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TMI Blog2024 (2) TMI 622X X X X Extracts X X X X X X X X Extracts X X X X ..... ity has admitted the Section 7 application filed by ICICI Bank Ltd. - Financial Creditor for admission of Corporate Insolvency Resolution Process ("CIRP" in short) against Darode Jog Realties Pvt. Ltd.-Corporate Debtor. Aggrieved by the impugned order, the present appeal has been filed by the suspended director of the Corporate Debtor. 2. The Learned Counsel for the Appellant making his submissions stated that the Respondent No.1-Financial Creditor had sanctioned a term loan facility of Rs.130 crore to the Corporate Debtor in August 2015. This loan facility was secured by charge over immovable properties of the Corporate Debtor. It was submitted that the Corporate Debtor had continued to disburse their debt obligations up to 26.04.2019. However, on account of outbreak of Covid pandemic, which affected their business of construction activities and resultant loss of revenue, the Corporate Debtor faced some difficulties in making payments and hence proposed restructuring of its term loan. It was further submitted that while settlement talks were going on between the Appellant-Corporate Debtor and Respondent No.1-Financial Creditor, the latter had filed a Section 7 application seeking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussion on the settlement of debt between the two parties. 4. Refuting the aforesaid contentions of the Appellant, it was submitted by the Learned Counsel for the Respondent No.1 that they had provided term loan to the Appellant in 2015 and the credit arrangement was renewed, amended and modified from time to time. The Corporate Debtor defaulted in their repayment obligations under the Loan Facility Agreement. Having breached several covenants of the Facility Agreement, their account was classified as NPA from 17.05.2018. The Financial Creditor had recalled the entire loan vide their communication dated 13.02.2019 as further rectified on 29.03.2019 seeking payment for an amount of Rs.148.27 crore from the Corporate Debtor. It has been further asserted that the Corporate Debtor never disputed their debt liability even after receipt of the loan recall letter. No reply was either sent by the Corporate Debtor to the loan recall which shows admission of debt and default. 5. While admitting that the two parties had entered into a Settlement Agreement on 08.02.2023, it was asserted that the Settlement Agreement did not make any mention about grant of NoC or release of security by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Creditor to issue conditional NoCs in respect of the other mortgaged properties prior to receipt of payment. It was therefore contended that this obstinate and impractical behavior on the part of the Financial Creditor to press the Section 7 proceedings was purely for the purpose of recovery and not for revival of the Corporate Debtor as a going concern. This aspect should have been noticed by the Adjudicating Authority before admitting the Section 7 application. 9. On the contrary, it is the case of the Financial Creditor that the Corporate Debtor has been a chronic defaulter for more than 5 years having initially violated the loan facility agreement and later breached the Settlement Agreement. Substantiating their arguments, it was asserted by the Learned Counsel for the Respondent No. 1 that in terms of the Settlement Agreement of 08.02.2023, the charge on the mortgaged properties was clearly to be released only upon the receipt of the settlement amount of Rs.17 crore within 90 days from the date of the Settlement Agreement. That this amount was not received from the Appellant within the negotiated time-frame of 90 days tantamount to a default. Thus, having violated the Settl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Recall Letter and the Invocation Notices, no payment were received by ICICI Bank either from the Borrower or Guarantors. L. As on January 25, 2023, the amounts due and payable by the Borrower to ICICI Bank is INR 1,928,722,629.0 (Rupees One Thousand Nine Hundred and Twenty Eight Million Seven Lakh Twenty Two Thousand Six Hundred and Twenty) ("Outstanding Dues") with respect to the Facility sanctioned by ICICI Bank to the Borrower. N. The Parties are now desirous of entering into this Settlement Agreement to record the agreed terms and conditions of the settlement." The relevant Clauses of the Settlement Agreement are as under: "1. ACKNOWLEDGMENT OF DEBT. The Borrower, Guarantors and Security Providers, jointly and severally, unconditionally and unequivocally, agree and confirm that as on January 25, 2022, the total outstanding amounts owed to ICICI Bank under the Facility is INR 1,928,722,629.0 (Rupees One Thousand Nine Hundred and Twenty Eight Million Seven -Lakh Twenty Two Thousand Six Hundred and Twenty Nine) ("Outstanding Dues"). 