2019 (8) TMI 1787 - Tri - Insolvency and Bankruptcy

Tribunal dismisses petition under IBC, advises pursuing recovery certificate from DRT.

The Tribunal rejected the petition under Section 7 of IBC, 2016, as there were no justified reasons to initiate CIRP against the Corporate Debtor. The ... Maintainability of application - recovery of dues - initiation of CIRP or only dues to be recovered - assignment of debt - wilful defaulter - Tribunal, victim of forum shopping or not - HELD THAT:- It is a settled position of law that the provisions of Code cannot be invoked for recovery of outstanding amount but it can be invoked to initiate CIRP for justified reasons as per the Code. The Hon'ble Supreme Court in the case of Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited [2017 (9) TMI 1270 - SUPREME COURT], has inter alia, held that IBC, 2016 is not intended to be substitute to a recovery forum. In another judgment rendered in Transmission Corporation of A.P. Ltd. Vs. Equipment Conductors and Cables Ltd., [2018 (10) TMI 1337 - SUPREME COURT] Supreme Court of India, it is, inter alia held that existence of undisputed debt is sine qua non of initiating CIRP. Given the disputes between the parties, there are no 'any justified reasons' to initiate Corporate Insolvency Resolution Process (CIRP) in respect of the Corporate Debtor. Further, it is reiterated that this Tribunal is not intended to be substitute to a recovery forum and that the Petitioner ought to act on the recovery certificate issued by the Debt Recovery Tribunal. Furthermore, we do not intend this Tribunal to be a victim forum shopping. The Petition filed under Section 7 of I&B Code, 2016 ought to be rejected - petition dismissed. Issues Involved:1. Validity of the loan default claim by the Petitioner.2. Legitimacy of the assignment of debt from Vijaya Bank to the Petitioner.3. Appropriateness of invoking Section 7 of Insolvency & Bankruptcy Code (IBC), 2016.4. Impact of ongoing legal proceedings in the High Court of Karnataka on the current petition.5. Whether the initiation of Corporate Insolvency Resolution Process (CIRP) is justified.Detailed Analysis:1. Validity of the Loan Default Claim by the Petitioner:The petition filed by M/s. Reliance Asset Reconstruction Company Limited (Petitioner/Financial Creditor) under Section 7 of IBC, 2016, seeks to initiate CIRP against M/s. Hotel Poonja International Private Limited (Respondent/Corporate Debtor) due to a default on a term loan facility initially granted by Vijaya Bank. The loan of Rs. 40,00,000/- was sanctioned on 20.05.1986, and the account was classified as a Non-Performing Asset (NPA) on 1.04.1993. As of 18.07.2018, the outstanding amount was Rs. 145,44,46,651.32. The Petitioner provided evidence of the debt through various judgments and recovery certificates issued by the Debt Recovery Tribunal (DRT).2. Legitimacy of the Assignment of Debt from Vijaya Bank to the Petitioner:Vijaya Bank assigned the debt to the Petitioner via an Assignment Agreement dated 3rd May, 2011. The DRT issued an amended recovery certificate on 13th May, 2011, recognizing this assignment and vesting recovery rights with the Petitioner. The Respondent contested this assignment, arguing that the decree obtained by Vijaya Bank from the DRT cannot be assigned to the Petitioner.3. Appropriateness of Invoking Section 7 of IBC, 2016:Section 7 of IBC, 2016 allows a financial creditor to initiate CIRP against a corporate debtor upon default. However, the Tribunal emphasized that IBC is not a substitute for a recovery forum. The Hon’ble Supreme Court in Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited and Transmission Corporation of A.P. Ltd. Vs. Equipment Conductors and Cables Ltd. established that the IBC is intended to resolve insolvency issues, not merely recover debts.4. Impact of Ongoing Legal Proceedings in the High Court of Karnataka on the Current Petition:Several writ petitions were filed in the High Court of Karnataka related to the debt and recovery process:- W.P. No. 28437/2011, which was disposed of.- W.P. No. 3520/2018, which granted an interim stay on the attachment of rent from tenants.- W.P. No. 39858/2018, challenging the DRT order in O.A. No. 547/1998.- W.P. No. 17390/2017, related to the rent payable as per the DRT order.The Tribunal acknowledged these ongoing legal proceedings and their impact on the current petition.5. Whether the Initiation of CIRP is Justified:Given the disputes and ongoing legal proceedings, the Tribunal found no 'justified reasons' to initiate CIRP against the Corporate Debtor. The Tribunal reiterated that it is not a substitute for a recovery forum and that the Petitioner should act on the recovery certificate issued by the DRT.Conclusion:The Tribunal rejected the petition filed under Section 7 of IBC, 2016, due to the lack of justified reasons for initiating CIRP and the ongoing legal proceedings in the High Court of Karnataka. However, the order does not preclude the Petitioner from seeking other legal remedies, including enforcing the recovery certificate issued by the DRT. No order as to costs was made.