2018 (3) TMI 1966 - Tri - Insolvency and Bankruptcy

Tribunal admits CIRP application, appoints IRP to resolve financial debts.

The Tribunal admitted the Corporate Insolvency Resolution Process (CIRP) application filed by the Corporate Debtor, citing financial and operational ... Maintainability of application - Initiation of CIRP - petition filed by Corporate Debtor u/s 10 of IBC - financial Creditor - Non-performing asset - existence of debt and dispute - HELD THAT:- As per the ‘Preamble’ a practical motive is intended behind the incorporation of this Code. The I&B Code, 2016 was enacted to consolidate and amend the laws relating to reorganization and Insolvency Resolution of Corporate persons, that too in a time bound manner, for maximization of value of assets of a Corporate Debtor. The purpose of CIRP is to promote entrepreneurship, side by side to balance the interest of all stakeholders. A Petition either filed under section 7, under section 9 or under section 10 is to be Admitted to achieve the said goal also to consider the objectives enshrined in the Preamble and the purpose for which this Code came into operation. Although on the face of such a Petition it appears strange that why a Corporate Body itself is taking step to be declared Insolvent by moving an Application under section 10; but the answer is obvious that sometimes it becomes impossible to run the business due to pressing demand of recovery by the Creditors. It is to be made clear at this moment itself that Section 10 be not used or considered as a scapegoat for the defaulters, or that an exist route be made possible under the guise of Bankruptcy. The procedure of Section 10 is to be applied to facilitate the restructuring of the Stressed Assets as well as to reorganize the finances of a defaulted Company. Considering the voluminous evidences annexed along with the Application and in the light of the provisions of Section 10 of the Code, it is held that the conditions as prescribed under section 10 of The Code have duly been fulfilled. Since this is a Petition of “Corporate Debtor”, therefore, the Insolvency Process shall commence as prescribed under Section 10 of IBC 2016. On one hand the existence of Financial Debt as well as Operational Debt is proved, on the other hand the occurrence of “default” is also established. The Corporate Debtor had failed to pay the amounts due and also failed to adhere to or comply with the other terms of Facility agreements. The Financial Debts have been classified as “Non-Performing Asset” in the books of the Financial Creditor. The Petition under consideration therefore deserves “Admission”. Petition admitted - Moratorium declared. Issues Involved:1. Necessity and eligibility for initiating Corporate Insolvency Resolution Process (CIRP) under Section 10 of IBC.2. Objection by the Intervener regarding the pending High Court case and its impact on the CIRP.3. Financial and operational debts of the Corporate Debtor.4. Urgency and justification for admitting the CIRP application.5. Appointment of Interim Resolution Professional (IRP) and commencement of the moratorium.Issue-wise Detailed Analysis:1. Necessity and Eligibility for Initiating CIRP:The Corporate Applicant filed an application to initiate CIRP under Section 10 of the Insolvency and Bankruptcy Code (IBC), 2016. The application was necessitated by the RBI guidelines issued on 12th February 2018, which emphasized the early identification and reporting of stressed assets. The guidelines withdrew existing restructuring schemes and directed lenders to take steps to cure defaults. The Corporate Debtor, facing pressing demands from creditors and an inability to operate its bank accounts, opted to initiate insolvency proceedings under Section 10 of the IBC. The conditions for admission under Section 10, as per the NCLAT ruling in Leo Duct Engineers & Consultants Limited Vs. Canara Bank, require the applicant to establish the existence of debt and default. The Corporate Debtor met these conditions, as there was no ongoing CIRP, liquidation order, or recent completion of CIRP within the preceding 12 months.2. Objection by the Intervener:An Intervener representing an Operational Creditor (GTL Infrastructure Limited) objected to the admission of the CIRP application, citing a Delhi High Court order restraining Aircel Limited (a group company of the Corporate Debtor) from disposing of its assets. The Intervener argued that this injunction should prevent the Corporate Debtor from filing the CIRP application. However, the Tribunal found that the High Court order was specific to Aircel Limited and did not restrain other group companies from taking legal recourse under the IBC. The Tribunal also noted that the Corporate Debtor had not concealed the High Court order and had filed the CIRP application in good faith to invite a resolution plan and overcome financial stress.3. Financial and Operational Debts:The application detailed the Corporate Debtor's financial and operational debts. The Corporate Debtor had availed several loan facilities, including a non-fund-based facility from the State Bank of India, with significant outstanding amounts. The total financial debt was Rs. 8161,9655,135/-, with a default amount of Rs. 304,2359,437/-. The operational debt amounted to Rs. 15123,34,62,544/-. The Tribunal found that the existence of financial and operational debts, along with the occurrence of default, was established, justifying the admission of the CIRP application.4. Urgency and Justification for Admitting the CIRP Application:The Corporate Debtor faced an urgent situation due to the freezing of its Trust and Retention Account (TRA) by the banks, preventing it from paying salaries and necessary expenses. This led to a potential law and order situation, with vendors, employees, and trade creditors agitating for their dues. Additionally, there was a risk of the Department of Telecommunications (DoPT) suspending the Corporate Debtor's telecom license due to financial stress. The Tribunal acknowledged the pressing urgency and the potential for revival through a resolution plan, justifying the admission of the CIRP application.5. Appointment of Interim Resolution Professional (IRP) and Commencement of Moratorium:The Tribunal appointed Mr. Vijaykumar V. Iyer as the Interim Resolution Professional (IRP) to carry out the functions under the IBC. The moratorium commenced as prescribed under Section 14 of the IBC, prohibiting the institution or continuation of suits, transferring or disposing of assets, and recovery actions against the Corporate Debtor. The IRP was directed to inform the progress of the insolvency proceedings and submit a compliance report within 30 days.Conclusion:The Tribunal admitted the CIRP application filed by the Corporate Debtor, initiating the Corporate Insolvency Resolution Process. The moratorium commenced, and the IRP was appointed to oversee the process. The Tribunal emphasized the necessity of restructuring the stressed assets and reviving the Corporate Debtor's finances, aligning with the objectives of the IBC. The objections raised by the Intervener were addressed, and the urgency of the situation justified the admission of the application.