2019 (7) TMI 507 - AT - Insolvency and Bankruptcy

Directors & Shareholders Appeal Denied in Insolvency Case; Tribunal Clarifies Key Terms

The appeal was filed by the Directors and Shareholders of a Corporate Debtor against the order admitting an application under Section 7 of the Insolvency ... Admissibility of petition - initiaton of CIRP - Section 7 of the Insolvency and Bankruptcy Code, 2016 - no default in existence - HELD THAT:- It is made clear that the application under Section 7 is not a petition. In fact, no affidavit is required to be made, nor any pleadings is to be made like a litigation. From the decision of the Hon’ble Supreme Court in M/S. INNOVENTIVE INDUSTRIES LTD. VERSUS ICICI BANK & ANR. [2017 (9) TMI 58 - SUPREME COURT], it is clear that the meaning of “debt” if read along with Section 3(11) means “claim” which includes even if it is disputed claim. As per the said decision, if the Adjudicating Authority is satisfied that a default has occurred, the ‘Corporate Debtor’ is entitled to point out that a default has not occurred in the sense that the “debt”, which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. Thus, it is clear that even when there is a default then the only plea that can be taken is that the debt is not payable in law or in fact. In the present case, it is not the case of the Appellants that debt is not payable in law or in fact - there is sufficient record shown in Part IV and Part V on the basis of that Adjudicating Authority has satisfied that the Form-1 is complete. There is no merit in the appeal - appeal dismissed. Issues involved:Admission of application under Section 7 of the Insolvency and Bankruptcy Code, 2016; Completeness of Form-1 for the application under Section 7; Disclosure of discrepancies in the petition; Interpretation of the meaning of 'debt' and 'claim' as per legal provisions; Satisfaction of Adjudicating Authority regarding default; Entitlement of Corporate Debtor to challenge default; Merit of the appeal.Admission of Application under Section 7:The appeal was filed by the Appellants, Directors and Shareholders of a Corporate Debtor against the order admitting an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 by the Adjudicating Authority. The order included the passing of a moratorium and appointment of an Interim Resolution Professional. The Appellants argued that the Form-1 for the application was incomplete due to missing appropriate records. However, the Tribunal clarified that the application under Section 7 is not a petition requiring affidavits or pleadings like in a litigation.Completeness of Form-1:The Appellants contended that the Form-1 was incomplete as necessary records were not enclosed. The Tribunal, after considering the arguments, found no merit in this claim. It was noted that the application under Section 7 does not require the same level of detailed pleadings as in a traditional litigation setting. The Adjudicating Authority had deemed the Form-1 complete based on the records provided in Part IV and Part V, indicating satisfaction with the application.Disclosure of Discrepancies:The Appellants raised concerns regarding discrepancies in the amount of sale of a mortgaged property and the amount shown as payable, which were not disclosed in the petition. However, the Tribunal did not accept these submissions, emphasizing that the application under Section 7 does not necessitate the same level of disclosure as a formal petition. The Tribunal highlighted that the process is not akin to a money claim or litigation, as established in previous judgments.Interpretation of 'Debt' and 'Claim':Citing legal precedents, including the case of 'Innoventive Industries Limited v. ICICI Bank,' the Tribunal discussed the meaning of 'debt' and 'claim' under the Insolvency and Bankruptcy Code. The judgment highlighted that a default triggers the insolvency resolution process, and a debt includes a disputed claim. The Tribunal clarified that a debt may not be due if it is not payable in law or in fact, underscoring the importance of the Adjudicating Authority's satisfaction regarding default.Satisfaction of Adjudicating Authority and Entitlement of Corporate Debtor:Referring to the Supreme Court's decision, the Tribunal reiterated that if the Adjudicating Authority is satisfied that a default has occurred, the Corporate Debtor can challenge this by demonstrating that the debt is not payable in law or in fact. In the present case, the Tribunal found that the Adjudicating Authority had sufficient records to determine the completeness of Form-1 and the existence of a default, dismissing the Appellants' arguments.Merit of the Appeal:After thorough analysis, the Tribunal concluded that there was no merit in the appeal. However, the order did not prevent the Appellants from settling the claim with creditors and seeking resolution through the Committee of Creditors as per Section 12A of the Insolvency and Bankruptcy Code. The appeal was disposed of with these observations and without costs.This detailed analysis of the judgment addresses the issues involved in the appeal concerning the admission of the application under Section 7, completeness of Form-1, disclosure of discrepancies, interpretation of legal terms, satisfaction of the Adjudicating Authority, entitlement of the Corporate Debtor, and the overall merit of the appeal.