2020 (5) TMI 682 - Tri - Insolvency and Bankruptcy

Response to Debt Default Triggers Insolvency Resolution Process | Code Prevails Over Other Laws

IDBI Trusteeship Services Limited Versus Panyam Cements and Mineral Industries Limited

The Tribunal found that the Respondent had defaulted in payment of a financial debt, triggering the insolvency resolution process. The Tribunal rejected ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors or not - existence of debt and dispute or not - execution of the Debenture Trust Deed - HELD THAT:- The execution of the Debenture Trust Deed and allotment of the debenture to the debentures holders is not in dispute. It is also not in dispute that the Respondent defaulted in honouring the redemption on the schedule dates as per Annexure 2 of the Debenture Trust Deed. It partially redeemed debentures on 12.12.2017, which were due on 31.10.2017. It is not disputed that it failed to pay any amount due including interest subsequent to October, 2017 despite issue of notice of acceleration and recall dated 31.01.2019 - Respondent accordingly was in default in payment of a financial debt. The Code has overriding effect over any other law or any instrument having the effect of law. The agreement between the parties as to the jurisdiction of Courts at Hyderabad cannot override express provision of the Code which provides for a specialised mechanism for Corporate Insolvency Resolution. The parties cannot decide jurisdiction of the resolution of their dispute in violation of the express provision of any statute. The contention as to lack of jurisdiction of this Authority raised by the Respondent accordingly cannot be accepted - issue answered in affirmative. Petition admitted - moratorium declared. Issues:I. Whether the Petition is maintainableRs.II. Whether the Respondent committed default in payment of a financial debtRs.III. To what relief, the Petitioner is entitledRs.Analysis:Issue No. II:The Respondent defaulted in payment of a financial debt, which included the principal, interest, maturity premium, default interest, costs, and TDS. The default was evident from the non-payment of due amounts despite notices issued for acceleration and recall. Citing the Innoventive Industries case, the Tribunal affirmed that any non-payment of a debt once it becomes due triggers the insolvency resolution process. Therefore, the Respondent's default in payment of the financial debt was established.Issue No. I:The maintainability of the Petition was challenged based on the argument that the Petitioner could have enforced the deed through other means, and the jurisdiction of the Tribunal was barred as per the terms of the Trust Deed. However, the Tribunal clarified that the Code's provisions override any other law or instrument. The purpose of the Code is not merely for recovery but for the revival and continuation of the corporate debtor, ensuring the interests of all stakeholders. The Tribunal held that the parties cannot dictate jurisdiction in violation of the Code's provisions, thus rejecting the contention of lack of jurisdiction raised by the Respondent.Issue No. III:Considering the findings, the Tribunal allowed the Company Petition and admitted it on contest. The Tribunal appointed an Interim Resolution Professional (RP) and directed them to take charge of the Respondent's management to initiate the Corporate Insolvency Resolution Process (CIRP). A moratorium was declared, and the Directors, Promoters, or any associated persons were instructed to cooperate with the RP. The Tribunal ordered necessary steps to be taken in accordance with the Code and Rules made thereunder, ensuring compliance and communication between the parties involved.In conclusion, the Tribunal admitted the Company Petition, initiated the CIRP, appointed an RP, and declared a moratorium on the Respondent, highlighting the importance of following the Code's provisions for a successful resolution process.