2018 (7) TMI 71 - AT - Insolvency and Bankruptcy

Appellate Tribunal overturns NCLT decision, emphasizes application completeness and eligibility under I&B Code

Neeta Chemicals (I) Pvt. Ltd. Versus State Bank of India

The Appellate Tribunal set aside the NCLT's order dismissing the application under Section 10 of the I&B Code, remitting the case for reconsideration. ... Corporate insolvency process - debt and default - Held that:- It is not the case of the ‘Financial Creditor’ (State Bank of India) that a winding up proceeding under the Companies Act or liquidation proceeding under the ‘I&B Code’ has been initiated against the ‘Corporate Debtor’. Therefore, the ‘Corporate Applicant’ is eligible to file application under Section 10 of the ‘I&B Code’, if there is a debt and default. We find that the Adjudicating Authority has noticed the extraneous factors unrelated to the Resolution Process not required to be disclosed in terms of Section 10 or Form 6, we hold that the Adjudicating Authority erred in rejecting the application on the ground of suppression of facts. There is nothing on record to suggest that the ‘Corporate Applicant’ has suppressed any fact or has not come with the clean hands. The Adjudicating Authority has also not held that the application has been filed by the Corporate Applicant “fraudulently” or “with malicious intent” for any purpose other than for the resolution process or liquidation or that the voluntary liquidation proceedings have been initiated with the intent to defraud any person. In the absence of any such grounds recorded by the Adjudicating Authority, the impugned order cannot be upheld. The case is remitted back to the Adjudicating Authority for admission of the application under Section 10, if the application is otherwise complete. In case it is incomplete, the Adjudicating Authority will grant time to the appellant to remove the defects. Issues Involved:1. Dismissal of application under Section 10 of the Insolvency and Bankruptcy Code, 2016 (I&B Code).2. Allegations of suppression of liability by the Corporate Applicant.3. Applicability of penalties under Section 65 of the I&B Code.4. Consideration of extraneous factors by the Adjudicating Authority.Issue-Wise Detailed Analysis:1. Dismissal of Application Under Section 10 of the I&B Code:The Corporate Applicant, M/s Neeta Chemicals (I) Private Limited, filed an application under Section 10 of the I&B Code, which was dismissed by the National Company Law Tribunal (NCLT), Hyderabad. The NCLT observed that the loans taken by the Corporate Debtor were classified as Non-Performing Assets (NPA) as early as 26.12.2013, and SARFAESI proceedings were already in an advanced stage. The NCLT concluded that the application was filed to scuttle the SARFAESI proceedings and misuse the provisions of the IBC for selfish ends, thereby dismissing the application with a cost of Rs. 10 lakhs.2. Allegations of Suppression of Liability by the Corporate Applicant:The Respondent (Financial Creditor) argued that the Corporate Applicant had significantly understated the outstanding amount owed in the application under Section 10 of the I&B Code. The Respondent highlighted that the outstanding liability had increased to Rs. 329,71,74,696/- as evidenced from the notice issued on 3rd August, 2017 under Section 13(2) of the SARFAESI Act. The Appellant's counsel contended that the application was complete in all aspects and the dismissal was based on frivolous grounds.3. Applicability of Penalties Under Section 65 of the I&B Code:The Appellate Tribunal referred to its earlier judgment in 'M/s. Unigreen Global Private Limited Vs. Punjab National Bank & Ors.' to clarify the conditions under which penalties under Section 65 of the I&B Code can be imposed. It was noted that penalties could only be imposed if the application was filed fraudulently or with malicious intent for purposes other than the resolution of insolvency. The Tribunal found no evidence to suggest that the Corporate Applicant had filed the application with such intent.4. Consideration of Extraneous Factors by the Adjudicating Authority:The Appellate Tribunal found that the Adjudicating Authority had considered extraneous factors unrelated to the resolution process, which were not required to be disclosed under Section 10 or Form 6 of the I&B Code. The Tribunal held that the Adjudicating Authority erred in rejecting the application on the grounds of suppression of facts and emphasized that the application under Section 10 should be admitted if it is complete and the Corporate Applicant is not ineligible under Section 11.Conclusion:The Appellate Tribunal set aside the impugned order dated 14th August, 2017, passed by the NCLT, Hyderabad, and remitted the case back to the Adjudicating Authority for the admission of the application under Section 10 of the I&B Code, if the application is otherwise complete. The Tribunal directed the Adjudicating Authority to grant time to the appellant to remove any defects if the application is found to be incomplete. The appeal was allowed without any order as to costs.