2017 (10) TMI 517 - Tri - Insolvency and Bankruptcy

Company petition under IBC dismissed for lack of eligibility criteria and malicious intent.

M/s. Asset Advisory Services India Pvt. Ltd. Versus M/s. VSS Projects Pvt. Ltd.

The tribunal dismissed the company petition filed by the financial creditor against the corporate debtor under Section 7 of the IBC, finding it not ... Corporate Insolvency Resolution Process - Whether the present CP is maintainable since the Petitioner has already resorted proceedings for recovery of the debt in question - Held that:- It is not the case of the Petitioner that the Respondent is unable to pay debt or it is insolvent for the same. While demanding to pay the loan in question, the petitioner is filing cases as stated supra, to prevent the respondent to pay the debt, after selling flats in question and, it is also not accepting the registration of Flats in its favour or it nominee. Admittedly, each flat in question is worth ₹ 40 lakhs at market value and there is absolutely no difficulty for the Respondents to pay the amount. However, the Petitioner for the reason best known to him is not interested to get the money back but only interested to initiate malicious litigations by way of filing civil suit, criminal cases and also case under NI Act as mentioned above. There is no question of insolvency involved in this case as mentioned above and thus, there cannot be any resolution of insolvency process. The present petition is filed for purpose other than the resolution of insolvency as mentioned in Section 65. Therefore, the present proceedings must be held to be a maliciousone and it is liable to be dismissed with cost. It is to relevant to mention here that as per Section 63 of IBC, 2016, no civil court or authority has jurisdiction to entertain any suit or proceedings in respect of any matter on which NCLT or NCLAT has jurisdiction under this Code. Knowing very well that IBC came to force, and only single cause of action arise in the instant case, i.e. Payment of short term loan of ₹ 2.5 Crore, the petitioner has resorted to civil and criminal course of action as stated supra. The instant Company petition is not maintainable and it is liable to be dismissed. Issues Involved:1. Maintainability of the petition considering existing recovery proceedings.2. Eligibility criteria fulfillment by the petitioner.3. Relief entitlement for the petitioner.Detailed Analysis:1. Maintainability of the Petition Considering Existing Recovery Proceedings:The tribunal examined whether the petition was maintainable given that the petitioner had already initiated multiple recovery proceedings. The petitioner, a financial creditor, had extended a short-term loan of Rs. 2.5 crores to the corporate debtor. The corporate debtor executed a promissory note to repay the loan with interest by 30.06.2016. However, disputes arose regarding the mortgage of 20/17 flats, with the corporate debtor alleging that the petitioner retained the title deeds illegally. The tribunal noted that the petitioner had filed a civil suit (COS No. 1/2017), obtained a status quo order, and initiated criminal proceedings under Sections 406, 420 of IPC and Section 138 of the NI Act. The tribunal concluded that the petitioner was engaging in multiple litigations without fulfilling its obligations, thereby preventing the corporate debtor from selling the flats and repaying the loan. The tribunal held that the petition was not maintainable as it was filed with malicious intent to misuse the provisions of the Insolvency and Bankruptcy Code (IBC).2. Eligibility Criteria Fulfillment by the Petitioner:The tribunal assessed whether the petitioner fulfilled the eligibility criteria to file the petition under the IBC. The petitioner argued that there was a financial debt and default by the corporate debtor. However, the corporate debtor contended that the petitioner had not complied with the requirement of a demand notice under Section 8(1) of the IBC, which prevented the corporate debtor from responding as specified in Section 8(2)(a). The tribunal found that the petitioner had resorted to multiple litigations without resolving the issue amicably and had not cooperated in selling the flats. The tribunal emphasized that the IBC aims to provide a remedy for insolvency resolution and not for malicious litigation. The tribunal held that the petitioner did not fulfill the eligibility criteria as it was not genuinely interested in resolving the insolvency but rather in initiating speculative litigation.3. Relief Entitlement for the Petitioner:The tribunal considered the relief sought by the petitioner, which included initiating the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor. The tribunal noted that the object of the IBC is to provide a remedy for insolvency resolution and to prevent misuse of its provisions. The tribunal found that the petitioner had initiated the proceedings with malicious intent, as evidenced by the multiple litigations and the lack of cooperation in resolving the issue. The tribunal referred to Section 65 of the IBC, which imposes penalties for initiating insolvency proceedings with fraudulent or malicious intent. The tribunal held that the petition was filed for purposes other than insolvency resolution and was thus malicious. Consequently, the tribunal dismissed the petition with a cost of Rs. 1,00,000/- to be paid by the petitioner to the respondent within three weeks.Conclusion:The tribunal dismissed the company petition CP (IB) No. 96/7/HDB/2017 filed by the financial creditor under Section 7 of the IBC, 2016, against the corporate debtor. The tribunal found that the petition was not maintainable, the petitioner did not fulfill the eligibility criteria, and the petition was filed with malicious intent. The petitioner was ordered to pay a cost of Rs. 1,00,000/- to the respondent within three weeks.