2022 (7) TMI 611 - 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 - Section 186 of the Companies Act, 2013 provides for the loans and investments that can be made by a company. According to section 186(2), no company shall directly or indirectly, give any loan to any person or other body corporate exceeding sixty per cent of its paid-up share capital, free reserves and securities premium account or one hundred per cent of its free reserves and securities premium account, whichever is more. A perusal of the balance sheet of the Financial Creditor reveals that the free reserves and surplus of the Financial Year for the Financial Years 2017-18 and 2018-19 are Rs. 3,09,33,281/- and Rs. 3,80,62,525/- respectively. As such the loan given to the Corporate Debtor is less than 100% of the free reserves of the Company and therefore, the instant petition is not hit by the provision of section 186. The Corporate Debtor has acknowledged his liability towards the Financial Creditor, firstly vide the acknowledgment receipt dated 23rd April 2018 and thereafter vide the settlement agreement. Keeping in view that a default in the payment of a financial debt has occurred by the Corporate Debtor, and there is an acknowledgment of Financial Debt and also that the said application is not barred by limitation, we are of the view that the instant application under section 7 of the Code is complete in all respects. Application admitted - moratorium declared.

Issues:
1. Initiation of Corporate Insolvency Resolution Process under section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Compliance with provisions of the Companies Act, 2013 regarding loans and investments by a company.
3. Validity of the petition and maintenance of the application under section 7 of the Insolvency and Bankruptcy Code, 2016.
4. Proposal for the name of the Interim Resolution Professional.
5. Barred by limitation and maintainability of the application.
6. Settlement agreement and default in payment by the Corporate Debtor.

Initiation of Corporate Insolvency Resolution Process:
The Tribunal considered a Company Petition filed by a Financial Creditor seeking to initiate Corporate Insolvency Resolution Process (CIRP) against a Corporate Debtor. The Financial Creditor provided detailed submissions outlining the financial assistance provided, defaults in payment by the Corporate Debtor, and the outstanding amount due. Despite demand notices and acknowledgments, the Corporate Debtor failed to make payments, leading to the initiation of the CIRP.

Compliance with Companies Act, 2013:
The Tribunal analyzed the provisions of the Companies Act, 2013, specifically section 186 regarding loans and investments by companies. It was found that the loan given to the Corporate Debtor was within permissible limits as per the Act, ensuring compliance. An Independent Auditor's report further confirmed the compliance under section 186, strengthening the Financial Creditor's position.

Validity and Maintenance of the Application:
The Tribunal addressed objections raised by the Corporate Debtor regarding the validity of the petition under section 7 of the Insolvency and Bankruptcy Code, 2016. It was determined that the petition was not barred by limitation and contained all necessary details, including the proposed name of the Interim Resolution Professional. The Tribunal found the application to be complete and maintainable.

Proposal for Interim Resolution Professional:
The Financial Creditor submitted the name of the Interim Resolution Professional in a Supplementary Affidavit, fulfilling the requirement for the appointment. This step was crucial for the completeness of the petition and the subsequent resolution process.

Settlement Agreement and Default:
The Tribunal noted that a settlement agreement was attempted between the parties, but the Corporate Debtor defaulted on the agreed payments, rendering the settlement ineffective. Acknowledgments of liability by the Corporate Debtor further supported the Financial Creditor's position in seeking initiation of the CIRP.

In conclusion, the Tribunal admitted the application for initiating the CIRP, imposed a moratorium, appointed an Interim Resolution Professional, and outlined various directives for the resolution process. The decision was based on the acknowledgment of financial debt, absence of limitation issues, and completeness of the application, ensuring a comprehensive and legally sound resolution process.

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