2019 (6) TMI 1353 - Tri - Insolvency and Bankruptcy

Tribunal Initiates CIRP for Corporate Debtor, Appoints Interim Resolution Professional

Alchemist Asset Reconstruction Company Limited Versus Dugal Projects Development Company Private Limited

The Tribunal admitted the petition filed under Section 7 of the I&B Code against the Corporate Debtor, initiating the Corporate Insolvency Resolution ... Initiation of Corporate Insolvency Resolution Process - default in repayment of total amount alongwith the interest - section 7 of Insolvency & Bankruptcy Code, 2016 (I&B Code) - HELD THAT:- The present proceedings are not concerned with the validity of the lease deed, the existence of security interest upon an asset of the Corporate Debtor. The present proceedings under section 7 of the I&B Code are only concerned with the existence of Debt and Default. The credit facility was extended to the Borrower, and the same was secured by hypothecation and mortgage. Thus, it would not make any difference whether the Petitioner has a secured interest on an asset belonging to the Corporate Debtor or not as it is having a security interest in the assets of the Borrower Company. The Corporate Debtor has admitted that it has executed the Corporate Guarantee dated 06.11.1987 in its letter dated 20.05.2017 addressed to the Petitioner. Thus, the fact of the execution of Corporate Guarantee is admitted by the Corporate Debtor. When the deed was signed at the time of taking a loan, the Guarantor now cannot contend that the deed is treated as revoked based on its notice to the Petitioner and Lenders as this can only be adjudicated by a Court of appropriate jurisdiction. The Petitioner has been assigned the loans by the Lenders of the Borrower Company. The Corporate Debtor is a Corporate Guarantor of the Borrower Company. The Petitioner is thus a Financial Creditor of the Corporate Debtor within the meaning of section 5(7) of the I&B Code - The Corporate Debtor has not denied the sanction and disbursement of loan from the Lenders to the Borrower Company. The said loan is in default is also not disputed. The Application under sub-section (2) of Section 7 of I&B Code, 2016 is complete - the application is admitted - moratorium declared. Issues Involved:1. Validity of the DRT order dated 06.05.2011.2. Termination of the Lease Deed dated 25.11.1987.3. Validity and enforceability of the Deed of Guarantee.4. Legality of the assignment of loans by the Lenders to the Petitioner.5. Applicability of the Limitation Act, 1963.6. Whether the NCLT can act as an executing court.7. Compliance with Section 7(2) and 7(3)(a) of the I&B Code.8. Whether the Petitioner qualifies as a Financial Creditor under the I&B Code.9. Allegations of forgery and manipulation of records by the Petitioner.Detailed Analysis:1. Validity of the DRT order dated 06.05.2011:The Corporate Debtor argued that the DRT order dated 06.05.2011 is not final as it is under appeal. However, the Tribunal noted that the Petitioner’s claim is based on a decree issued by the DRT, Mumbai, which is legally enforceable. The Tribunal emphasized that the existence of debt and default is the primary concern under Section 7 of the I&B Code.2. Termination of the Lease Deed dated 25.11.1987:The Corporate Debtor contended that the Lease Deed was legally terminated, and thus, there is no security interest. The Tribunal clarified that the proceedings under Section 7 of the I&B Code are concerned with the existence of debt and default, not the validity of the lease deed or security interest.3. Validity and enforceability of the Deed of Guarantee:The Corporate Debtor raised several objections regarding the Deed of Guarantee, including claims of coercion and lack of witnesses. The Tribunal found these objections untenable, noting that the Corporate Debtor had admitted to executing the Corporate Guarantee in its letter dated 20.05.2017. The Tribunal held that the Corporate Debtor is a guarantor for the loan taken by the Borrower Company.4. Legality of the assignment of loans by the Lenders to the Petitioner:The Corporate Debtor challenged the legality of the assignment agreements. The Tribunal noted that the Petitioner had provided evidence that the assignment agreements were registered and properly stamped. The Tribunal relied on the Hon’ble NCLAT’s decision in Lalan Kumar Singh vs M/s Phoenix ARC Pvt. Ltd., which upheld the validity of such assignments.5. Applicability of the Limitation Act, 1963:The Corporate Debtor argued that the petition is barred by limitation as it was filed beyond the three-year period prescribed under Article 137 of the Limitation Act. The Tribunal rejected this argument, stating that the decree crystallizing the debt was passed on 06.05.2011, and the limitation period for recovery under the decree is 12 years as per Article 136 of the Limitation Act. Therefore, the petition filed in September 2018 is within the limitation period.6. Whether the NCLT can act as an executing court:The Corporate Debtor argued that the NCLT cannot be converted into an executing court for decrees obtained from civil courts. The Tribunal clarified that its role under Section 7 of the I&B Code is to ascertain the existence of debt and default, not to execute decrees.7. Compliance with Section 7(2) and 7(3)(a) of the I&B Code:The Corporate Debtor contended that the Petitioner did not furnish records of default as required under Section 7(2) and 7(3)(a) of the I&B Code. The Tribunal found that the Petitioner had provided sufficient evidence of default, including the decree from the DRT and other supporting documents.8. Whether the Petitioner qualifies as a Financial Creditor under the I&B Code:The Corporate Debtor questioned the Petitioner’s status as a Financial Creditor. The Tribunal held that the Petitioner, having been assigned the loans by the original lenders, qualifies as a Financial Creditor within the meaning of Section 5(7) of the I&B Code.9. Allegations of forgery and manipulation of records by the Petitioner:The Corporate Debtor alleged that the Petitioner had forged and manipulated records. The Tribunal did not find any merit in these allegations and proceeded with the evidence provided by the Petitioner.Order:The Tribunal admitted the petition filed by Alchemist Asset Reconstruction Company Limited under Section 7 of the I&B Code against the Corporate Debtor for initiating the Corporate Insolvency Resolution Process (CIRP). The Tribunal declared a moratorium under Section 14 of the I&B Code and appointed Mr. Arunava Sikdar as the Interim Resolution Professional. The Registry was directed to communicate the order to the relevant parties immediately.