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TMI Blog2021 (10) TMI 1082X X X X Extracts X X X X X X X X Extracts X X X X ..... putes the debt or takes a plea that there is no default though there is debt. Ordinarily, the Corporate Debtor is empowered to point out that a Default had not occurred. It cannot be forgotten that a debt may not be due, if it is not payable either in law or in fact. In the instant case, just because a Guarantee Deed is furnished by a different entity, the same would not in any way relieve the obligation of the Corporate Debtor to pay the First Respondent / Financial Creditor as Principal Borrower. On behalf of the First Respondent / Financial Creditor/Applicant it is brought to the notice of this Tribunal that the Corporate Debtor had availed the financial debt / loan by executing a Loan Agreement and Promissory Note to and in favour of the First Respondent / Financial Creditor. Undoubtedly, under the I B Code, CIRP is not an adversarial litigation, like the Court of Law . An Adjudicating Authority is not deciding a money claim in a civil suit. An Adjudicating Authority s part is confined to the act of deciding whether the application is complete, and whether there is any debt or default - in view of the fact that in the present case the existence of debt of the Corporate Debtor a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Section 238 giving the Provisions of the Code overriding effect on other laws. The Judgement relied on by Learned Counsel for Appellant does not appear to support the argument of learned Counsel for Appellant that if Bank had resorted to SARFAESI or proceeding before DRT, it is barred from resorting to IBC. ….The pendency of actions under the SARFAESI Act or actions "under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 does not create obstruction for filing an Application under Section 7 of Insolvency and Bankruptcy Code, 2016, specially in view of Section 238 of IBC. The Application is more to bring about a Resolution of Corporate Debtor than any penal action or any recovery proceedings. We do not find any substance in the Appeal. The Appeal is dismissed. No costs. 14. It is also significant to refer to the decision of the Hon'ble Madras High Court in the matter of M/s Anandram Developers Pvt Ltd & Anr Vs The National Company Law Tribunal & Anr. in W.P. Nos. 29084 and 29085 of 2017 and W.M.P. Nos. 31321 to 31323 of 2017 decided on 17.11.2017, wherein it has held as follows: "48. Further contention of the petitioners that the action of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity is satisfied that there is a 'Debt' and 'default' and the application is complete. On the other hand, in view of Section 14 all such proceedings in respect of any debt will remain stayed and cannot proceed during the period of moratorium." 16. Thus, from the Judgement cited above, it is now trite that pendency of actions under the SARFAESI Act by the Financial Creditor is not a bar for filing an Application under Section 7 of IBC, 2016, especially in view of Section 238 of IBC. Further, the proceedings under IBC, 2016 cannot be said to be a parallel proceeding since the Application under Section 7 of IBC, 2016 is filed to bring about a Resolution for the Corporate Debtor, on the other hand the proceedings under SARFAESI Act, 2002 is for recovery of the amount which is due and payable to the Financial Creditor. 17 Under these circumstances, we are satisfied that there is a debt and default on the part of the Corporate Debtor and the Corporate Debtor is unable to repay its dues to the Financial Creditor. It has also been consistently held by the Hon'ble Supreme Court both in Innoventive Industries Ltd Vs ICICI Bank and another (2018) 1 SCC 407 as well as Mobilox Innovations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent/Company is in the business of trading in earth moving spares and service activity, providing employment to about 100 persons. In fact, in the year 2015, the 2nd Respondent had the desire of purchasing an Apartment and therefore, a tri party agreement was entered into between the Developer M/s Cal Express Construction (India) Pvt. Ltd, the First Respondent (Financial) and Second Respondent (Borrower) whereby it was agreed that the loan would be raised from the First Respondent and pay to the Developer directly by agreeing to create equitable mortgage over the Apartment proposed to be developed. 4. According to the Appellant, the Second Respondent had entered into a construction agreement with the Developer dated 9.06.2019 for an Apartment No.E5 of an extent of 3,772.77 square feet on 5th floor in the Building, ''USHERA'' in Sholinganallur, Kanchepuram, to be delivered by the developer within 36 months from date of agreement or within 6 months from obtaining final statutory clearance. The said agreement was registered as Doc No.7462 of 2015 on the file of the Sub-Registrar, Neelankarai. Further a sale deed dated 28.09.2015 registered as Doc No.7463 of 2015 on the file of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. As a matter of fact, the First Respondent was enjoying the possession of the Apartment and it was not disclosed as to whether the said Apartment was sold by the First Respondent. 9. The Learned Counsel for the Appellant, brings to the Notice of this Tribunal that after more than a year of appropriating the Apartment, during June, 2019 the First Respondent filed IBA/779/2019 (Section 7 Application) before the Adjudicating Authority, for an alleged default of ₹ 2,74,49,023/- and under the 2nd Respondent filed its counter along with documents on 21.11.2019, before the 'Adjudicating Authority', raising numerous objections to the Application. 