/2020 and I A/170/CHE/2021 and accordingly, the same stands closed. It has also been consistently held by the Hon'ble Supreme Court both in Innoventive Industries Ltd. Vs. ICICI Bank and another 2017 (9) TMI 58 - SUPREME COURT as well as Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd. 2017 (9) TMI 1270 - SUPREME COURT after going through the Scheme of I B Code, 2016 in depth in relation to an Application under Section 7 filed by a Financial Creditor as compared to the one filed under Section 9 by an Operational Creditor, in relation to a Section 7 Application where there is an existence of a 'financial debt' and its default is in excess of ₹ 1,00,000/- (now increased to ₹ 1 Crore), this Tribunal is bound to admit the Application and as a consequence trigger the Corporate Insolvency Resolution Process (CIRP) and in relation to a Section 7 Application defence of set off or counter claim put forth by the Corporate Debtor cannot be considered as a dispute in relation to the Financial debt and its default. This Application as filed by the Applicant - Financial Creditor is required to be admitted under Section 7(5) of the I B Code, 2016 - Application admitted - moratorium declared.

Summary

Issues:
- Application under Section 7 of the Insolvency & Bankruptcy Code, 2016
- Existence of financial debt and default by the Corporate Debtor
- Submission of documents to prove financial debt
- Financial Creditor's claim and declaration of Corporate Debtor as NPA
- Corporate Debtor's financial crisis and negotiations for settlement
- One Time Settlement proposal by Corporate Debtor
- Acceptance of One Time Settlement proposal by Financial Creditor
- Legal provisions regarding admission of Section 7 Application
- Appointment of Interim Resolution Professional (IRP)
- Moratorium under Section 14 of the Code

Analysis:
1. The Application was filed under Section 7 of the Insolvency & Bankruptcy Code, 2016 by a Financial Creditor against a Corporate Debtor seeking initiation of the Corporate Insolvency Resolution Process due to default on a loan agreement.
2. The Financial Creditor provided details of the debt, documents proving financial debt, and declaration of the Corporate Debtor as a Non-Performing Asset (NPA) on 31.07.2018.
3. The Financial Creditor submitted various documents including a Loan Agreement, Demand Promissory Note, Guarantee, and Notice under the SARFAESI Act to support the claim of default by the Corporate Debtor.
4. The Corporate Debtor, facing financial crisis, argued for negotiations and settlement with the Financial Creditor, citing reasons for default and efforts for restructuring the loan.
5. The Corporate Debtor proposed a One Time Settlement to resolve the issue, which was initially rejected by the Financial Creditor, leading to legal proceedings.
6. The Tribunal, considering legal precedents and the IBC provisions, found the Application admissible due to the existence of financial debt and default exceeding the prescribed limit.
7. An Interim Resolution Professional (IRP) was appointed to oversee the Corporate Insolvency Resolution Process, superseding the powers of the Corporate Debtor's Board of Directors.
8. The admission of the Application triggered a moratorium under Section 14 of the Code, restricting certain actions against the Corporate Debtor during the resolution process.
9. The moratorium period would remain in effect until the completion of the Corporate Insolvency Resolution Process, subject to approval of a Resolution Plan or liquidation order by the Adjudicating Authority.