2020 (2) TMI 1340 - Tri - Insolvency and Bankruptcy

Tribunal Grants Petition under Insolvency Code, Petitioners Prove Debt with Evidence

The Tribunal found the petition maintainable under Section 7 of the Insolvency and Bankruptcy Code, 2016, as the Petitioners provided sufficient evidence. ... Maintainability of petition - revision of accounts - section 131 of the Companies Act, 2013 - HELD THAT:- Considering the fact that Petitioners have been shown as unsecured related party creditors of in its Balance Sheet, which has not been challenged by the Corporate Debtor, this Adjudicating Authority is of the view that the Petitioners are Financial Creditors of the Corporate Debtor to the extent of financial debts admitted in the Book of Accounts of the Corporate Debtor. Accordingly, this Adjudicating Authority is inclined to admit the instant application filed under section 7 of the Code - The instant petition is hereby admitted and this Adjudicating Authority Orders the commencement of the Corporate Insolvency Resolution Process which shall ordinarily get completed as per the time line stipulated in section 12 of the 1B Code, 2016, reckoning from the day this order is passed. Petition admitted - moratorium declared. Issues Involved:1. Maintainability of the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016.2. Existence of financial debt owed by the Corporate Debtor to the Petitioners.3. Admission of debt by the Corporate Debtor in its financial statements.4. Claims of financial fraud and manipulation by the Petitioners.5. Appointment of Interim Resolution Professional (IRP) and commencement of Corporate Insolvency Resolution Process (CIRP).6. Declaration of moratorium.Issue-wise Detailed Analysis:1. Maintainability of the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016:The petition was filed by the Petitioners under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking the initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Respondent argued that the petition was not maintainable, claiming that the Petitioners failed to provide sufficient evidence supporting their claims and alleged that the petition was based on false and misleading information. However, the Tribunal found the petition maintainable as the Petitioners had provided necessary documents and evidence, including financial statements and correspondence, to support their claims.2. Existence of financial debt owed by the Corporate Debtor to the Petitioners:The Petitioners claimed that they had extended unsecured loans to the Corporate Debtor, amounting to Rs. 2,39,58,045/-. The loans were provided to support the construction of the factory and other financial needs of the Corporate Debtor. The Petitioners submitted various documents, including financial statements, letters, and emails, to substantiate their claims. The Corporate Debtor, however, denied any liabilities towards the Petitioners and alleged financial fraud and manipulation by the Petitioners, who were part of the Board of Directors at the relevant time.3. Admission of debt by the Corporate Debtor in its financial statements:The Petitioners presented evidence that the Corporate Debtor had admitted the debt in its financial statements for the year ending 31.03.2016. The financial statements, signed and filed by the Managing Director of the Corporate Debtor, included the unsecured loans extended by the Petitioners. The Tribunal noted that the Corporate Debtor did not dispute these figures and had admitted the unsecured loans in its balance sheet. This admission of debt was a crucial factor in establishing the existence of financial debt owed by the Corporate Debtor to the Petitioners.4. Claims of financial fraud and manipulation by the Petitioners:The Corporate Debtor alleged that the Petitioners, who were part of the Board of Directors, had committed financial fraud and manipulated the financial statements to establish themselves as financial creditors. They claimed that the Petitioners had shown finished goods as cash sales without recording them in the books of accounts and deposited the cash amounts in their personal accounts, later bringing them back as unsecured loans. The Tribunal, however, found these allegations unsubstantiated and focused on the admission of debt in the financial statements of the Corporate Debtor.5. Appointment of Interim Resolution Professional (IRP) and commencement of Corporate Insolvency Resolution Process (CIRP):The Tribunal admitted the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, and ordered the commencement of the Corporate Insolvency Resolution Process (CIRP). Mr. Venkateswarlu Kari was appointed as the Interim Resolution Professional (IRP), as proposed by the Financial Creditor. The IRP was directed to take charge of the Corporate Debtor's management immediately and to make a public announcement as prescribed under Section 15 of the I&B Code, 2016, within three days from the date of receipt of the order.6. Declaration of moratorium:The Tribunal declared a moratorium, effective from the date of the order until the completion of the CIRP. The moratorium prohibits:a) The institution or continuation of suits or proceedings against the Corporate Debtor.b) Transferring, encumbering, alienating, or disposing of any assets or legal rights of the Corporate Debtor.c) Any action to foreclose, recover, or enforce any security interest created by the Corporate Debtor.d) The recovery of any property by an owner or lessor where such property is occupied by or in possession of the Corporate Debtor.e) Suspension or termination of any licenses, permits, registrations, quotas, concessions, clearances, or similar grants or rights during the moratorium period, provided there is no default in payment of current dues.The IRP was also directed to ensure the supply of essential goods or services to the Corporate Debtor is not terminated, suspended, or interrupted during the moratorium period. The Tribunal emphasized the cooperation of the directors, promoters, and any other person associated with the management of the Corporate Debtor in assisting the IRP in discharging his functions.Conclusion:The Tribunal concluded that the Petitioners were financial creditors of the Corporate Debtor to the extent of the financial debts admitted in the Corporate Debtor's books of accounts. The petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, was admitted, and the Corporate Insolvency Resolution Process (CIRP) was ordered to commence. The moratorium was declared, and Mr. Venkateswarlu Kari was appointed as the Interim Resolution Professional (IRP). The Tribunal directed all necessary steps to be taken to comply with the provisions of the I&B Code, 2016, and to ensure the smooth conduct of the CIRP.