2019 (7) TMI 1638 - Tri - Insolvency and Bankruptcy

Adjudicating Authority's Final Hearing Proceeds Amid Corporate Debtor's Settlement Rejection & Discrepancy

The Adjudicating Authority proceeded with the final hearing despite delays caused by a rejected settlement proposed by the corporate debtor. A discrepancy ... Forum shopping - parallel SARFEASI and insolvency proceedings - Section 65 of the Insolvency and Bankruptcy Code - prohibition on using the Adjudicating Authority as a recovery forumParallel SARFEASI and insolvency proceedings - forum shopping - Section 65 of the Insolvency and Bankruptcy Code - prohibition on using the Adjudicating Authority as a recovery forum - Whether the financial creditor's simultaneous prosecution of SARFEASI auction proceedings while instituting an insolvency petition before the Adjudicating Authority amounts to forum shopping attracting action under Section 65 of the Insolvency & Bankruptcy Code. - HELD THAT: - The Tribunal noted that the Bank had initiated SARFEASI auction proceedings in parallel with filing the present insolvency petition. The Adjudicating Authority observed that initiating recovery proceedings while seeking corporate insolvency resolution may amount to forum shopping and is inconsistent with the role of this Court, which is not a recovery forum. In view of these observations, the Tribunal declined to summarily treat the petition as immune from scrutiny; instead it afforded the Bank an opportunity to justify the auction proceedings and the parallel course. The Tribunal recorded that failure by the Bank to justify the parallel SARFEASI action could invite issuance of a formal notice under Section 65 of the IBC for prosecution of proceedings reflecting an intention other than resolution of the company. The Tribunal also directed the authorised signatory (the Chief Manager) of the Bank's petition to remain present for this purpose and listed the matter for further hearing.Bank to justify its SARFEASI auction and parallel proceedings; authorised signatory to attend; matter listed for further hearing and failure to justify may attract notice under Section 65 IBC.Final Conclusion: The Tribunal recorded prima facie apprehension of forum shopping by the financial creditor for pursuing SARFEASI recovery alongside the insolvency petition, directed the Bank to justify the auction proceedings through its authorised signatory and listed the matter for hearing, warning that failure to justify may lead to action under Section 65 of the IBC. Issues:1. Delay in final hearing due to settlement proposed by the corporate debtor.2. Discrepancy regarding the approval of the One Time Settlement (OTS) proposal.3. Corporate debtor's offer for settlement and the ongoing SARFEASI proceedings.4. Parallel proceedings under SARFEASI Act and the Insolvency & Bankruptcy Code.5. Forum shopping and penalty provisions under Section 65 of the Insolvency & Bankruptcy Code.Analysis:1. The delay in the final hearing was attributed to the settlement proposed by the corporate debtor, which had been previously rejected. The Adjudicating Authority was urged to proceed with the hearing on its merits and disposal, as per the submission of the Learned Counsel representing the financial creditor/petitioner.2. A discrepancy arose concerning the approval of an OTS proposal, with the Director of the corporate debtor company highlighting a recent email from the bank requesting approval for the OTS proposal. The Petitioner's counsel contended that no OTS had been approved from the bank's side, as it had been rejected earlier, emphasizing the need for the court to proceed with the arguments.3. The corporate debtor, in response to queries about an improved settlement proposal, mentioned ongoing SARFEASI proceedings initiated by the bank for auctioning the company's assets. The corporate debtor offered a settlement amount exceeding the assets' liquidation value, indicating efforts to enhance the settlement offer further to approximately Rs. 8 to 9 Crores.4. The Tribunal noted the parallel proceedings under the SARFEASI Act alongside the Insolvency & Bankruptcy Code filing. Expressing confusion over the purpose of such parallel actions, the Tribunal highlighted the potential forum shopping implications and the penalty provisions under Section 65 of the Insolvency & Bankruptcy Code. The Tribunal provided an opportunity for the bank to justify its auction proceedings before considering issuing a formal notice under the Code.5. Emphasizing that the Court is not a recovery forum, the Tribunal warned against filing petitions with intentions other than the resolution of the company, as it may attract penalties under Section 65 of the Insolvency & Bankruptcy Code. The Tribunal directed the bank's Chief Manager to be present for the next hearing, scheduled for 09.08.2019.