2020 (2) TMI 910 - Tri - Insolvency and Bankruptcy

Successful Petition for Corporate Insolvency Resolution Process under Insolvency Code

The petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 was found maintainable by the Tribunal. The Financial Creditors successfully ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - pre-existing dispute or not? - HELD THAT:- The Financial Creditor has succeeded in establishing a case for triggering the Corporate Insolvency Resolution Process. The transactions alleged to have taken place between the Respondent and the Petitioners as placed on record as Annexure-2 of the written objection are not supported by any banking transaction as to when and where the cheques were drawn by the Respondent in favour of the Petitioners. These are only bald averments made and no document has been placed on record in support thereof. On the basis of these bald averments no finding could be recorded in these summary proceedings to conclude that any amount has ever been given to the Petitioners as pleaded in the written objections. The Tribunal is not an adjudicating authority to ascertain the quantum of amount of default or to pass decree as to how much amount is actually due to the Petitioners-Financial Creditors. The Code requires the adjudicating authority to only ascertain and record satisfaction in an adjudication under Section 7 of the Code as to the occurrence of default before admitting the petition. Besides in a petition under Section 7 of the Code, it does not matter that the debt is disputed so long as the debt is due and payable. After a reading of Section 7 of the Code along with Rule 4 (2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, we are satisfied that a default has occurred and the application under sub-section 2 of Section 7 is complete. The IRP proposed does not have any disciplinary proceedings pending against him - Petition admitted. Petition admitted - moratorium declared. Issues Involved:1. Whether the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 is maintainable.2. Whether the Corporate Debtor defaulted in repayment of the financial assistance/loan.3. Whether the Financial Creditors have established a case for triggering the Corporate Insolvency Resolution Process.4. Whether the defenses raised by the Corporate Debtor hold merit.5. Appointment of the Interim Resolution Professional.6. Declaration of moratorium under Section 14 of the Code.7. Directions for public announcement and deposit of expenses.Detailed Analysis:Issue 1: Maintainability of the Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016The petitioners, identified as 'Financial Creditors' (M/s. Vishal Fabrics and two others), filed the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against M/s. AVJ Developers (India) Private Limited, the 'Corporate Debtor'. The Tribunal found the petition to be maintainable under the provisions of the Code.Issue 2: Default in Repayment by the Corporate DebtorThe petitioners claimed that they provided financial assistance to the Corporate Debtor for its project 'AVJ Heights' and were promised higher returns and other lucrative offers. The amounts invested by the petitioners were Rs. 50,00,000/-, Rs. 2,00,00,000/-, and Rs. 38,00,000/- respectively. The Corporate Debtor issued post-dated cheques as collateral security and agreed to pay interest/profit. However, the cheques were dishonored with the endorsement 'Payment stopped by drawer'. The Tribunal noted that the Corporate Debtor admitted to receiving a loan of Rs. 2,88,00,000/- from the petitioners in 2014 and acknowledged the execution of Builder Buyer Agreements, MoUs, and other documents.Issue 3: Establishing a Case for Triggering CIRPThe Tribunal concluded that the Financial Creditors successfully established a case for triggering the CIRP. The Corporate Debtor's failure to hand over possession of the flats and non-payment of interest/profit as assured, along with dishonored cheques, indicated a default. The Tribunal emphasized that under Section 7 of the Code, the adjudicating authority only needs to ascertain and record satisfaction regarding the occurrence of default before admitting the petition.Issue 4: Merit of Defenses Raised by the Corporate DebtorThe Corporate Debtor raised several defenses, including allegations of unlawful moneylending by the petitioners, repayment of certain amounts, and disputes over financial transactions. However, the Tribunal found these defenses to be unsupported by documentary evidence. The Tribunal rejected the Corporate Debtor's version, noting that the transactions alleged by the Corporate Debtor were not substantiated by any banking transactions or documents.Issue 5: Appointment of Interim Resolution Professional (IRP)The petitioners proposed Mr. Anil Tayal as the IRP. The Tribunal found that the proposed IRP met the requirements under the Code and did not have any disciplinary proceedings pending against him. Consequently, the Tribunal appointed Mr. Anil Tayal as the IRP.Issue 6: Declaration of Moratorium under Section 14 of the CodeThe Tribunal declared a moratorium in terms of Section 14 of the Code, which prohibits the initiation or continuation of legal proceedings against the Corporate Debtor, enforcement of any security interest, and recovery of any property by an owner or lessor during the moratorium period. The Tribunal clarified that the moratorium does not apply to transactions notified by the Central Government and essential goods or services to the Corporate Debtor must continue uninterrupted.Issue 7: Directions for Public Announcement and Deposit of ExpensesThe Tribunal directed the IRP to make a public announcement regarding the admission of the application under Section 7 of the Code. Additionally, the Financial Creditors were instructed to deposit Rs. 2 lac with the IRP to cover expenses, subject to adjustment by the Committee of Creditors. The Tribunal also directed the Ex-Management/Auditors to provide all necessary documents and information to the IRP within a week.Conclusion:The petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 was admitted. The Tribunal appointed Mr. Anil Tayal as the Interim Resolution Professional, declared a moratorium, and issued directions for public announcement and deposit of expenses. The Tribunal rejected the defenses raised by the Corporate Debtor, finding them unsupported by evidence. The Tribunal emphasized that its role was to ascertain the occurrence of default and not to determine the exact quantum of the amount due.