2019 (3) TMI 1940 - Tri - Insolvency and Bankruptcy

Tribunal admits insolvency petition under IBC, dismisses counterclaims. IRP appointed to start CIRP process.

The tribunal admitted the insolvency petition under Section 7 of the Insolvency and Bankruptcy Code (IBC) filed by the Financial Creditor against the ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Corporate Debtor contends that the Company’s stock (Diamonds), which was kept as security with the bank has been misappropriated/lost due to bank’s fraud/ gross negligence - Financial Creditors - Non-Performing Assets - existence of debt and dispute or not - HELD THAT:- This Bench finds that the counter claim filed by the Corporate Debtor in DRT is no bar to proceed with this petition keeping in view the fact that the Adjudicating Authority is not bound to ascertain the exact amount of claim at the stage of admission. In V.R. Polyfab Pvt. Ltd. vs. Sadhbhav Enterprise Pvt. Ltd. [2017 (9) TMI 1859 - NATIONAL COMPANY LAW TRIBUNAL, AHMEDABAD], decided on 19th September, 2017, NCLT, Ahmedabad Bench, gave a similar view on this question observing that even assuming that the Corporate Debtor is entitled for certain amount from the Financial Creditor, the same can only be treated as a set off or counter claim and therefore it cannot be treated as a ‘dispute’ relating to financial debt due to the financial creditor from the Corporate Debtor. Further, it observed that though Corporate Debtor has pleaded counter-claim or set-off, but it cannot be said that there is no default in repayment of financial debt by Corporate Debtor. Debt and default - HELD THAT:- The Corporate Debtor does not deny the same. Financial Facilities have been duly granted and the amounts have been disbursed. There has been a default in repayment and the same has been admitted to some extent. This can be said in view of the reply letter dated 09.05.2016, wherein the Company replied to the notice of ICICI Bank saying that it was facing temporary financial difficulties and that they were taking steps towards regularizing its loan account. It is worth to note that there is no denial of the debt amount by the Corporate Debtor - Also, the pendency of proceedings in DRT is no bar to the present Section 7 proceedings in view of Section 238 of the Code. The Petitioner’s claim of existence of debt and default has been corroborated with ample evidence and is enough to hold a view in its favour. The Financial Creditor has established that the loan was duly sanctioned and duly disbursed to the Corporate Debtor but there has been default in payment of Debt on the part of the Corporate Debtor - the nature of Debt is a “Financial Debt” as defined under section 5 (8) of the Code. It has also been established that admittedly there is a “Default” as defined under section 3 (12) of the Code on the part of the Debtor. The Petitioner has not received the outstanding Debt from the Respondent and that the formalities as prescribed under the Code have been completed by the Petitioner, this Petition deserves ‘Admission’ - Petition admitted - moratorium declared. Issues Involved:1. Admission of the insolvency petition under Section 7 of the Insolvency and Bankruptcy Code (IBC).2. Existence of financial debt and default by the Corporate Debtor.3. Counterclaims and allegations of fraud by the Corporate Debtor against the Financial Creditor.4. Role and conduct of bank authorities in granting the loan.5. Appointment of Interim Resolution Professional (IRP) and declaration of Moratorium.Issue-wise Detailed Analysis:1. Admission of the Insolvency Petition:The petition was filed by the Financial Creditor under Section 7 of the Insolvency and Bankruptcy Code (IBC) against the Corporate Debtor. The Financial Creditor, being the lead bank of a consortium, claimed a default on a loan amount of Rs. 226,50,22,144/- as of 31.12.2017. The petition was found to be complete and all procedural formalities were complied with, leading to its admission.2. Existence of Financial Debt and Default:The Financial Creditor provided evidence of the debt, including sanction letters, consortium agreements, and various hypothecation and guarantee agreements. The Corporate Debtor did not deny the receipt of financial facilities or the existence of the debt. It was established that the loan was duly sanctioned and disbursed, but there was a default in repayment. The tribunal noted that the default was admitted by the Corporate Debtor in correspondence with ICICI Bank.3. Counterclaims and Allegations of Fraud:The Corporate Debtor alleged that the Financial Creditor and other consortium members were liable for the loss of stock (diamonds) due to fraud or gross negligence. The Corporate Debtor filed counterclaims for recovery of Rs. 1561.87 Crores and additional damages of Rs. 5000 Crores for loss of business and goodwill. However, the tribunal held that these counterclaims did not constitute a valid defense against the insolvency petition, as they were neither admitted sums nor adjudicated by any court. The tribunal cited precedents to support this view, emphasizing that a claim for unliquidated damages does not give rise to a debt until adjudicated.4. Role and Conduct of Bank Authorities:The tribunal expressed serious concerns about the conduct of bank authorities in granting substantial loan facilities based on allegedly fake diamonds. It highlighted the need for thorough verification of the stock pledged as security. The tribunal noted discrepancies in the valuation of the seized stock and suggested that the bank authorities might have been negligent in their duties. It called for an in-depth investigation into these allegations.5. Appointment of Interim Resolution Professional (IRP) and Declaration of Moratorium:The tribunal appointed Mr. Hiten Mukundbhai Parikh as the Interim Resolution Professional (IRP) to conduct the Corporate Insolvency Resolution Process (CIRP). A moratorium was declared, prohibiting the institution of any suits or transferring/encumbering the Corporate Debtor's assets. The IRP was directed to make a public announcement of the initiation of CIRP and to perform duties as assigned under Sections 18 and 15 of the Code. The tribunal also instructed the IRP to communicate the order to relevant authorities for further action.Conclusion:The tribunal concluded that the petition deserved admission as the Financial Creditor had established the existence of financial debt and default. The counterclaims by the Corporate Debtor were not considered a valid defense. The tribunal emphasized the need for an investigation into the conduct of bank authorities and the alleged fraud. The Corporate Insolvency Resolution Process was initiated, and the IRP was appointed to oversee the process.