2017 (7) TMI 41 - Tri - Companies Law

NCLT begins Corporate Insolvency Resolution due to default, clarifies moratorium provision

The National Company Law Tribunal (NCLT) initiated the Corporate Insolvency Resolution Process against a Corporate Debtor for defaulting on interest ... Petition under Insolvency & Bankruptcy Code - non-payment of monthly interest, pending since long, admitted factual position is that the Corporate Debtor had committed “Default” - Held that:- In the wisdom of Hon'ble Legislatures a new Act/Code is therefore needed to safeguard the interest of all the creditors, thus resulted into enactment of Insolvency & Bankruptcy Code 2016. As a result it can be safely concluded that the provisions of I & B Code 2016 are not in conflict with the provisions of SARFAESI Act. Certain conditions precedent for 'Admission' of a petition under I&B Code, prima facie, have been presently completed, like the 'Default' of non-payment is established. Rather the Corporate Debtor being present in the court has not objected for the impugned default in making the payment of the outstanding dues as claimed by the Petitioner. When the Adjudicating Authority is satisfied that a default has occurred and the application is complete and the proposed Insolvency Resolution Professional is a qualified person, then by an order under sub-section (5) of Section 7 can admit a petition. Resultantly, the petition is hereby declared as Admitted. In the present case the consequence is that once the “Moratorium” is set in motion then the rights of the Petitioner shall get protected. As a consequence, the assets of the Corporate Financial Debtor must not be liquidated until the Corporate Insolvency Resolution Process is completed. The process of Moratorium shall be effective from today i.e. 29th May,2017 till the completion of the Corporate Insolvency Resolution Process or by any other order of this bench, if deem fit. Issues:1. Initiation of Corporate Insolvency Resolution Process based on default in payment of interest.2. Legal implications of parallel proceedings before Debt Recovery Tribunal and National Company Law Tribunal.3. Admissibility of the petition under the Insolvency & Bankruptcy Code.4. Appointment of Interim Resolution Professional and commencement of Corporate Insolvency Resolution Process.Detailed Analysis:1. The petition was filed before the National Company Law Tribunal (NCLT) by a Financial Creditor seeking to initiate Corporate Insolvency Resolution Process against the Corporate Debtor due to default in payment of interest, leading to the debt being treated as a non-performing asset (NPA) as per the Insolvency & Bankruptcy Code 2016. The petitioner highlighted the default amount and the history of repayments made by the Corporate Debtor, emphasizing the need for resolution due to continued non-payment of interest.2. The judgment also discussed the legal implications of parallel proceedings before the Debt Recovery Tribunal (DRT) and the NCLT. The NCLT clarified that under Section 14 of the Insolvency & Bankruptcy Code, when a moratorium is declared, other proceedings related to recovery or enforcement of security interests shall be abated. This provision aims to protect the rights of the creditors and ensure a streamlined resolution process.3. The NCLT analyzed the admissibility of the petition under the Insolvency & Bankruptcy Code, noting that the default in payment was established, and the Corporate Debtor did not contest the outstanding dues claimed by the Petitioner. As per Section 7 of the Code, a financial creditor can file for Corporate Insolvency Resolution Process upon occurrence of a default, and the NCLT found the petition admissible based on the provided evidence.4. Following the admissibility of the petition, the NCLT appointed an Interim Resolution Professional to oversee the Insolvency Resolution Process. The appointed professional was tasked with finalizing the resolution within the specified period, and the NCLT directed the Petitioner to comply with the necessary public announcement requirements as per the provisions of the Insolvency & Bankruptcy Code.In conclusion, the NCLT declared the commencement of the Corporate Insolvency Resolution Process based on the default in payment of interest by the Corporate Debtor, ensuring the protection of the rights of the Financial Creditor and initiating the necessary steps for resolution under the Insolvency & Bankruptcy framework.