Tribunal admits Financial Creditor's insolvency application against Corporate Debtor due to loan default

The Tribunal admitted the Financial Creditor's application under Section 7 of the Insolvency & Bankruptcy Code against the Corporate Debtor due to default on a loan with disputed high-interest rates. Despite the disagreement over interest charges, the Tribunal found evidence of a significant unpaid amount, meeting the Code's default threshold. The Tribunal refrained from addressing Companies Act violations, admitted the Corporate Debtor into Corporate Insolvency Resolution Process, and appointed an Interim Resolution Professional, imposing a moratorium. The order outlined the moratorium's scope, creditor details collection, resolution plan formulation, and directed prompt completion of the CIRP.

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Issues:
Application under section 7 of I&B Code for CIRP due to default in loan payment. Dispute over interest rate charged by Financial Creditor. Corporate Debtor's defense against high interest rate. Admittance of Corporate Debtor in CIRP. Appointment of Interim Resolution Professional and moratorium order.

Analysis:
The Financial Creditor filed an application under section 7 of the Insolvency & Bankruptcy Code, 2016 against the Corporate Debtor for defaulting on a loan of Rs. 47,40,000 with 8% interest per month. The Corporate Debtor received an advance of Rs. 15 lakhs with 8% interest per month, totaling Rs. 42 lakhs, out of which Rs. 9,60,000 was paid, leaving a balance of Rs. 32,42,000 unpaid. Despite demands, the Corporate Debtor failed to pay, leading to the application.

The Corporate Debtor contended that the financial assistance was taken in good faith and objected to the interest rate, claiming the Financial Creditor admitted receiving Rs. 11,60,000. The Corporate Debtor proposed to clear the debt in two years without the high interest rate. The Financial Creditor argued that the Corporate Debtor admitted the debt and default, justifying CIRP admission.

The Tribunal noted the dispute over interest rate but found evidence of the Corporate Debtor owing more than Rs. 1 lakh, meeting the IBC's minimum default requirement. Despite the high interest rate, the debt was due and payable. The Tribunal refrained from delving into Companies Act provisions violations and admitted the Corporate Debtor in CIRP.

The Tribunal cited Section 30A of The Bengal Money-Lenders Act, 1940, capping interest rates for commercial loans. The interest rate charged by the Financial Creditor exceeded the permissible limit, but the default amount was substantial. The Tribunal admitted the application and appointed an Interim Resolution Professional, imposing a moratorium to initiate the Corporate Insolvency Resolution Process.

The order declared the moratorium's scope, including restrictions on legal actions against the Corporate Debtor and supply continuity of essential goods/services. The Interim Resolution Professional was tasked with creditor details and resolution plan formulation. The Financial Creditor was directed to pay advance fees, and the IRP was instructed to complete the CIRP promptly. The order was to be communicated to all parties, with a progress report due on a specified date.

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