2023 (4) TMI 551 - AT - Insolvency and Bankruptcy

Admission of Section 7 application - Financial Debt - case of appellant is that the Adjudicating Authority/ Tribunal, on an erroneous appreciation of the Facts and Law had proceeded to admit the Section 7 Application filed by the Respondent/Petitioner/Financial Creditor - plea of the Appellant, is that even the repayments made by the Appellant company are not fully and correctly reflected in the Main Petition - HELD THAT - On going through the Impugned Order on the file of the Adjudicating Authority/Tribunal it is evident that Corporate Debtor side took some time to pay the admitted default but not paid any sum. Also that, the debt sum, payable by the Corporate Debtor as on 11.11.2022, was more than Rs.2 crores and the fact of the matter, is that the I and B code 2016 can be pressed in to service from the time the default is more than Rs.1 crore. If an Adjudicating Authority/Tribunal is subjectively satisfied that a Default took place and in fact when the Debt was admitted, the petition filed by the Financial Creditor, is to be admitted, subject to the condition that the Petition/Application is complete in all respects. As far as the present case is concerned because of the default committed by the Corporate Debtor relating to the repayment of the loan amount due to be paid by Respondent/Financial Creditor, the loan amount, was declared as Non Performing Asset. There is no simmering doubt that the main CP/IB)/06/KOB/2022 was filed by the Respondent/Petitioner as Financial Creditor as per definition Section 5 (7) of the I B Code, 2016. It cannot be gainsaid that, even if a portion of the debt due and payable is tacitly admitted by a Corporate Debtor/company and it comes within the threshold sum of the default of Rs.1 crore, as per (Section 4 (1) of I B code, 2016 vide chapter 1 preliminary part 2) then, the Adjudicating Authority/Tribunal, is endowed with a subjective discretion, to admit the Section 7 Application filed by a party under the I B Code, 2016 once the Debt and Default are proved, to its satisfaction - A moonshine or an illusory defence, cannot be put forward by a party, and the same can be brushed assigned by an Adjudicating Authority/ Tribunal in a given case, and even the term claim,(as per Section 3(6) of the code) points out a right to payment, despite the fact the same is controverted/disputed. Keeping in mind a prime fact that the Insolvency resolution process commences when a default takes place, and in the instant case Debt and Default having been established to its subjective satisfaction, comes to a consequent conclusion that the Adjudicating Authority/ National Company Law Tribunal, Kochi Bench had rightly admitted the Main CP/IB/06/KOB/2022 preferred by Respondent/ Financial Creditor/Petitioner and the same is free from any legal flaws - Appeal dismissed.

Issues Involved:
1. Admittance of Section 7 Application by the Adjudicating Authority.
2. Acknowledgment of Debt by the Corporate Debtor.
3. Allegations of fraudulent initiation of the Application under Section 7.
4. Dispute over the exact quantum of the debt.
5. Impact of disasters and pandemic on the Corporate Debtor's financial health.
6. Appointment of an Interim Resolution Professional and declaration of Moratorium.
7. Compliance with the Insolvency and Bankruptcy Code, 2016.

Summary:

1. Admittance of Section 7 Application by the Adjudicating Authority:
The Appellant, the Suspended Managing Director of M/s Mango Meadows Agricultural Pleasure Land (P) Limited, challenged the Impugned Order dated 25.1.2023 by the National Company Law Tribunal (NCLT), Kochi Bench, which admitted the Section 7 Application filed by the Financial Creditor and initiated Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.

2. Acknowledgment of Debt by the Corporate Debtor:
The Tribunal noted that the entries in the Corporate Debtor's 'Books of Accounts' and 'Balance Sheets' constitute an acknowledgment of debt. The Corporate Debtor had acknowledged its financial debt in the balance sheet dated 31.3.2020, amounting to Rs.37,09,70,242.23 as a long-term liability.

3. Allegations of fraudulent initiation of the Application under Section 7:
The Appellant alleged that the Section 7 Application was initiated fraudulently by the Financial Creditor with malicious intent and not for resolving insolvency. The Appellant claimed that repayments made by the company were not fully and correctly reflected in the main petition and accused the Financial Creditor of diverting funds to increase the company's dues.

4. Dispute over the exact quantum of the debt:
The Appellant contended that there was an incorrect conclusion regarding the debt amount, alleging discrepancies in the amounts repaid and recorded. However, the Tribunal emphasized that a mere dispute about the quantum of payment does not infringe the right of a Financial Creditor to prefer an Application under Section 7 of the I & B Code, 2016.

5. Impact of disasters and pandemic on the Corporate Debtor's financial health:
The Appellant highlighted that successive disasters, including floods, Nippah, and the COVID-19 pandemic, severely impacted the company's operations, leading to a decline in tourist influx and financial distress.

6. Appointment of an Interim Resolution Professional and declaration of Moratorium:
The NCLT, Kochi Bench, admitted the application, declared a moratorium, and appointed an Interim Resolution Professional to manage the Corporate Debtor's affairs during the CIRP.

7. Compliance with the Insolvency and Bankruptcy Code, 2016:
The Tribunal reiterated that the object of the I & B Code, 2016, is to resolve insolvency, and the existence of a default triggers the Corporate Insolvency Resolution Process. The Tribunal found that the debt and default were established to its satisfaction, and the application was complete in all respects, thus justifying the admission of the Section 7 Application.

Result:
The Appellate Tribunal dismissed the Comp. Appeal (AT) CH (INS) No.88 of 2023, finding no merit in the appeal. The connected pending IA No.316 of 2023 was also closed.

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