2018 (2) TMI 2046 - Tri - Insolvency and Bankruptcy

Legal victory for Financial Creditor in Corporate Insolvency Resolution Process

M/s. L&T Finance Limited Versus M/s. Meka Dredging Company Private Limited

M/s. L&T Finance Limited Versus M/s. Meka Dredging Company Private Limited - TMI Issues Involved:1. Default in loan repayment by the Corporate Debtor.2. Dispute over the rate of interest charged.3. Allegation of forum shopping by the Financial Creditor.4. Applicability of the doctrine of election.5. Initiation of Corporate Insolvency Resolution Process (CIRP).Issue-wise Detailed Analysis:1. Default in Loan Repayment by the Corporate Debtor:The Financial Creditor, M/s. L&T Finance Limited, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, against the Corporate Debtor, M/s. Meka Dredging Company Private Limited, seeking to initiate the Corporate Insolvency Resolution Process (CIRP). The Financial Creditor claimed a principal amount of Rs. 19,60,00,000/- plus agreed interest amounting to Rs. 22,74,42,271/- as of 09.11.2016. The loan agreement dated 09.06.2010, initially required the Corporate Debtor to pay an EMI of Rs. 1,03,83,500/- for 21 months, but the Corporate Debtor later requested restructuring due to inability to pay such high EMIs. Despite several demand notices issued by the Financial Creditor, the Corporate Debtor failed to make the required payments, leading to the default.2. Dispute Over the Rate of Interest Charged:The Corporate Debtor disputed the amount claimed by the Financial Creditor, arguing that the Financial Creditor charged an exorbitant interest rate of 36% p.a., whereas the agreed rate was 10% IRR. The Arbitral Tribunal noted discrepancies in the agreed rate of interest but did not conclusively resolve the issue. The Financial Creditor clarified that 10% IRR translates to 14.46%, as per the loan agreement. The Tribunal found the Financial Creditor's explanation credible and rejected the Corporate Debtor's plea regarding the interest rate.3. Allegation of Forum Shopping by the Financial Creditor:The Corporate Debtor accused the Financial Creditor of forum shopping, arguing that the Financial Creditor had already filed a claim before the Arbitral Tribunal and could not seek relief under the I&B Code simultaneously. The Tribunal distinguished the facts of this case from previous cases cited by the Corporate Debtor and rejected the forum shopping allegation, emphasizing that the CIRP is distinct from a money suit or execution of an award.4. Applicability of the Doctrine of Election:The Corporate Debtor argued that the Financial Creditor could not invoke both the arbitration clause and the provisions of the I&B Code, citing the doctrine of election. The Tribunal referred to the Supreme Court's ruling in 'M.D. Frozen Foods Exports Private Limited & Ors. Vs. Hero Fincorp Ltd.,' which clarified that the doctrine of election applies only when remedies are repugnant and inconsistent. The Tribunal found no inconsistency between the I&B Code and the Arbitration Act, thus rejecting the Corporate Debtor's argument.5. Initiation of Corporate Insolvency Resolution Process (CIRP):The Tribunal examined the pleadings and documentary evidence, concluding that the Corporate Debtor defaulted in making payments. The Financial Creditor fulfilled all legal requirements and proposed an Interim Resolution Professional (IRP), Mr. Dhiren Shantilal Shah, whose appointment was approved. The Tribunal ordered the commencement of the CIRP, declaring a moratorium as per Section 14 of the I&B Code, 2016. The IRP was directed to take charge of the Corporate Debtor's management and make the necessary public announcements.Conclusion:The application by the Financial Creditor was admitted, and the CIRP was initiated against the Corporate Debtor. The Tribunal rejected the Corporate Debtor's arguments regarding the dispute over interest rates, forum shopping, and the doctrine of election, thereby upholding the Financial Creditor's claims and proceeding with the insolvency resolution process.