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TMI Blog2020 (10) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... th the reply filed by the Corporate Debtor, and the Independent Auditor's Report for year ending 31.03.2017 showing secured loan from the Financial Creditor, it is clear that there is default in the repayment of the debt, within the meaning of section 3(12) of the Code. It is not the case of the Corporate Debtor that there is no debt, or that the debt has been repaid. The only issue raised by the Corporate Debtor is merely that the amounts claimed by the Financial Creditor in the Petition are in excess. Neither the debt nor the default have been denied. Further, the Corporate Debtor has only raised the issue of limitation, but since we find that it is a case of continuing default, its argument fails. There is not only an existing debt and default, but that, as observed from the Corporate Debtor's Independent Auditor's Report, the Company has lost its substratum and its net worth is eroded, showing negative balances - It is seen that the Corporate Debtor has filed its Statement of Solvency in Form 8 along with the Independent Auditor's Report for year ending 31.03.2017 which records that the LLP has not made any profits and the Reserves and Surplus of the Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Creditor extended financial assistance to the Corporate Debtor for the construction and sales activity of residential project 'Unishire Xperience' located at Hennur Road, Bengaluru vide Sanction Letter dated 20.03.2015, by sanctioning a loan amount of ₹ 13 Crore only. The Financial Creditor and Corporate Debtor entered into the Loan Agreement dated 20.03.2015 for ₹ 13 Crore with rate of interest at 22% payable on quarterly basis on the last day of each quarter. Copies of the Sanction Letter dated 20.03.2015 and the Loan Agreement are annexed to the Petition. 3. The Designated partners of the Corporate Debtor, Mr. Kirti K Mehta and Mr. Pratik K Mehta, executed Personal Guarantees dated 20.03.2015 in favour of the Financial Creditor. Further, a Mortgage Deed dated 27.03.2015 was also executed by the Corporate Debtor in favour of the Financial Creditor. The Corporate Debtor and its partners have jointly and severally issued Demand Promissory Note dated 20.03.2015 for a sum of ₹ 13 Crore. Copies of the Personal Guarantee dated 20.03.2015, Mortgage Deed dated 27.03.2015 and Demand Promissory Note dated 20.03.2015 are annexed to the Petition. 4. The F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of Sanction Letter Loan Agreement dated 20.03.2015, which is the basis of the financial debt. 8. The Financial Creditor states that the contention of the Corporate Debtor that the Financial Creditor has already filed petition under section 138 of the Negotiable Instruments Act, 1881 before the jurisdictional Magistrate Court in Mumbai, Maharashtra is untenable as proceedings under section 138 of the Negotiable Instruments Act 1881 are criminal proceedings and the same do not preclude the Financial Creditor from filing an application under the code seeking initiation of corporate insolvency resolution process against the financial default. 9. The Financial Creditor submits that the contention of the Corporate Debtor that the Financial Creditor has valuable security of over 2 times the debt amount has no bearing on the matter. Further the contention of the Corporate Debtor that the Financial Creditor must comply with the obligations under the Real Estate (Regulation Development) Act, 2016 is denied by the Financial Creditor stating that all such obligations under the aforesaid Act would be that of the developer and can never be imposed on a lender. 10. The Financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racted below: 55. Process of initiation of Insolvency Resolution process by a financial creditor is provided in Section 7 of the I B Code. As per sub-section (1) of Section 7 of the I B Code, the trigger for filing of an application by a financial creditor before the Adjudicating Authority is when a default in respect of any financial debt has occurred. Sub-section (2) of Section 7 provides that the financial creditor shall make an application in prescribed form and manner and with prescribed documents, including: i. record of the default recorded with the information utility or such other record or evidence of default as may be specified; ii. The name of the resolution professional proposed to act as an interim resolution professional; and iii. Any other information as may be specified by the Board. 56. The procedure once an application is filed by the financial creditor with the Adjudicating Authority is specified in sub-section (4) of Section 7 to sub-section (7) of Section 7 of the Code. As per sub-section (4) of Section 7 of the I B Code: (4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the debt , which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. 17. In view of the scope available to us, on the facts of the instant case, from a perusal of the copy of Cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial statements have been prepared on a going concern basis notwithstanding accumulated losses as at the balance sheet date . 20. It is seen that the Corporate Debtor has filed its Statement of Solvency in Form 8 along with the Independent Auditor's Report for year ending 31.03.2017 which records that the LLP has not made any profits and the Reserves and Surplus of the Corporate Debtor reflected in the Financial Statement shows negative balance. The Corporate Debtor has failed to file Audited Financial Statement for the year ending 2018 and 2019 to establish the fact that the Corporate Debtor is solvent. 21. Further, on perusal of the NeSL Report dated 18.07.2019 showing that the Corporate Debtor has defaulted in repayment of the financial debt. It is established that the Corporate Debtor is in default of an amount higher than the minimum required for the initiation of CIRP. 22. As regards I.A. No. 554/2019 filed by the Applicants seeking to be impleaded, the same has been considered. We find no merit in the same. The present petition is an independent proceeding, initiated on account of the debt and default having occurred vis-a-vis the Loan Agreement dated 20. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the Corporate Debtor namely Unishire Regency Park LLP to carry out the CIRP as mentioned under the Insolvency and Bankruptcy Code, 2016 and various rules issued by IBBI from time to time; 2. The following moratorium is declared prohibiting all of the following, namely: a. the institution of suits or continuation of pending suits or proceedings against the Corporate Debtor/Corporate Debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; b. transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its assets or any legal right or beneficial interest therein; c. any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; d. The recovery of any property by an owner or lessor where such property is occupied by or in the possession of the Corporate Debtor; e. The supply of essential goods or services to the Corporate Debtor as may be specified shall not be terminated or ..... 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