Insolvency application denied due to family disputes, lack of default proof.

The application under Section 7 of the Insolvency and Bankruptcy Code, 2016, was rejected by the tribunal. The maintainability issues stemming from ongoing family disputes and a status quo order from the Calcutta High Court were key factors. The financial creditor's failure to prove the existence of default in loan repayment also played a significant role. The tribunal disposed of the application without any order as to costs.

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Issues Involved:
1. Maintainability of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Existence of default in repayment of the loan.
3. Reliefs and costs.

Issue-wise Analysis:

1. Maintainability of the application:
(a) The application was filed by Freya Shipping Agencies Private Limited (financial creditor) against M.L Chopra Shipping Private Limited (corporate debtor). The companies were originally part of the estate of Shri Jagat Singh Chopra, divided among his sons Raj Singh Chopra and Vikram Singh Chopra through a family partition.

(b) The corporate debtor argued that the application was an attempt to aggravate an ongoing family dispute, highlighting an order from the Chief Metropolitan Magistrate for investigation regarding the legality of an Extraordinary General Meeting (EoGM) convened without proper notice.

(c) The corporate debtor also pointed out that an application under Section 241 of the Companies Act, 2013, alleging oppression and mismanagement by the directors of the financial creditor, was pending. This raised questions about the validity of the Board Resolution authorizing the CIRP initiation.

(d) The financial creditor's resolution dated 20/03/2018, authorizing Raj Singh Chopra to initiate CIRP, was challenged. The legality of this resolution was contingent upon the outcomes of the cases pending in the Company Court and Magistrate Court.

(e) The corporate debtor further argued that a status quo order from the Calcutta High Court in an execution petition related to the family settlement barred the initiation of CIRP. The High Court had directed the parties to maintain status quo regarding business, properties, and assets.

(f) Given the family settlement, the ongoing disputes, and the status quo order, the tribunal found it unjust and unfair to proceed with the CIRP application. The application was deemed not maintainable due to the status quo order and the unresolved disputes regarding the Board Resolution's legality.

2. Existence of default in repayment of the loan:
(a) The corporate debtor contended that no amount was due to the financial creditor, as there was no default as defined under Section 3(12) of the I & B Code, 2016. The financial creditor had not executed any loan agreement or financial contract.

(b) The financial creditor claimed an oral loan of Rs. 5 Lakhs, with interest at 12% per annum, but failed to provide proof of demand for repayment. The tribunal noted that the financial creditor had not shown any legal obligation for the corporate debtor to repay the claimed amount.

(c) The tribunal emphasized that default, as per Section 3(12) of the Code, means non-payment of a debt that has become due and payable. Since there was no proof of demand for repayment or any agreement specifying the repayment terms, the tribunal found no default.

(d) The burden of proof under Section 7(3) of the I & B Code, 2016, lies with the financial creditor to establish the existence of default. The financial creditor failed to provide sufficient evidence of default, such as records from an information utility or other specified evidence.

3. Reliefs and costs:
(a) Due to the lack of evidence of default and the unresolved disputes regarding the family settlement and Board Resolution, the tribunal rejected the application.

(b) The application was disposed of without any order as to costs.

Conclusion:
The application under Section 7 of the Insolvency and Bankruptcy Code, 2016, was rejected due to the maintainability issues arising from the ongoing family disputes and the status quo order from the Calcutta High Court. Additionally, the financial creditor failed to prove the existence of default in repayment of the loan. The tribunal disposed of the application without any order as to costs.

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