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2024 (7) TMI 386 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - debt and default by the Corporate Debtor qua the Respondent No.1 - whether the default amount crossed the prescribed threshold limit of Rs. 1 cr under Section 4 of IBC? - violation of principles of natural justice - HELD THAT - It goes without saying that real and effective opportunity to hear is one of the critical quotients of the tenets of natural justice. On seeing material on record, we find that the Appellant did not appear before the Adjudicating Authority on multiple occasions, following which the Adjudicating Authority had directed paper publication of the notice so that the contesting party is put on notice. The notice was duly published in two newspapers on 01.04.2022 but in spite of that, the Appellant failed to remain present before the Adjudicating Authority until the matter was set exparte and reserved for orders. In the given facts of the case, it is satisfying that adequate notice was given to the Appellant to appear before the Adjudicating Authority to present their case. The justification proffered now by the Appellant to explain their absence is that there was a demise in the family. Even if we give the benefit of this explanation to the Appellant, this ground cannot hold good for having been absent on 18 occasions each time when the matter was fixed for appearance and hearing - there is force in the contention of the Respondent no. 1 that when the Corporate Debtor also had other Directors on the Company, it is left unexplained why the others could not have pursued the matter before the Adjudicating Authority. Thus, this story of demise of a close relative to explain their absence from appearing before the Adjudicating Authority at a time when the matter was listed for hearing on 18 occasions lacks merit and is an eyewash which deserves scant regard. When the Appellant failed to participate in the proceedings before the Adjudicating Authority despite reasonable opportunity having been afforded to the Appellant, the impugned order cannot be said to have been vitiated on grounds of violation of the principles of natural justice. This brings to the basic question of debt and default and at the outset it is referred to the guiding principles propounded by the Hon ble Apex Court in the case of Innoventive Industries Limited v. ICICI Bank 2017 (9) TMI 58 - SUPREME COURT on admission or rejection of an application filed under Section 7 of the IBC. It is well settled that under the ambit of Section 7 of the IBC, the Adjudicating Authority is to only determine whether a default has occurred and whether the debt, which may still be disputed, was due and remained unpaid. The moment the Adjudicating Authority is satisfied that a default has occurred and the amount of default is more than the prescribed amount under Section 4 of the IBC, the application is to be admitted unless it is incomplete. It is trite law that under the IBC once a debt which becomes due or payable, in law and in fact, and if there is incidence of non-payment of the said debt in full or even part thereof, CIRP may be triggered by the financial creditor as long as the amount in default is above the threshold limit. Once the Adjudicating Authority is subjectively satisfied that there is a debt and a default has been committed by the Corporate Debtor and the Section 7 application is complete in all respects, the Adjudicating Authority in the exercise of summary jurisdiction has to admit the Section 7 application. On the question as to whether debt and default was adequately demonstrated before the Adjudicating Authority, basis the records made available before it, the Adjudicating Authority has rightly concluded that it was satisfied with the evidence and material produced before it by the Respondent no.1 to prove that a debt had arisen; that a default has occurred and the default is above the threshold limit of Rs. 1 crore. This is a case where all the pre-requisites for filing a Section 7 stood fulfilled and the Adjudicating Authority cannot be held to have committed an error in admitting the Corporate Debtor into CIRP for having defaulted in repaying a financial debt which was above the threshold limit. The Adjudicating Authority did not commit any error in admitting the Section 7 application and bringing the Corporate Debtor into the fold of CIRP. The impugned order does not warrant any interference. There is no merit in the Appeal - Appeal is dismissed.
Issues Involved:
1. Violation of principles of natural justice. 2. Proof of debt and default. 3. Calculation and agreement on interest rate. 4. Use of forged documents and police complaint. 5. Admissibility of Section 7 application under IBC. Detailed Analysis: 1. Violation of Principles of Natural Justice: The Appellant argued that the impugned order was passed ex-parte, violating natural justice principles. Despite being aware of the Section 7 proceedings, the Appellant failed to appear before the Adjudicating Authority on multiple occasions. The Adjudicating Authority had directed paper publication of the notice, which was duly published in two newspapers on 01.04.2022. The Appellant's absence was explained by the demise of a close relative, a justification deemed insufficient given the Appellant's non-appearance on 18 occasions. The Appellant's active pursuit of related criminal applications during the same period further undermined their claim. The Tribunal concluded that adequate notice was given, and the impugned order was not vitiated by a violation of natural justice principles. 2. Proof of Debt and Default: The Tribunal referred to the guiding principles from the Innoventive Industries Limited v. ICICI Bank case, emphasizing that the Adjudicating Authority must determine whether a default has occurred and if the debt remains unpaid. The Adjudicating Authority admitted the Section 7 application after satisfying itself of the presence of debt and default. The Appellant admitted to taking a "friendly loan" with varying interest rates based on an oral agreement. The Respondent No.1 provided financial statements, Form 26AS Tax Statements, and a statement of reconciliation to establish debt and default. The Appellant's claim of clearing outstanding payments in June 2017 was contested by the Respondent No.1, who presented a ledger statement showing a closing balance of Rs.51.81 lakhs as of 31.03.2017. The Tribunal found no material evidence from the Appellant to dispute this ledger statement. 3. Calculation and Agreement on Interest Rate: The Appellant contested the levy of 24% compounded interest, arguing the absence of a written contract. The Respondent No.1 relied on Form-26AS for F.Y. 2015-16, showing interest calculated at 24% compound interest, reported to the Income Tax Department by the Appellant. The Tribunal noted that the loan was based on an oral agreement with varying interest rates. The Tribunal cited the Agarwal Polysacks Ltd. vs K. K. Agro Foods & Storage case, clarifying that a written financial contract is not mandatory for proving financial debt. The loan's disbursement with interest and repayment on demand established the financial debt's essential conditions. 4. Use of Forged Documents and Police Complaint: The Appellant claimed that the balance confirmation document was forged and filed a police complaint on 28.02.2023, a day before the Section 7 application. The Tribunal found this timing suspicious, suggesting the complaint was an afterthought. The Tribunal opted not to delve further into the forgery aspect, given the summary jurisdiction of the Adjudicating Authority and the Tribunal. 5. Admissibility of Section 7 Application under IBC: The Tribunal reiterated that under IBC, once a debt becomes due and remains unpaid, CIRP may be triggered if the default amount exceeds the threshold limit. The Adjudicating Authority, satisfied with the evidence of debt and default above Rs.1 crore, admitted the Section 7 application. The Tribunal found no error in the Adjudicating Authority's decision to admit the Corporate Debtor into CIRP. Conclusion: The Tribunal concluded that the Adjudicating Authority did not err in admitting the Section 7 application and initiating CIRP against the Corporate Debtor. The appeal was dismissed, the interim stay vacated, and the Resolution Professional was allowed to proceed with the CIRP process in accordance with the law. All I.A.s were disposed of, with no order as to costs.
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