Tribunal initiates Corporate Insolvency Resolution Process, appoints Interim Resolution Professional

The Tribunal deemed the application under Section 7 of the Insolvency & Bankruptcy Code maintainable, initiating Corporate Insolvency Resolution Process against the Corporate Debtor. A moratorium was imposed, appointing Mr. Surya Kanta Satapathy as the Interim Resolution Professional. The Tribunal clarified the debt was not time-barred, had crystallized, and the valuation of mortgaged properties did not exceed the debt amount. The ruling emphasized the application of I&B Code provisions over other laws and scheduled a progress report filing for 06.03.2019.

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Issues Involved:

1. Maintainability of the application under Section 7 of the Insolvency & Bankruptcy Code, 2016.
2. Allegation of time-barred debt.
3. Crystallization of debt.
4. Valuation of mortgaged properties and the applicability of rulings on secured creditors.

Detailed Analysis:

1. Maintainability of the Application:

The Corporate Debtor contended that since the Financial Creditor had already initiated recovery proceedings in the Debt Recovery Tribunal (DRT), Kolkata, the current application under Section 7 of the Insolvency & Bankruptcy Code, 2016 (I&B Code) was not maintainable, alleging forum shopping. However, the Tribunal held that the proceedings before the DRT were for the recovery of dues, whereas the current application was to declare the Corporate Debtor insolvent and initiate the Corporate Insolvency Resolution Process (CIRP). The Tribunal cited Section 238 of the I&B Code, which states that the provisions of the I&B Code override other laws. Therefore, the application was deemed maintainable.

2. Allegation of Time-Barred Debt:

The Corporate Debtor argued that the debt was time-barred, referencing the initial cause of action from 2005. However, the Financial Creditor presented evidence of continuous acknowledgment of debt by the Corporate Debtor, including a balance confirmation letter dated 16.06.2017. The Tribunal noted that the application was filed within the limitation period, considering these acknowledgments, and thus, the debt was not time-barred.

3. Crystallization of Debt:

The Corporate Debtor argued that the debt had not been crystallized due to ongoing proceedings in the DRT. The Tribunal referred to Section 4 of the I&B Code, which allows for the initiation of CIRP if the default amount exceeds Rs. 1 lakh. The Corporate Debtor's offer for a one-time settlement indicated acknowledgment of the debt. The Tribunal concluded that the evidence demonstrated a default exceeding Rs. 1 lakh, making the proceeding maintainable.

4. Valuation of Mortgaged Properties and Applicability of Rulings:

The Corporate Debtor contended that the value of the mortgaged properties exceeded the debt amount and cited rulings (Asian Power Controls Ltd. v. Bubbles Goyal and Canfin Homes Ltd. v. Llyods Steel Indus) to argue that a secured creditor cannot initiate winding-up proceedings without abandoning the security. The Tribunal clarified that the current proceeding was for insolvency resolution, not winding-up. Furthermore, the properties in question were collateral securities provided by the promoters, not the Corporate Debtor's assets. The Tribunal also noted that the valuation report indicated the properties' value was less than the debt amount. Thus, the cited rulings were not applicable.

Conclusion:

The Tribunal admitted the application under Section 7 of the I&B Code, initiating the CIRP against the Corporate Debtor. A moratorium was declared as per Section 14 of the I&B Code, prohibiting certain actions against the Corporate Debtor. The Tribunal appointed Mr. Surya Kanta Satapathy as the Interim Resolution Professional (IRP) to manage the CIRP. The order was to be communicated to the relevant parties, and a progress report was scheduled for filing on 06.03.2019.

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