2020 (5) TMI 8 - Tri - Insolvency and Bankruptcy

Tribunal Upholds Admission of CIRP Application Despite Corporate Debtor's Objections

The Tribunal admitted the application under Section 7 of the Insolvency & Bankruptcy Code, 2016, initiating the Corporate Insolvency Resolution ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - existence of debt and dispute or not - HELD THAT:- The plea of the Corporate Debtor that the Company is a solvent and going concern, cannot be made a ground for delaying the initiation of CIR Process or to keep in abeyance the instant Application as sought for as this Tribunal is required in case of a 'financial debt' which is due and in the event of 'default' as defined under I&B Code, 2016 is perforce required to admit the Application and the parties including the Corporate Debtor can have recourse during CIR process to submit a plan for restructuring if otherwise not disqualified. The Application, as filed by the Financial Creditor is required to be admitted under section 7 (5) of the I&B Code, 2016. Application admitted - moratorium declared. Issues Involved:1. Admission of the Application under Section 7 of the Insolvency & Bankruptcy Code, 2016.2. Objection on the grounds of limitation.3. Non-disbursement of enhanced credit limits.4. Discontinuation of 'Holding on Operations' arrangement.Issue-wise Detailed Analysis:1. Admission of the Application under Section 7 of the Insolvency & Bankruptcy Code, 2016:The Financial Creditor filed an application under Section 7 of the I&B Code, 2016, seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, declare moratorium, and appoint an Interim Resolution Professional (IRP). The Financial Creditor claimed an outstanding amount of Rs. 492,53,00,849.74 as of 30-6-2019. The Corporate Debtor had availed various credit facilities from the Financial Creditor and other consortium banks since 2005, including a CDR package. Despite restructuring efforts, the Corporate Debtor's account was classified as a Non-Performing Asset (NPA) on 29-12-2016. The Tribunal, after verifying the existence of financial debt and default, admitted the application under Section 7 of the I&B Code, 2016, and initiated the CIRP.2. Objection on the grounds of limitation:The Corporate Debtor argued that the application was barred by limitation, citing the date of default as 2-1-2013, while the application was filed on 12-7-2019. The Financial Creditor countered that the account was classified as NPA on 2-1-2013, but a CDR package was sanctioned in 2013, and the account was again classified as NPA on 19-12-2016. The Tribunal found that the application was filed within the period of limitation, rejecting the objection raised by the Corporate Debtor.3. Non-disbursement of enhanced credit limits:The Corporate Debtor contended that the Financial Creditor did not disburse the revised CC limit from Rs. 56 Crores to Rs. 105 Crores as per the Supplementary Inter Se Agreement dated 5-8-2015, causing liquidity issues. The Financial Creditor argued that the disbursement was contingent upon the Corporate Debtor meeting certain conditions, including equity infusion, which the Corporate Debtor failed to fulfill. The Tribunal found the Financial Creditor's reasoning plausible and decided the issue in favor of the Financial Creditor.4. Discontinuation of 'Holding on Operations' arrangement:The Corporate Debtor claimed that the discontinuation of the 'Holding on Operations' arrangement by the Financial Creditor crippled its operations. The Financial Creditor responded that the arrangement was temporary, intended to help the Corporate Debtor come out of NPA status, and was discontinued due to insufficient cutback amounts and deteriorating operations. The Tribunal found the Financial Creditor's submissions plausible and rejected the objection raised by the Corporate Debtor.Conclusion:The Tribunal admitted the application under Section 7 of the I&B Code, 2016, initiating the CIRP against the Corporate Debtor. Mr. Vikas Gupta was appointed as the IRP, and a moratorium was declared as per Section 14 of the I&B Code, 2016. The objections raised by the Corporate Debtor regarding limitation, non-disbursement of credit limits, and discontinuation of the 'Holding on Operations' arrangement were rejected. The order emphasized that the existence of financial debt and default necessitates the initiation of the CIRP, irrespective of the Corporate Debtor's solvency or ongoing operations.