2. SETTLEMENT AMOUNT 2.1 The Borrower undertakes and agrees to make payment of INR 170.0 million(Rupees One hundred and seventy mil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement Agreement was ever questioned by either of parties. Recital E thereof notes that default was committed by the Corporate Debtor in respect of the loan facility and consequential classification of their account as NPA. Recital F enunciates that the loan facility was withdrawn and the amount due and payable to the Financial Creditor as on 15.01.2019 was Rs.148.27 crore. Recital G is an unequivocal declaration that inspite of the recall letter and invocation notices, no payment was received from the Corporate Debtor while Recital L notices that amount due and payable to the Financial Creditor as on 25.01.2023 was Rs.192.87 crore and Recital N notes that in the light of the OTS proposal of the Financial Creditor dated 03.12.2022, the parties are desirous of entering into a Settlement Agreement on agreed terms and conditions. 12. The above recitals having been signed by both the parties willingly and consensually and not having been disputed, we notice that the Settlement Agreement has clearly noted that there was a debt qua the Financial Creditor and that the Corporate Debtor had clearly defaulted in discharging their debt obligations. Further with a view to settle the terms and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined the terms and conditions of the Settlement Agreement, we have no hesitation in our mind that the Settlement Agreement does not make any mention of any form of NoC to be provided by the Financial Creditor with respect to mortgaged properties or any release of security by the Financial Creditor before the payment of the settlement amount. The Settlement Agreement at Clause 3(ii)(b) makes it amply clear that the security was to be released only on payment of the entire settlement amount. Furthermore, when the security provided by the Corporate Debtor had been charged to the Financial Creditor to secure the loan facility, the Financial Creditor cannot be compelled to accede to issue of NoC for sale of these mortgaged properties prior to payment of debt and that too sans any such specific arrangement provided for in the Settlement Agreement. 17. We also notice from the additional affidavit placed on record by the Respondent No.1 that the Financial Creditor had sent emails on 04.05.2023, 08.05.2023 and 26.06.2023 to the Corporate Debtor making it unambiguously clear that in terms of the Settlement Agreement of 08.02.2023 the charge on the mortgaged properties will be released ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any default in payment of such debt. 6. Considering all the facts placed before us and the fact that the Corporate Debtor owes the Financial Debt in excess of Rs.1 Crore, which is in default, this bench is of the view that in such circumstances, it is imperative that the Corporate Insolvency process to be initiated in the matter of the Corporate Debtor. The petition is complete in all aspect. Since, the debt and default exist, this bench is of the view, that the present case deserves to be admitted under Section 7 of the Insolvency and Bankruptcy Code, 2016." (Emphasis supplied) 20. The Corporate Debtor while entering into the Settlement Agreement had clearly acknowledged debt and default. We find that under Clause 1 of the Settlement Agreement, it has been admitted unconditionally and unequivocally by the Corporate Debtor that the amounts due and payable to the Financial Creditor as on 25.01.2023 was Rs.192.87 crore. In Clause 2 of the Settlement Agreement, the Corporate Debtor had agreed to pay Rs.17 crore within 90 days from the date of the Agreement. This clause was breached as the settlement amount was not paid by the Corporate Debtor within the prescribed time frame of 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oundational basis. 22. The Hon'ble Apex Court in the case of Innoventive Industries Limited v. ICICI Bank (2018) 1 SCC 407, has laid down the guiding principles to admit or reject an application filed under Section 7 of the IBC. Under the ambit of Section 7 of the Code, 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. It is a well settled proposition of law that only two alternative courses of action are available to the Adjudicating Authority under Section 7(5) of the IBC which is to either admit the application under Section 7(5)(a) or reject the petition under Section 7(5)(b). The moment the Adjudicating Authority is satisfied that a default has occurred, the Application is to be admitted unless it is incomplete. 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 Financial Creditor to prove that a debt had arisen; that a default has occurred a ..... 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