2019 (12) TMI 1525 - Tri - Insolvency and Bankruptcy

Tribunal denies Corporate Insolvency Resolution Process initiation against KSM Spinning Mills

The Tribunal denied the application for initiation of Corporate Insolvency Resolution Process (CIRP) by the Central Bank of India against M/s. KSM ... Initiation of CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016 - right to hearing - reopening of evidence - exercise of judicial discretion in reopening evidence - automatic cancellation of One Time Settlement on non-compliance - novation of contractRight to hearing - reopening of evidence - exercise of judicial discretion in reopening evidence - Application for reopening proceedings / granting another opportunity to the respondent to place oral submissions was refused. - HELD THAT: - The Tribunal found from its own order dated 20.11.2019 that senior counsel for the respondent appeared and was heard; therefore the alleged non-availability of arguing counsel did not deprive the respondent of its right to be heard. Reliance on the discretionary power to reopen evidence was considered; but such discretion must be exercised judicially, sparingly and only in exceptional cases where reopening is necessary to decide the issue. On the facts of this case, having found that the right to hearing was given and availed, reopening the proceedings or granting further opportunity was unnecessary. [Paras 5, 7, 8]Prayer for reopening proceedings and granting further opportunity was refused.Automatic cancellation of One Time Settlement on non-compliance - novation of contract - Whether the sanctioned OTS operated as a novation of the debt was negatived because the OTS was automatically cancelled for non-compliance. - HELD THAT: - The respondent's pleadings and additional affidavit recorded that the sanction letter dated 27.12.2018 granted OTS conditioned on compliance by a specified date, which was not complied with as only a part amount was deposited. The Tribunal held that non-compliance resulted in automatic cancellation of the OTS, and consequently any claim of novation of the underlying contract could not arise where the settlement terms were not performed. [Paras 6, 9]Claim of novation rejected as the OTS stood automatically cancelled for non-compliance.Initiation of CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016 - Maintainability of the Section 7 application was affirmed in the sense that the respondent's request for further opportunity did not stay or preclude the Tribunal from proceeding to decide the Section 7 petition. - HELD THAT: - The Tribunal examined the respondent's contentions that the Section 7 application was incomplete and that OTS/ restructuring efforts precluded a default. Having recorded that the respondent was heard and that the OTS was not complied with (and thus cancelled), the Tribunal found no merit in the contention that the Section 7 petition was not maintainable for want of hearing or because of an extant settlement; accordingly, the application for extension to file additional evidence was declined and the admission/rejection decision was to proceed. [Paras 3, 5, 6, 10]Application under Rule 11 for extension/permission to place further evidence was rejected and the Section 7 proceedings were not stayed on that ground.Final Conclusion: The application seeking reopening of proceedings and an extension to place further evidence was rejected; the respondent was held to have been heard, the One Time Settlement was treated as automatically cancelled for non-compliance so that novation did not arise, and the Section 7 petition was permitted to proceed. Issues:1. Application for initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency & Bankruptcy Code, 2016.2. Request for an opportunity to present arguments effectively due to counsel unavailability.3. Allegation of incomplete application and ongoing OTS process leading to no default.4. Discretionary power to reopen evidence and novation of contract in the case.Issue 1: The Central Bank of India filed CP(IB) No. 250/Chd/Pb/2018 seeking initiation of CIRP in the case of M/s. KSM Spinning Mills Ltd. The respondent raised objections regarding the completeness of the application and the ongoing OTS process, arguing that no default existed. The respondent requested an opportunity to present its stand effectively and extend the time for order until 30.03.2020. The Tribunal considered arguments from both sides and examined the record.Issue 2: CA No. 1169/2019 was filed by KSM Spinning Mills Ltd. under Rule 11 read with NCLT Rules, 2016, due to the unavailability of their arguing counsel during the hearing. The applicant sought a chance to present additional points effectively. However, the Tribunal noted the presence of the respondent's counsel during the hearing and considered the contentions raised in the reply to the main application.Issue 3: The respondent argued that the application was incomplete and highlighted the ongoing OTS process, claiming no default existed. The respondent referred to specific dates and amounts, emphasizing compliance issues with the sanction letter for the OTS proposal. The Tribunal examined the arguments, including reliance on legal precedents, and concluded that the request for another opportunity to present arguments effectively was denied.Issue 4: The respondent relied on legal precedents regarding the discretionary power to reopen evidence and novation of contract. However, the Tribunal found that the terms of the OTS proposal were not complied with, leading to the automatic cancellation of the sanction letter. Therefore, the plea for granting another opportunity was rejected, and CA No. 1169/2019 was dismissed.The Tribunal pronounced the judgment in open court, upholding the denial of the request for further opportunities to present arguments effectively and rejecting CA No. 1169/2019.