Tribunal dismisses insolvency application, declares subsequent actions illegal. Corporate Debtor allowed to operate independently.

The Tribunal set aside the order admitting the application under Section 7 of the Insolvency & Bankruptcy Code, finding the material produced insufficient to establish default. It dismissed the application, declared subsequent actions illegal, and allowed the Corporate Debtor to operate independently.

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Issues Involved:
1. Sufficiency of material to record satisfaction of default.
2. Reliability of the pledge agreement.
3. Evidence of disbursement of additional amounts.
4. Repayment of the initial loan.
5. Validity of the assignment deed.
6. Financial debt definition under Section 5(8) of the I&B Code.
7. Adjudicating Authority's role in determining debt and default.

Issue-wise Detailed Analysis:

1. Sufficiency of Material to Record Satisfaction of Default:
The appellant challenged the order admitting the application under Section 7 of the Insolvency & Bankruptcy Code, 2016, arguing that the material produced by the respondent was insufficient to record satisfaction of default. The Tribunal examined whether the record was complete and whether there was a debt and default committed by the Corporate Debtor, as per the principles laid down by the Hon’ble Supreme Court in 'Innoventive Industries Ltd Vs ICICI Bank’ (2018) 1 SCC 407.

2. Reliability of the Pledge Agreement:
The appellant contended that the pledge agreement was doubtful and could not be relied upon. The Tribunal noted that the agreement contained acknowledgments of disbursement but also pointed out inconsistencies in the documents provided by the respondent, such as the dates mentioned in the Deed of Assignment and the letter dated 24th October 2017, which referred to an agreement of a subsequent date (25th October 2017).

3. Evidence of Disbursement of Additional Amounts:
The appellant argued that no additional amount of Rs. 50 lakhs was disbursed beyond the initial Rs. 50 lakhs. The Tribunal found that there was no evidence to support the claim of an additional Rs. 50 lakhs being disbursed, making it clear that only the initial Rs. 50 lakhs were involved.

4. Repayment of the Initial Loan:
The appellant provided evidence of repayment of the initial Rs. 50 lakhs through banking channels. The Tribunal acknowledged the repayment and noted that the Corporate Debtor had claimed an additional sum of Rs. 4,27,000 payable by the respondent, which was not disputed by the respondent.

5. Validity of the Assignment Deed:
The Tribunal scrutinized the Deed of Assignment dated 25th October 2017 and found discrepancies, such as the inclusion of dues as of 5th November 2017 in a document dated 25th October 2017. These inconsistencies led the Tribunal to question the validity of the assignment deed.

6. Financial Debt Definition under Section 5(8) of the I&B Code:
The respondent argued that the amount lent constituted a financial debt under Section 5(8) of the I&B Code. However, the Tribunal found that the evidence did not support the claim of an additional Rs. 50 lakhs being lent, and thus, the total amount of Rs. 1 crore was not established.

7. Adjudicating Authority's Role in Determining Debt and Default:
The Tribunal reiterated that the Adjudicating Authority is not required to go into the claim or counterclaim except to determine whether the record is complete and whether there is a debt and default. Based on the evidence, the Tribunal concluded that the default had not occurred in the sense that the debt was not due and payable by the Corporate Debtor in law or in fact.

Conclusion:
The Tribunal set aside the impugned order dated 21st February 2017 passed by the Adjudicating Authority (National Company Law Tribunal), Ahmedabad Bench, Ahmedabad. It declared all subsequent actions, including the appointment of a Resolution Professional and the declaration of moratorium, illegal and set aside. The application under Section 7 of the I&B Code was dismissed, and the Corporate Debtor was allowed to function independently through its Board of Directors. The appeal was allowed with no costs.

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