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2022 (11) TMI 1236 - AT - Insolvency and BankruptcySeeking permission from this Tribunal, to file additional documents - True Copy of the Board Resolution dated 25.06.2014 - True Copy of the File Sample Applications filed by Mr. B. Nageswara Rao, the Authorised Signatory of the Respondent / Company for opening of LCs with the Appellant / Bank subsequent to the Board Resolution dated 25.06.2014 - presumptions of law - requirements of the documents to find out the truth - appellant points out that the Adjudicating Authority, is not empowered at the pre-admission stage, to venture into matters, in respect of the Value of the Assets of the Corporate Debtor, or its Business or the possibility of attracting a Viable Resolution Plan under the Code. HELD THAT - A Judicial Discretion, is to be regulated resting upon known Rules of Law, and not just Caprice or Whim of an Individual, for whom it is given, as opined by this Tribunal. No wonder, the Discretion, is to be exercised, as per Common Sense, and according to Justice, and if there is a Miscarriage, in the exercise of the same, it can be reviewed, by the Appropriate Authority concerned. In the Section 7 Application (Form I of the Code), under Part IV (Particulars of Financial Debt), it was mentioned that the Amount claimed to be in Default was Rs.146,93,93,281.78 as on 31.01.2019, on which, includes Principal of Rs.113,37,61,348.78 and interest of Rs.33,56,31,933. The Total Outstanding was Rs.146.93 Crore and the Date of Default on 20.10.2016 when the Account of the Respondent / Corporate Debtor, became an irregular one. The Date of NPA was on 17.01.2017. A perusal of the CIBIL Report of the Appellant / Bank shows that the Borrower / Delinquent Outstanding, was Rs.1,13,37,61,349/-. Further, the Statement of Account of the Appellant / Bank, in respect of the Respondent / Corporate Debtor from 02.12.2015 to 31.12.2016, shows that the Balance was Rs.1,23,53,90,795.03. A perusal of the contents of the Letter of the Appellant / Bank dated 18.05.2009, addressed to the Respondent / Corporate Debtor mentions that the Sanction of Rs.50 Crore Credit Facilities (Cash Credit Proposed Limit Rs.10.00 Cr., Total FBWC NFB Rs.10.00 Cr., Letter of Credit Rs.40.00 Cr., Total Non-Fund Based Rs.40.00 Cr. and in all Rs.50.00 Cr. (Fund Non-Fund Based), subject to terms and conditions, therein - An Agreement of Loan for Overall Limit in Form C.1, was dated 21.05.2009, was executed by the Respondent / Corporate Debtor / Borrower and the Appellant / Bank. The Letter for Grant of Individual Limits dated 21.05.2009 was executed by the Chairman Managing Director and the Director of the Respondent / Corporate Debtor, wherein the Overall Limit of Rs.50,00,00,000/- was mentioned. The Adjudicating Authority in the impugned order at Paragraph 41, had observed that the Disputes raised, the lack of clarity of the actual figures of debt, if any, and whether after the settlements offered by the Corporate Debtor and the payments made since 2012, and its belief that its entire CC account of Rs.45 crore had been liquidated after the payment of Rs.10.63 crore and adjustment of its FDs, require a detailed scrutiny and audit of the demands raised on account of both Fund based and Non-Fund based facilities and the amounts paid/settled, which cannot be conducted in these summary proceedings, etc. The Right to Apply under Section 7 of the I B Code, 2016, accrues to the Bank when the I B Code, 2016, came to force. The amounts borrowed by the Respondent / Corporate Debtor from the Appellant / Bank is a undoubtedly a Debt due and payable in fact and in Law - the pendency of proceedings before the Debts Recovery Tribunal in Law, is not a Bar for the Petitioner / Financial Creditor / Bank to initiate Corporate Insolvency Resolution Process against the Respondent / Corporate Debtor, in the considered opinion of this Tribunal. Also that, an Adjudicating Authority, is not required to go into the details of fabrication and forgery of documents, etc., admitting an Application, under Section 7 of the Code. In the instant case on hand, the Adjudicating Authority, (Tribunal), in the impugned order dated 22.12.2020 in CP(IB) No. 112/BB/2019, had issued directions (vide Paragraph 42), to the Appellant / Bank / Financial Creditor to reconcile Entry by Entry, the Accounts maintained by it, with the bills raised/transactions undertaken, in respect of all the Working Capital Facilities, provided to the Corporate Debtor, etc., which are beyond the Power and Jurisdiction of the Adjudicating Authority. This Tribunal, is of the cocksure opinion that the Adjudicating Authority, had committed an error, in traversing upon the merits of the matter and he is not supposed to examine / go into the each and every aspects of the Default, much less in issuing directions to the Parties to Reconcile / Scrutinise the Default, with reference to Entry by Entry with the Accounts, maintained by the Appellant / Bank, with the Bills raised / Transaction undertaken, in respect of all the Working Capital Facilities, provided to the Respondent / Corporate Debtor. This Tribunal, in the light of foregoing detailed qualitative and quantitative deliberations, on a careful consideration of respective contentions, considering the facts and circumstances of the instant