2020 (2) TMI 1644 - Tri - Insolvency and Bankruptcy

Financial Creditor's Application Admitted for Corporate Insolvency Resolution Process

The Tribunal admitted the Financial Creditor's application under Section 7 of the Insolvency and Bankruptcy Code, 2016, initiating the Corporate ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - time limitation - HELD THAT:- The balance sheet of the Corporate Debtor wherein the Corporate Debtor admitted its liability toward Bankers and to the financial institutions who assigned the debt to the Financial Creditor, which was signed before the expiry of 3 years from the date of default ie. on 29th May 2017 is an acknowledgment of the debt found due and payable by the Corporate Debtor and held that the claim is not barred by limitation. The Financial Creditor having succeeded in proving that the application filed under section 7 of the Code is not barred by law of limitation as attempted to be proved on the side of the Financial Creditor, and being satisfied that this application is complete, by satisfying all requirements under section 7(5) of the Code, that the default as alleged has occurred and that the insolvency professional proposed by the Financial Creditor has certified in his Form 2 that no disciplinary proceedings are pending against him, this application is liable to be admitted. Application admitted - moratorium declared. Issues Involved:1. Jurisdiction of the Tribunal2. Limitation Period3. Principle of Waiver, Estoppel, and Acquiescence4. Res Judicata5. Cause of Action6. Proper Affirmation and Verification of Application7. Compliance with Section 7 of the Insolvency and Bankruptcy Code, 20168. Disputes between Parties9. Acknowledgement of Debt in Financial StatementsDetailed Analysis:1. Jurisdiction of the Tribunal:The Corporate Debtor (CD) contested the jurisdiction of the Tribunal to hear the application. However, this issue was not pressed during the hearing, and thus, the Tribunal did not delve into it further.2. Limitation Period:The CD argued that the application was barred by limitation, as it was filed beyond the prescribed period. The Financial Creditor (FC) countered that the application was within time due to the acknowledgement of debt in the CD's financial statements. The Tribunal found that the debt was acknowledged in the balance sheet signed on 29th May 2017, which extended the limitation period under Section 18 of the Limitation Act, making the application filed on 26th December 2018 timely.3. Principle of Waiver, Estoppel, and Acquiescence:The CD claimed that the application was barred by the principles of waiver, estoppel, and acquiescence. However, this ground was not pressed during the hearing, and the Tribunal did not address it in detail.4. Res Judicata:The CD argued that the application was barred by res judicata. This contention was also not pressed during the hearing, and thus, the Tribunal did not consider it further.5. Cause of Action:The CD contended that the FC had no cause of action to initiate proceedings. The Tribunal, however, found that the default in repayment was admitted by the CD, and thus, the FC had a valid cause of action.6. Proper Affirmation and Verification of Application:The CD argued that the application was not properly affirmed and verified. The Tribunal did not find merit in this argument, as the application was found to be complete and in compliance with the requirements under Section 7 of the Insolvency and Bankruptcy Code, 2016.7. Compliance with Section 7 of the Insolvency and Bankruptcy Code, 2016:The CD contended that the application did not comply with Section 7 of the Insolvency and Bankruptcy Code, 2016. The Tribunal, however, found that the application was complete and met all the requirements under Section 7(5) of the Code.8. Disputes between Parties:The CD raised various disputes, alleging defaults on the part of the FC and other consortium lenders. The Tribunal noted that such disputes could not be entertained in an application filed under Section 7 of the Code, as the scope of enquiry was limited to ascertaining the default in repayment.9. Acknowledgement of Debt in Financial Statements:The FC argued that the acknowledgment of debt in the CD's financial statements extended the limitation period. The Tribunal agreed, citing various judgments, including those of the Supreme Court and High Courts, which held that entries in balance sheets could be considered valid acknowledgments of debt under Section 18 of the Limitation Act. The Tribunal concluded that the application was not barred by limitation due to the acknowledgment in the balance sheet signed on 29th May 2017.Conclusion:The Tribunal admitted the application filed by the FC under Section 7 of the Insolvency and Bankruptcy Code, 2016, for initiating the Corporate Insolvency Resolution Process (CIRP) against the CD. A moratorium was declared, prohibiting certain actions against the CD, and an Interim Resolution Professional (IRP) was appointed to manage the CIRP. The Tribunal directed the IRP to convene a meeting of the Committee of Creditors and submit a resolution within 105 days from the insolvency commencement date. The matter was listed for filing of the progress report on 26th March 2020.