Corporate debtor owes Rs 1 crore to banks, CIRP initiated under Section 10 despite pending recovery proceedings

The NCLT Ahmedabad admitted an application under Section 10 of IBC for initiation of CIRP against a corporate debtor. The debtor owed over Rs. 1 crore to various banks and had defaulted on payments. The tribunal rejected arguments that pending recovery proceedings should bar the application, noting that HDFC Bank's SARFAESI notice came after the IBC application was filed, while SBI's default notice preceded it by three months. Finding no ulterior motive and confirming the debt exceeded the statutory threshold with established default, the tribunal deemed it appropriate for CIRP admission.

---

---

Issues:
Initiation of Corporate Insolvency Resolution Process under Section 10 of the Insolvency and Bankruptcy Code, 2016.
Verification of completeness of the application as per statutory requirements.
Objection by financial creditors regarding the application.
Validity of the application and grounds for admission to Corporate Insolvency Resolution Process.
Orders passed by the Tribunal including admission to CIRP, declaration of moratorium, appointment of IRP, and other directions.

The judgment pertains to an application filed under Section 10 of the Insolvency and Bankruptcy Code, 2016 by a Corporate Person, M/s. Eternal Motors Private Limited, seeking initiation of its own Corporate Insolvency Resolution Process (CIRP) due to its inability to pay debts amounting to Rs.40,11,80,000 to various banks. The application was submitted with necessary documents including information on books of accounts, Resolution Professional, and a special resolution passed by shareholders. The Tribunal assessed the completeness of the application as per statutory requirements and found it defect-free, leading to the admission of the Corporate Person to CIRP.

Financial creditors, including HDFC Bank, IDFC Bank, and PNB Bank, objected to the application, alleging fraudulent initiation of CIRP to benefit from a moratorium. The Tribunal dismissed these objections, emphasizing that the Insolvency and Bankruptcy Code is a beneficial legislation aimed at resolving insolvency issues. It noted the absence of evidence indicating ulterior motives behind the application and confirmed the default in debt payment by the Corporate Person, justifying its admission to CIRP.

The Tribunal issued orders declaring a moratorium under Section 14 of the Code, appointing Mr. Manish Santosh Buchasia as the Interim Resolution Professional (IRP), and directing the IRP to conduct the CIRP in accordance with the provisions of the Code. Additionally, the Tribunal instructed the IRP to make a public announcement of the initiation of CIRP, manage the operations of the Corporate Debtor as a going concern, and ensure the supply of goods/services to the Company is not terminated during the moratorium period.

Furthermore, the Tribunal directed the Operational Creditor to provide an advance amount to the IRP for the smooth conduct of the CIRP and ordered the Registry to communicate the judgment to relevant parties and upload it on the website. The judgment concluded by allowing and disposing of the application, marked as CP (IB) No. 135/10/NCLT/AHM/2021, thereby outlining the legal procedures and safeguards to be followed during the Corporate Insolvency Resolution Process.

---