2019 (9) TMI 993 - Tri - Insolvency and Bankruptcy

Tribunal rejects Financial Creditor's application under Insolvency Code, deeming it non est

State Bank of India Versus Rohit Ferro Tech Limited

The Tribunal rejected the Financial Creditor's application under section 7 of the Insolvency & Bankruptcy Code, declaring it non est due to being ... Maintainability of application - Basis of proceedings - Initiation of CIRP - Corporate Debtor allegedly committed default in paying the financial debt - whether SBI initiated this proceeding on the basis of RBI circular dated 12.02.2018 or it is independent proceeding? - HELD THAT:- SBI, at their own, did not state anywhere in the application that proceeding is initiated on the basis of and as per the guidelines issued by the RBI in its circular dated 12.02.2018. But the corporate debtor produced on record SBI letter dated 23.08.2018 giving reference of corporate debtor’s proposal of resolution of bad debt dated 16.08.2018 - It is clear from the bank’s letter dated 23.08.2018 that this proceeding under section 7 of I&B Code is initiated against the corporate debtor because there were clear guidelines from the RBI and those contained in its circular dated 12.02.2018. The Hon’ble Supreme Court in DHARANI SUGARS AND CHEMICALS LTD. VERSUS UNION OF INDIA & ORS. [2019 (4) TMI 230 - SUPREME COURT] held RBI circular dated 12.02.2018 to be bad in law and ultra vires. The Apex Court also declared that all proceedings initiated on the basis of that circular are bad in law and non est. As per the case at hand is concerned, it is seen from the evidence on record that this proceeding is also initiated by the bank against the corporate debtor on the basis of RBI Circular dated 12.02.2018 - It is held to be not maintainable. Application rejected. Issues involved:Financial creditor's application under section 7 of the Insolvency & Bankruptcy Code, 2016 against corporate debtor for default in payment of financial debt.Analysis:The Financial Creditor, State Bank of India, filed an application under section 7 of the Insolvency & Bankruptcy Code against the Corporate Debtor, alleging default in paying a substantial financial debt. The Corporate Debtor did not dispute the debt or default but challenged the proceeding on various grounds. These included the authority of the Assistant General Manager to initiate the proceeding, the effect of a winding-up petition in the High Court, and the absence of a certificate of default from the Information Utility. The Financial Creditor argued that the proceeding was valid, producing evidence of default and highlighting the self-contained nature of the I&B Code. The Corporate Debtor contended that the proceeding was based on an RBI circular declared ultra vires by the Supreme Court, rendering it non est.The Tribunal considered the arguments presented by both parties. While the Corporate Debtor did not insist on certain disputed facts, the focus was on the validity of the proceeding in light of the RBI circular dated 12.02.2018. The Financial Creditor maintained that the proceeding was independent of the circular and valid under the I&B Code. However, evidence revealed that the proceeding was indeed initiated based on the said circular, which the Supreme Court had deemed bad in law and ultra vires. Consequently, the Tribunal held that the proceeding was not maintainable and declared it non est, in line with the Supreme Court's ruling.In conclusion, the Tribunal rejected the Financial Creditor's application under section 7 of the Insolvency & Bankruptcy Code, disposing of the proceeding. The order was directed to be communicated to both parties, and a certified copy was to be issued upon compliance with formalities. The judgment highlighted the importance of adherence to legal guidelines and the implications of initiating proceedings based on invalidated circulars.