2019 (11) TMI 963 - Tri - Insolvency and Bankruptcy

Tribunal Admits Insolvency Application, Appoints Resolution Professional, and Declares Moratorium

The Tribunal admitted the application under Section 7 of the Insolvency and Bankruptcy Code, 2016, filed by Shriram Transport Finance Company Limited ... Financial Creditor - Financial debt - Corporate Insolvency Resolution Process - default as threshold for initiation of CIRP - summary adjudication of existence of default - admissibility of Section 7 application despite pending proceedings - overriding effect of the Code under Section 238 - moratorium - appointment of Interim Resolution ProfessionalFinancial Creditor - Financial debt - default as threshold for initiation of CIRP - The applicant is a financial creditor and the amounts claimed constitute financial debt with an occurrence of default sufficient to maintain a Section 7 application. - HELD THAT: - The loan cum hypothecation agreements evidence disbursement of loan consideration for time value of money and the claim includes principal and interest, bringing it within the definition of 'financial debt'; the applicant who sanctioned and disbursed the loans is therefore a 'financial creditor'. The Code requires only that a default (being Rs. 1 lakh or more) be established in summary adjudication for admission of a Section 7 application. The Form I and accompanying documents demonstrate the debt and default. The corporate debtor has not shown repayment or produced updated financial statements to rebut the claim, nor established that no default has occurred. Accordingly the threshold requirements for admission under Section 7(5)(a) are met. [Paras 17, 18, 19, 21, 34]Applicant held to be a financial creditor; claimed amounts are financial debt and default has occurred; Section 7 application is maintainable on this ground.Admissibility of Section 7 application despite pending proceedings - summary adjudication of existence of default - overriding effect of the Code under Section 238 - Pendency of arbitration challenge, execution or other proceedings (including that arbitral awards are ex parte or sub-judice) does not bar admission of a Section 7 application where default is established and the award has not been stayed. - HELD THAT: - The adjudicating authority's role under Section 7 is limited to ascertaining existence of default in a summary manner and is not to determine the final amount of the claim. The ex-parte arbitral awards in this case are not stayed and therefore represent enforceable claims; pendency of Section 34 petitions or execution proceedings does not preclude initiation of CIRP. The Code's non-obstante provision and consistent authority affirm that proceedings in other fora cannot be used to stall insolvency proceedings. Consequently, the objections based on pendency, challenge to awards or pending execution are unsustainable for refusing admission. [Paras 26, 27, 28, 31, 32]Objections based on ex-parte awards being challenged or execution proceedings pending rejected; admission under Section 7 is not barred by such pendency.Corporate Insolvency Resolution Process - appointment of Interim Resolution Professional - moratorium - The Section 7 application is complete and admitted; the proposed Interim Resolution Professional satisfies disclosure requirements and is appointed; consequential directions including deposit for IRP expenses, public announcement and imposition of moratorium are ordered. - HELD THAT: - The application is in Form I complying with Rule 4 and contains particulars and documents, including arbitral awards, as mandated. The petitioner furnished the name of a proposed IRP who executed Form 2, declared absence of disciplinary proceedings and made requisite disclosures under IBBI regulations. Satisfaction of the conditions under Section 7(5)(a) led to admission of the application. Consequentially, an IRP is appointed; the financial creditor is directed to deposit funds for IRP expenses; the IRP is directed to make the public announcement within the prescribed period; and moratorium under the Code is declared with attendant prohibitions and safeguards. [Paras 35, 36, 37, 38, 39]Section 7 application admitted; Mr. Navjit Singh appointed as Interim Resolution Professional; directions issued for deposit, public announcement and imposition of moratorium.Final Conclusion: The Tribunal admitted the Section 7 petition: the applicant is a financial creditor, the claimed amounts are financial debt and a default has occurred; pending arbitration challenges or execution proceedings do not bar admission where awards are not stayed; the application was complete, the proposed IRP met requirements and was appointed, and consequential directions including deposit for IRP expenses, public announcement and moratorium were ordered. Issues Involved:1. Jurisdiction of the Tribunal2. Status of the Applicant as Financial Creditor3. Existence of Financial Debt and Default4. Maintainability of the Application under Section 7 of the Insolvency and Bankruptcy Code5. Pending Arbitration and Execution Proceedings6. Objections Raised by the Respondent7. Appointment of Interim Resolution Professional8. Declaration of MoratoriumDetailed Analysis:1. Jurisdiction of the Tribunal:The Tribunal established its territorial jurisdiction over the NCT of Delhi, as the registered office of the respondent corporate debtor is located in Delhi. This is in accordance with sub-section (1) of Section 60 of the Insolvency and Bankruptcy Code, 2016.2. Status of the Applicant as Financial Creditor:The applicant, Shriram Transport Finance Company Limited, is a Non-Banking Financial Company engaged in financing and leasing of vehicles. The Tribunal confirmed that the applicant qualifies as a 'Financial Creditor' under Section 5(7) of the Code, having disbursed loans to the corporate debtor against the consideration for time value of money.3. Existence of Financial Debt and Default:The Tribunal noted that the corporate debtor had availed a loan of Rs. 2,62,00,000/- through 29 Loan cum Hypothecation Agreements but defaulted in repayment. The financial debt, including interest and expenses, amounted to Rs. 5,64,46,192/- as of 31.12.2018. The Tribunal also referenced the arbitral awards, which directed the corporate debtor to pay the outstanding amount along with interest.4. Maintainability of the Application under Section 7 of the Insolvency and Bankruptcy Code:The Tribunal confirmed that the application under Section 7 of the Code was maintainable. The application was complete, and the debt exceeded the threshold limit of Rs. 1 lakh. The Tribunal emphasized that no prior notice under Section 8 of the Code was required for financial debt.5. Pending Arbitration and Execution Proceedings:The Tribunal addressed the respondent's objection regarding the pending arbitration and execution proceedings. It clarified that the pendency of such proceedings does not bar the initiation of Corporate Insolvency Resolution Process under Section 7 of the Code. The Tribunal cited the overriding effect of Section 238 of the Code and referenced relevant case laws to support this position.6. Objections Raised by the Respondent:The respondent raised multiple objections, including the enforceability of ex-parte arbitral awards and the alleged inflated claim of financial debt. The Tribunal dismissed these objections, stating that the existence of a default was sufficient for admitting the application. The Tribunal also noted that the arbitral awards had not been stayed and were therefore enforceable.7. Appointment of Interim Resolution Professional:The Tribunal appointed Mr. Navjit Singh as the Interim Resolution Professional (IRP) and directed the financial creditor to deposit Rs. 2 lakhs with the IRP to cover initial expenses. The Tribunal confirmed that there were no disciplinary proceedings pending against the proposed IRP.8. Declaration of Moratorium:The Tribunal declared a moratorium under Section 14 of the Code, prohibiting the institution or continuation of suits, transferring or disposing of assets, and recovery of property by owners or lessors. The moratorium did not apply to transactions notified by the Central Government or the supply of essential goods and services.Conclusion:The Tribunal admitted the application under Section 7 of the Insolvency and Bankruptcy Code, 2016, filed by Shriram Transport Finance Company Limited against M/s. Trans Gulf Frozen Food Containers Private Limited. The Tribunal appointed Mr. Navjit Singh as the Interim Resolution Professional and declared a moratorium in terms of Section 14 of the Code. The Tribunal dismissed the objections raised by the respondent and confirmed that the application was complete and maintainable.