case, in an integral and conspectus manner and on going through the impugned order dated 22.12.2020 in CP(IB) No. 112/BB/2019, passed by the Adjudicating Authority (National Company Law Tribunal, Bengaluru Bench), comes to a consequent conclusion that the exercise of discretion, by the Adjudicating Authority, in not Admitting, the Section 7 Application in CP (IB) No. 112/BB/2019, filed by the Appellant / Bank and Issuing Observations / Directions (as mentioned in the Paragraph 42 of the impugned order), is not based on sound legal principles (especially, in the teeth of the Appellant / Bank through several documents, had exhibited that the Respondent / Corporate Debtor, was unable to pay its Debt with no possibility of payment and its operations were shut) and they are clearly unsustainable in the eye of Law. Hence, this Tribunal, is perforced to interfere with the impugned order dated 22.12.2020 in CP(IB) No.112/BB/2019, passed by the Adjudicating Authority (National Company Law Tribunal, Bengaluru Bench) and sets aside the same, to prevent an aberration of justice and to promote substantial cause of justice. The Adjudicating Authority, (National Company Law Tribunal, Bengaluru Bench), is directed to Restore the CP(IB) No.112/BB/2019 (filed by the Appellant / Bank), to Admit the same, by initiating Corporate Insolvency Resolution Process, under I B Code, 2016, and the Regulations made thereunder, against the Respondent / Corporate Debtor, and to proceed further, in the manner known to Law and in accordance with Law, within 10 days from the date of this Judgment. Appeal disposed off.
Issues Involved:
1. Admission of additional documents. 2. Determination of financial debt and default. 3. Reconciliation and scrutiny of accounts. 4. Jurisdiction and powers of the Adjudicating Authority. 5. Impact of COVID-19 on financial distress. 6. Directions for reconciliation and audit. 7. Discretionary power of the Tribunal under Section 7 of IBC. Issue-wise Detailed Analysis: 1. Admission of Additional Documents: The Petitioner/Respondent/Corporate Debtor filed IA No. 1284 of 2021 seeking permission to file additional documents, including a Board Resolution dated 25.06.2014 and sample applications for opening LCs. The Tribunal allowed this application, emphasizing the relevance of these documents for a just decision. 2. Determination of Financial Debt and Default: The Appellant/Bank filed the Company Appeal as an aggrieved party dissatisfied with the impugned order dated 22.12.2020, which dismissed their Section 7 application for initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Adjudicating Authority noted discrepancies in the accounts and required reconciliation of the debt, questioning the default claimed by the Financial Creditor. 3. Reconciliation and Scrutiny of Accounts: The Adjudicating Authority observed that the determination of the nature of the debit entries required matching bills raised by the Financial Creditor with the entries in the Corporate Debtor's account. It directed a detailed scrutiny and reconciliation of accounts from 2012 to 2016, considering the payments made, LC charges, and interest levied. 4. Jurisdiction and Powers of the Adjudicating Authority: The Appellant argued that the Adjudicating Authority overstepped its jurisdiction by ordering an audit of the amounts due and payable by the Respondent, which is outside the scope of Section 7 of the IBC. The Tribunal emphasized that the Adjudicating Authority is not empowered to delve into the value of assets or business viability at the pre-admission stage. 5. Impact of COVID-19 on Financial Distress: The Adjudicating Authority took judicial notice of the financial distress caused by the COVID-19 pandemic, which affected business operations and led to modifications and suspensions of various provisions of the IBC. It highlighted the need to support companies facing financial stress rather than pushing them into CIRP. 6. Directions for Reconciliation and Audit: The Adjudicating Authority directed the Financial Creditor to reconcile the accounts maintained with the bills raised and transactions undertaken, verifying all payments made by the Corporate Debtor. This reconciliation was to be completed jointly with the Corporate Debtor in a time-bound manner, allowing the Financial Creditor to file a fresh petition if required. 7. Discretionary Power of the Tribunal under Section 7 of IBC: The Tribunal held that the Adjudicating Authority acted outside its jurisdiction by issuing directions for reconciliation and scrutiny of accounts. It emphasized that the Adjudicating Authority's role is to ascertain the existence of a default and either admit or reject the application based on that determination. The Tribunal found that the Corporate Debtor had defaulted on the debt arising from the devolvement of Letters of Credit, as evidenced by various documents, including balance sheets and statements of accounts. Conclusion: The Tribunal set aside the impugned order of the Adjudicating Authority, directing it to restore and admit the Section 7 application filed by the Appellant/Bank, initiating CIRP against the Corporate Debtor. The Adjudicating Authority was instructed to proceed further in accordance with the law within 10 days from the date of the judgment.
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