2021 (6) TMI 492 - 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 - Financial Creditors - HELD THAT - Debt as per the Code means a liability or obligation in respect of a claim which is due from a person, a 'claim' being a right to payment. Such a right would arise from some agreement between the parties in the transaction. The event which triggers the applicability of the Code is 'occurrence of default'. Section 3(12) of the Code defines 'default' as non-payment of debt, when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the corporate debtor. The phrase 'debt has become due and payable' means that the debt is payable at the present moment - Also, it is imperative that the agreement, basis which a debt or default is to be determined are acted upon by both sides, as the performance of the obligations by each party may be contingent upon the similar performance by the other party. The default in paying against the schedule of payment after 18 months was contingent upon the release of the Additional Security by the Petitioner as also sale of apartments as per the Escrow Account receipts. But the sale of apartments itself was contingent upon the health of the real estate sector in recent times being severely affected by the Covid 19 pandemic and the ensuing lockdowns. Major decisions have been taken to protect industry from its effects, to inject economic stimulus and to revive the economy. On 24.03.2020 the minimum threshold of default was increased from ₹ 1 Lakh to ₹ 1 Crore, various provisions were modified/suspended, so that Companies facing financial stress due to the pandemic can be supported rather than be pushed into CIRP. Debts are being restructured as per Government guidelines. In the instant case, we are unable to come to a conclusion that the Respondent is insolvent. Its release of charges by the Vijaya Bank Consortium and issue of NOC showed that it had cleared all its dues. A look at the Respondent's long list of assets held by the Petitioner as security itself, with valuation of more than 800 crore, land the developer's share in the project, shows that it possesses huge parcels of land, many times over in value of the loan, apart from the corporate guarantee given by the parent, Mantri Developers Private Ltd. It has invested large amounts in completed and near completion projects, which will convert to liquidity in due course. It is engaged in the construction of several huge projects in Bangalore. There was a steady inflow of receipts, although temporarily affected by the pandemic and lockdowns - Considering its assets, the loan amount is meagre, but can be repaid as and when the apartments are sold or its other assets held as security/additional security are released to it and disposed of. It would be against the objects of the Code to push such an entity into the rigours of insolvency, that too when its liquefiable assets as well as recurring income from sales are entirely held by the Petitioner, with a continuing stream of receipts. In the present case, no case has been made out by the Financial Creditor for initiating CIRP against the Corporate Debtor, especially when the default is contingent upon the Financial Creditor's actions of release of Additional security as per the Sanction Letter and the Loan Agreement, the continuing receipts through the Escrow Account as per the Assignment Agreement; the readiness of the Respondent to pay the debt and seeking a reschedulement and very recent exchanges between the two in this direction; and the ongoing pandemic conditions. Petition is disposed of by directing both Petitioner and the Respondent to work out a repayment methodology so as to clear the debt within a period of six months from the receipt/uploading of this order.

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the I&B Code, 2016.
2. Alleged default on loan repayment by the Corporate Debtor.
3. Contingent nature of the default based on the release of additional security.
4. Impact of COVID-19 and economic slowdown on the real estate sector.
5. Adequacy of the security held by the Financial Creditor.
6. Appropriateness of using IBC for debt recovery in this context.

Detailed Analysis:

1. Initiation of CIRP under Section 7 of the I&B Code, 2016:
The petition was filed by the Financial Creditor (M/s. LIC Housing Finance Limited) seeking to initiate CIRP against the Corporate Debtor (M/s. Buoyant Technology Constellations Pvt. Ltd.) due to a default amounting to ?260,35,91,222. The Financial Creditor claimed that the Corporate Debtor failed to repay the loan as per the agreed terms.

2. Alleged Default on Loan Repayment:
The Financial Creditor argued that the Corporate Debtor defaulted on the loan repayment schedule, with the term ending on 07.01.2020. Despite the moratorium period, the Corporate Debtor failed to make regular payments, leading to a significant outstanding amount. The Financial Creditor issued several demand notices due to these defaults.

3. Contingent Nature of the Default:
The Tribunal highlighted that the default was contingent upon the release of additional security by the Financial Creditor, which was not done as per the agreed terms. The Loan Sanction Letter stipulated that the additional security should be released after 18 months or reduction of the loan to ?180 crore, whichever was earlier. The Financial Creditor's refusal to release the additional security was against the agreed terms and hindered the Corporate Debtor's ability to repay the loan.

4. Impact of COVID-19 and Economic Slowdown:
The Tribunal acknowledged the severe impact of the COVID-19 pandemic on the real estate sector, leading to delays in project completion and sales. The economic slowdown further affected the Corporate Debtor's ability to generate receivables and repay the loan. The Tribunal noted that pushing the Corporate Debtor into insolvency during such times would not align with the objectives of the IBC.

5. Adequacy of the Security Held by the Financial Creditor:
The Tribunal observed that the Financial Creditor held substantial security, including land parcels valued at over ?800 crore, far exceeding the loan amount. The Corporate Debtor had also invested significant amounts in near-complete projects, indicating its capability to repay the loan once the projects were completed and sold.

6. Appropriateness of Using IBC for Debt Recovery:
The Tribunal emphasized that the IBC should not be used as a recovery mechanism, especially when the default was contingent and the Corporate Debtor had substantial assets and ongoing projects. The Tribunal noted that the Financial Creditor's actions seemed more focused on pushing the Corporate Debtor into insolvency rather than ensuring debt repayment.

Conclusion:
The Tribunal concluded that the Financial Creditor had not made out a case for initiating CIRP against the Corporate Debtor. The default was contingent upon the release of additional security and the economic conditions caused by the COVID-19 pandemic. The Tribunal directed both parties to work out a repayment methodology within six months, allowing the Financial Creditor to file a fresh petition if the debt was not repaid. The Tribunal also noted that the Financial Creditor could pursue recovery in other forums. No order as to costs was made.

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