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2021 (11) TMI 283 - AT - Insolvency and BankruptcyMaintainability 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 - It is quite evident from the Notice of Default cum Demand dated 14.10.2019 addressed to the Respondent by the authorised signatory of the Appellant Outstanding Receivables on the due date of USD 37,585.00 together with interests, default interest, overdue fees and all other charges were claimed till the date of actual payment, to be paid by the Respondent / Concord Creations (India) Pvt. Ltd. within three days from the date of this letter. In the instant case, because of the fact that the advances made by the Appellant / Financial Creditor to the Corporate Debtor was supported by the Irrevocable Undertaking for Recourse and as such, it is within its ambit to demand the repayment from the Corporate Debtor etc. Added further, it cannot be forgotten that the invoices purchased and assigned to the Appellant / Financial Creditor/Petitioner were with Recourse and that the said advances will squarely come within the definition of Section 5(8)(e) of the I B Code, 2016. The Adjudicating Authority in the impugned order had observed that the Respondent was not an Insolvent Company and that it was of the considered view that Respondent should be given some more time to repay the debt etc. had directed the Respondent / Corporate Debtor to repay the balance debt or the amount as settled with the Appellant within a period of six months failing which the Appellant / Petitioner would be at liberty to file a fresh petition for admission - this Tribunal interferes with the impugned order, since it suffers from patent legal infirmities. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Validity of the impugned order dated 28.05.2021. 2. Jurisdiction of the Adjudicating Authority to evaluate the financial health of the Corporate Debtor. 3. Compliance with Section 7 of the I&B Code, 2016. 4. Consideration of the economic impact of the COVID-19 pandemic on the Corporate Debtor. 5. Adjudicating Authority's role in taking defenses for the Corporate Debtor. Detailed Analysis: Validity of the Impugned Order: The Appellant, a Financial Creditor, challenged the order dated 28.05.2021 passed by the Adjudicating Authority (National Company Law Tribunal, Bengaluru Bench) in C.P.(IB) No. 61/BB/2020. The Adjudicating Authority had deferred the initiation of the Corporate Insolvency Resolution Process (CIRP) despite acknowledging the existence of a financial debt and default by the Corporate Debtor. The Tribunal observed that the Adjudicating Authority had no basis to defer the initiation of CIRP. Jurisdiction of the Adjudicating Authority: The Appellant contended that the Adjudicating Authority lacked jurisdiction to evaluate the financial health of the Corporate Debtor for the purpose of admitting CIRP. The Tribunal agreed, noting that the Adjudicating Authority is not a court of law and CIRP is not litigation. The Tribunal emphasized that the Adjudicating Authority should admit the application if it is satisfied with the existence of default and the completeness of the application, without considering the financial health of the Corporate Debtor. Compliance with Section 7 of the I&B Code, 2016: The Tribunal highlighted that the initiation of CIRP does not amount to recovery proceedings. The Adjudicating Authority should not consider the reasons for the Corporate Debtor’s default when determining whether to admit or reject an application under Section 7 of the I&B Code. The Appellant had provided sufficient evidence of the financial debt and default, including a Receivables Purchase Factoring Agreement, an Irrevocable Undertaking for Recourse, and a Demand Promissory Note. Consideration of the Economic Impact of the COVID-19 Pandemic: The Adjudicating Authority had considered the economic impact of the COVID-19 pandemic and the financial status of the Corporate Debtor, noting that the Corporate Debtor was not insolvent and had sufficient income and assets to repay its debt. The Tribunal, however, held that these considerations were beyond the scope of the Adjudicating Authority’s jurisdiction and not relevant for the admission of the CIRP application. Adjudicating Authority's Role in Taking Defenses for the Corporate Debtor: The Tribunal found that the Adjudicating Authority had exceeded its jurisdiction by taking defenses on behalf of the Corporate Debtor, especially in the absence of any reply or objections from the Corporate Debtor. This was contrary to the principles laid down by the Hon’ble Supreme Court in Innovative Industries Ltd. Vs. ICICI Bank (2018) 1 SCC 407. Conclusion: The Tribunal allowed the appeal, set aside the impugned order dated 28.05.2021, and directed the Adjudicating Authority to restore the application to its file, admit it, and proceed further in accordance with the law. The Tribunal emphasized that the Adjudicating Authority should not have deferred the initiation of CIRP and should have admitted the application based on the evidence of default provided by the Appellant.
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