Insolvency application admitted under Section 7, moratorium declared, IRP appointed for CIRP

The application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was admitted, leading to the declaration of a moratorium. An Interim Resolution Professional (IRP) was appointed to oversee the Corporate Insolvency Resolution Process (CIRP), superseding the authority of the Corporate Debtor's Board of Directors. The Tribunal found a debt and default by the Corporate Debtor, necessitating initiation of CIRP. The moratorium prohibits legal actions against the Corporate Debtor and asset transfers until completion of CIRP or liquidation/resolution plan approval. The IRP was instructed to report within 20 days, with communication to relevant parties.

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Issues Involved:

1. Application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Alleged default by the Corporate Debtor.
3. Proceedings under the SARFAESI Act, 2002.
4. Debt and default determination.
5. Appointment of Interim Resolution Professional (IRP).
6. Moratorium under Section 14 of IBC, 2016.

Issue-wise Detailed Analysis:

1. Application under Section 7 of IBC, 2016:

The application was filed by the Financial Creditor, a Limited Company, against the Corporate Debtor, a Private Limited Company. The Financial Creditor proposed Mr. A. Mohan Kumar as the Interim Resolution Professional (IRP).

2. Alleged Default by the Corporate Debtor:

The Financial Creditor claimed a sum of Rs. 2,74,08,639/- against the Corporate Debtor, whose account was classified as Non-Performing Asset (NPA) on 31.10.2016. The Corporate Debtor contested the application, arguing that only Rs. 2,00,00,000/- was disbursed out of the sanctioned Rs. 3,78,00,000/- and that the Financial Creditor had already taken possession of the mortgaged property under the SARFAESI Act, 2002.

3. Proceedings under the SARFAESI Act, 2002:

The Corporate Debtor argued that the Financial Creditor had initiated recovery proceedings under the SARFAESI Act and taken possession of the property. They contended that this barred the Financial Creditor from initiating parallel proceedings under IBC, 2016. However, it was held that the pendency of actions under the SARFAESI Act does not obstruct filing an application under Section 7 of IBC, 2016, as per Section 238 of IBC.

4. Debt and Default Determination:

The Tribunal found that there was a debt and default on the part of the Corporate Debtor, which was unable to repay its dues. The Tribunal referenced judgments from the Hon’ble Supreme Court and NCLAT, which clarified that the existence of a financial debt and default in excess of Rs. 1,00,000/- (now increased to Rs. 1 Crore) mandates the admission of the application and initiation of the Corporate Insolvency Resolution Process (CIRP).

5. Appointment of Interim Resolution Professional (IRP):

The Financial Creditor proposed Mr. A. Mohan Kumar as the IRP, and his written communication was filed in the prescribed format. The Tribunal appointed him to take forward the CIRP, superseding the powers of the Board of Directors of the Corporate Debtor.

6. Moratorium under Section 14 of IBC, 2016:

Upon admission of the application, a moratorium was declared, prohibiting:
a. Institution or continuation of suits or proceedings against the Corporate Debtor.
b. Transfer or disposal of any assets of the Corporate Debtor.
c. Actions to enforce security interests.
d. Recovery of property by owners or lessors.

The moratorium ensures the supply of essential goods or services to the Corporate Debtor is not interrupted, except under specified circumstances. The moratorium will last until the completion of the CIRP or until an order for liquidation or approval of a resolution plan is passed.

Conclusion:

The application was admitted under Section 7(5) of IBC, 2016, and the moratorium came into effect. The IRP was directed to take necessary steps as per the statute and file a report within 20 days. The order was communicated to the Financial Creditor, Corporate Debtor, IBBI, and the Registrar of Companies.

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