9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (2) TMI 522 - AT - IBCAdmission of Section 7 application - existence of a financial debt - occurrence of default - failure in repayment as per revised terms of the amendment to third Debenture Trust Deed - Financial Creditor by majority controlled the PMC and default subsequent to constitution of PMC is orchestrated by financial creditor - HELD THAT - The PMC was constituted for the purpose and object to monitor the project to improve the sales and collections from the project and completing the construction of the project. PMC was constituted to improve the functioning of company qua the construction of the project. PMC in no manner has undertaken the obligation of the obligors towards repayment which is clearly reflected in Clauses 2.6 and 2.22 as extracted above. There are no substance in the submission of Shri Arun Kathpalia that after constitution of PMC in which there are three members of the financial creditors i.e. majority blame for non-payment of due amount can be put on the financial creditor itself. The PMC was constituted to assist and improve the operations and construction of the project which in no manner diminish the obligation of the corporate debtor to fulfil its payment obligation. The default in repayment of the obligation by obligors cannot in any manner be put on the financial creditor nor constitution of PMC in any manner affect the obligation or absolve the corporate debtor from its default for repayment of the debt. The Respondent is right in his submission that in Section 7 application the Adjudicating Authority was obliged to determine whether default has occurred or whether debt was due as remained unpaid. The Hon ble Supreme Court in E.S. Krishnamurthy and Others vs. Bharath Hi-Tech Builders Private Limited 2021 (12) TMI 683 - SUPREME COURT referring to the earlier judgment of the Hon ble Supreme Court in Innoventive Industries Ltd. vs. ICICI Bank 2017 (9) TMI 58 - SUPREME COURT held in the case of a corporate debtor who commits a default of a financial debt the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is due i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise. As per the Settlement Agreement dated 04.11.2019 any action taken by the PMC through its members consisting of nominees of the financial creditor can have no consequence or effect on the obligation and liabilities of the obligor to fulfil their obligation of repayment. Conclusion - There are no infirmity in the findings returned by the Adjudicating Authority that the financial creditor succeeded in proving the debt and default and the ingredients under Section 7 are fulfilled. In view of the facts brought on the record it is clearly proved that there is a debt and default which has been acknowledged from time to time by the corporate debtor. Corporate debtor has failed to honour its repayment obligations as per financial document. Adjudicating Authority after considering all submissions of the parties have rightly returned the finding of debt and default. No ground has been made out to interfere with the impugned order dated 08.01.2025 passed by the Adjudicating Authority admitting Section 7 application. There is no merit in the appeal. The Appeal is dismissed.
ISSUES PRESENTED and CONSIDERED
The core legal question considered in this judgment was whether the National Company Law Tribunal (NCLT) was correct in admitting the Section 7 application filed by the financial creditor, IDBI Trusteeship Services Limited, against the corporate debtor, Shree Vardhman Infraheights Private Limited, for initiating the Corporate Insolvency Resolution Process (CIRP). The primary issues revolved around the existence of a financial debt, the occurrence of default, and whether the financial creditor's actions could negate the corporate debtor's default. ISSUE-WISE DETAILED ANALYSIS Relevant legal framework and precedents The legal framework is primarily governed by the Insolvency and Bankruptcy Code (IBC), specifically Section 7, which allows financial creditors to initiate CIRP against a corporate debtor upon the occurrence of a default. The relevant precedents include the Supreme Court judgments in "Innoventive Industries Ltd. vs. ICICI Bank" and "E.S. Krishnamurthy and Others vs. Bharath Hi-Tech Builders Private Limited," which establish that the adjudicating authority must determine whether a default has occurred and whether the debt is due and unpaid. Court's interpretation and reasoning The Tribunal interpreted Section 7 of the IBC as requiring the determination of whether a financial debt exists and whether there has been a default. The Tribunal emphasized that the existence of a default is the primary criterion for admitting a Section 7 application. It noted that the corporate debtor's acknowledgment of debt and default, as evidenced by financial statements and acknowledgment letters, supported the financial creditor's claim. Key evidence and findings The evidence included the Debenture Trust Deed and its subsequent amendments, acknowledgment letters from the corporate debtor, and financial statements for the fiscal year 2021-2022. The Tribunal found that the corporate debtor had repeatedly acknowledged its debt and default, and the default report from the Information Utility confirmed the default date as 30.06.2023. Application of law to facts The Tribunal applied the legal principles from the IBC and relevant precedents to the facts, concluding that the financial creditor had established the existence of a financial debt and a default. The Tribunal rejected the argument that the financial creditor's control over the Project Monitoring Committee (PMC) negated the corporate debtor's default, as the PMC's role was to monitor and assist in project completion, not to assume the debtor's repayment obligations. Treatment of competing arguments The appellant argued that the financial creditor, by controlling the PMC, orchestrated the default and should be considered a co-promoter responsible for the project's completion and repayment. The Tribunal dismissed this argument, noting that the Settlement Agreement and clauses within it clearly outlined the corporate debtor's obligations to repay the debt, independent of the PMC's functioning. Conclusions The Tribunal concluded that the financial creditor had successfully demonstrated the existence of a debt and default, fulfilling the requirements under Section 7 of the IBC. The appellant's arguments regarding the PMC's control and alleged orchestration of default by the financial creditor were found to be without merit. SIGNIFICANT HOLDINGS The Tribunal held that the existence of a financial debt and the occurrence of a default were undisputed and adequately proven by the financial creditor. It emphasized that the role of the PMC did not absolve the corporate debtor of its repayment obligations. The Tribunal reiterated the principle that the adjudicating authority's role under Section 7 is limited to verifying the occurrence of default and the existence of debt, as established in "Innoventive Industries Ltd. vs. ICICI Bank" and further supported by "E.S. Krishnamurthy and Others vs. Bharath Hi-Tech Builders Private Limited." Core principles established The core principle reaffirmed is that the adjudicating authority must admit a Section 7 application if a default has occurred and the debt is due and unpaid, regardless of any disputes or proceedings pending in other forums. The Tribunal also clarified that the presence of a PMC or any control exercised by the financial creditor does not negate the corporate debtor's obligation to repay the debt. Final determinations on each issue The Tribunal determined that the financial creditor had established both the existence of a financial debt and a default, justifying the admission of the Section 7 application. The appeal challenging the NCLT's order was dismissed, affirming the initiation of CIRP against the corporate debtor.
|
