2018 (8) TMI 1541 - Tri - Insolvency and Bankruptcy

Tribunal appoints IRP, declares moratorium, rejects objections in insolvency petition.

The Tribunal admitted the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, appointing Mr. Om Prakash Vijay as the Interim Resolution ... Corporate Insolvency Resolution Process - occurrence of default - Held that:- Form and manner of the application has to be the one as prescribed. It is evident from the record that the application has been filed on the proforma prescribed under Rule 4 (2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read with Section 7 of IBC. We are satisfied that a default has occurred and the application under sub section 2 of Section 7 is complete; and no disciplinary proceedings are pending against the proposed Interim Resolution Professional. Thus, the application warrant admission. As a sequel to the above discussion, this petition is admitted and Mr. Om Prakash Vijay, 2250, Gali Raghu Nandan, Naya Bazar, Delhi-110006, email id - [email protected], Registration No. IBBI/IPA-001/IP-P00491/2017-18/10879 is appointed as an Interim Resolution Professional. The presence of an arbitration clause in the share purchase agreement would not cause any impediment with regard to initiation of Corporate Insolvency Resolution Process because under Section 7 of the Code the mentioning of an arbitration clause in the disputed agreement is no bar to the admission of the petition and initiation of Corporate Insolvency Resolution Process unlike Section 8 & 9 of the Code. In accordance with the provisions of Section 8 and 9 of the Code if a dispute in a civil suit or a dispute in arbitration proceeding is pending then a bar has been created by Section 8(2)(a) of the Code and it is deemed to be an existence of dispute therefore, no Corporate Insolvency Resolution Process could be triggered. There is however no such provision in Section 7 of the Code. Accordingly, this argument is also rejected as unfounded. Issues Involved:1. Financial Creditor Status2. Existence of Financial Debt3. Validity of Share Purchase Agreement4. Legal Proceedings Against Mr. Lalit Modi5. Arbitration Clause ImpactDetailed Analysis:1. Financial Creditor Status:The Financial Creditors, including individuals and a company, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, to initiate the Corporate Insolvency Resolution Process (CIRP) against M/s. Fantastic Buildcon Private Limited and others. The application was complete as per the prescribed requirements, and the proposed Interim Resolution Professional (IRP) had no disciplinary proceedings pending against him.2. Existence of Financial Debt:The Financial Creditors claimed that they had lent various amounts to the Corporate Debtor for a hotel project, amounting to Rs. 18,67,11,000/- at an interest rate of 18% per annum. The loans were recorded in the Corporate Debtor's books and audited balance sheets. The Share Purchase Agreement (SPA) indicated that the entire shareholdings of the Petitioners would be transferred to Mr. Lalit Modi, and the Corporate Debtor would refund the unsecured loan by 31.03.2015.3. Validity of Share Purchase Agreement:The Corporate Debtor opposed the petition, arguing that the SPA was collusive and manipulated. However, the Tribunal found no factual basis for fraud or collusion allegations. The SPA was not antedated, and the current management had knowledge of the debt. The SPA did not dilute the Corporate Debtor's obligation to repay the loan. The Tribunal rejected the Corporate Debtor's objections, stating that the allegations were an afterthought and lacked substance.4. Legal Proceedings Against Mr. Lalit Modi:The Corporate Debtor argued that various legal proceedings against Mr. Lalit Modi should impact the CIRP initiation. The Tribunal dismissed this argument, stating that it was an attempt to divert attention and wriggle out of legal obligations. The Tribunal emphasized that the presence of legal proceedings did not affect the Corporate Debtor's default status.5. Arbitration Clause Impact:The Corporate Debtor contended that the arbitration clause in the SPA barred the initiation of CIRP. The Tribunal clarified that under Section 7 of the Code, the presence of an arbitration clause does not impede the initiation of CIRP, unlike Sections 8 and 9, where a pending dispute in civil or arbitration proceedings could bar the process. The Tribunal rejected this argument as unfounded.Conclusion:The Tribunal admitted the petition, appointed Mr. Om Prakash Vijay as the Interim Resolution Professional, and declared a moratorium as per Section 14 of the Code. The IRP was directed to make a public announcement within three days and perform his duties as prescribed by the Code. The Tribunal dismissed all objections raised by the Corporate Debtor, emphasizing the completeness of the application and the occurrence of default.