10. The stand of the Appellant is that having taken possession and appropriated the secured Assets of the Corporate Debtor, being valued by the First Respondent at ₹ 5,05,89,202/-, Section 7 application was filed in respect of the default sum of ₹ 2,74,49,023/-. 11. The Learned Counsel for the Appellant takes a forceful plea that the 'Adjudicating Authority' had failed to appreciate that the First Respondent / Financial Creditor took possession of the secured asset worth ₹ 5,05,89,202/-, for an alleged default of onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to take control and custody of any asset over which the 'Corporate Debtor' has "ownership rights" as recorded in the balance sheet of the 'Corporate Debtor'. Even if it is not in possession of the 'Corporate Debtor', a person who is possession of the same, including the 'Dena Bank' or 'Encore Asset Reconstruction Company Pvt. Ltd.' is bound to hand over the same to the 'Resolution Professional', when title still vests with 'Corporate Debtor'. 14. Decision in "Transcore's case (supra)" was rendered in the year 2008 when the 'I&B Code' was not in existence. The 'I&B Code' came into force w.e.f. 1st December, 2016 and Section 238 reads as follows: "238. Provisions of this Code to override other laws.- The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." 15. 'SARFAESI Act, 2002' being an existing law, Section 238 of the 'I&B Code' will prevail over any of the provisions of the 'SARFAESI Act, 2002' if it is inconsistent with any of the provisions of the 'I&B Code.' 16. In the aforesaid background, we hold that Section 18 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar till date. c. Guarantees given in relation to the debts, if any, specifying which of the guarantors is a related party. d. Details of all Material Litigation and ongoing investigations or proceedings initiated by Government and Statutory Authorities e. The number of workers and employees and liabilities of the Company towards them. f. Tally backup as on 17th November 2020 g. Particulars of a debt due from or to MPL Parts and Services with respect to related parties." 23. The grievance of the Second Respondent / Resolution Professional is that inspite of few reminders being sent to him and an endeavor was made to reach out the 'Corporate Debtor', no response was received till date. Besides this, the Resolution Professional is not able to complete the preparation of information memorandum. Indeed, the public advertisement for Expression of Interest was made in the newspapers (i) Financial Express and (ii) Makkal Kural on 27.01.2021. 24. In reality, in the absence of accounting records and documents, current position of assets and liabilities of the Corporate Debtor could not be ascertained and placed before the Committee of Creditors for further consideration and delib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r' can sell the secured assets of which were taken possession as per the SARFAESI Act, 2002 and realise the money alleged due and payable by the 'Company' and set-off the same, in respect of the outstanding loan. Further, they cannot take shelter under the 'I&B' Code to 'speed up recovery' or to terrorrise the 'Corporate Debtor'. 30. Be it noted, that there is no impediment for an 'Applicant' to prefer an Application under section 7 of the I&B Code, 2016 when already the proceedings under SARFAESI Act, 2002 are pending. For maintaining an application u/s 7 of the Code, an applicant is to establish the existence of a debt, which is due from the Corporate Debtor. In fact, the issue of whether there is debt and default can be looked into only if the Corporate Debtor disputes the debt or takes a plea that there is no default though there is debt as per decision R.B.Synthetics V. Bee Ceelene Textile Mills Ltd. reported in (2018) 148 SCL 584. 31. It must be borne in mind that there is no command under the I&B Code to find out as to whether the loan was expended in relation to the affairs of the Corporate Debtor or for any other purpose. At this stage, this Tribunal worth recalls and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulars of the proposed interim resolution professional in part III, particulars of the financial debt in part IV and documents, records and evidence of default in part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 3(12) which defines 'default', for a default thereto, there has to be a subsisting debt. Even if a person has the ability to repay the debt, there can be a willful default. Indeed, the debt must be due and payable. As a matter of fact, in the decision NaZamunnessa Begum Vs. Vidyasagar Cotton Mills Ltd. reported in (1963) 33 Comp Cas 36(Cal.) it is observed and held that 'default' is purely a relative term just like negligence. Requisites for Admission of Application 37. It is to be pointed out that 'once the Adjudicating Authority' is satisfied as to the existence of the default and has ensured that the application is complete, and no disciplinary proceedings are pending against the proposed Resolution Professional, it shall admit the application. The Adjudicating Authority is not required to look into any other criteria for admission of the application. 38. Undoubtedly, under the I&B Code, 'CIRP' is not an adversarial litigation, like the 'Court of Law'. An 'Adjudicating Authority' is not deciding a money claim in a civil suit. An Adjudicating Authority's part is confined to the act of deciding whether the application is complete, and whether there is any debt or default. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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