2020 (9) TMI 599 - Tri - Insolvency and Bankruptcy

Financial Creditor's Petition Admitted Against Corporate Debtor for Default in Repayment Obligations

The Adjudicating Authority admitted the petition filed by the Financial Creditor under Section 7 of the Insolvency & Bankruptcy Code, 2016, against ... Admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 - existence of financial debt and default - applicability of RBI circular dated 7th June, 2019 - effect of parallel proceedings before sectoral regulator on maintainability - adjustment of payments received from third parties vis-a -vis default - moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 - appointment of Interim Resolution ProfessionalApplicability of RBI circular dated 7th June, 2019 - admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 - Whether the RBI circular dated 7th June, 2019 operates retrospectively to preclude filing of the Section 7 petition - HELD THAT: - The Adjudicating Authority found that the RBI circular relied upon by the corporate debtor has prospective effect and cannot be given retrospective operation to defeat a petition filed on 11.04.2019. The Authority observed that the Code is a self-contained code and the RBI directions cannot override statutory rights under Section 7; the circular's scheme to activate resolution under the prudential framework arises only after a default. Consequently, the circular did not apply to defaults which occurred prior to its date and did not render the petition incompetent. [Paras 25, 31, 32]The RBI circular dated 7th June, 2019 does not operate retrospectively and does not bar admission of the Section 7 petition filed in April 2019.Effect of parallel proceedings before sectoral regulator on maintainability - admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 - Whether pendency of proceedings before the Uttar Pradesh Electricity Regulatory Commission (or other fora) precludes maintainability of the Section 7 petition - HELD THAT: - The Authority held that pendency of proceedings before UPERC between the corporate debtor and UPPTCL does not furnish a ground to reject the Section 7 application. The adjudicatory process under Section 7 is independent; in absence of any stay or bar, parallel civil, regulatory or criminal proceedings do not defeat the statutory right of a financial creditor to trigger CIRP once debt and default are established. [Paras 21, 25]The pendency of proceedings before UPERC does not affect maintainability of the Section 7 petition.Adjustment of payments received from third parties vis-a -vis default - existence of financial debt and default - Whether receipt of direct payments by the financial creditor from UPPTCL and other instrumentalities negates existence of default - HELD THAT: - The Authority noted that the financial creditor admitted receipt of two payments from UPPTCL which were adjusted towards interest, delay charges and related components. On the material before it, the Authority found no evidence that such receipts eliminated the indebtedness claimed. For the purpose of Section 7, the adjudicating authority must be satisfied of existence of debt and default from records of the information utility or other evidence; here the petitioner produced documents and the admitted receipts were shown to have been adjusted without discharging the debt. [Paras 22, 26]The admitted receipts from UPPTCL did not negate the existence of default; the objection based on such receipts was rejected.Existence of financial debt and default - admission under Section 7 of the Insolvency and Bankruptcy Code, 2016 - appointment of Interim Resolution Professional - moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 - Whether the financial creditor has established a financial debt and default sufficient to admit the Section 7 petition and, if so, consequential reliefs (CIRP admission, moratorium and appointment of IRP) - HELD THAT: - The Authority examined the Facility Agreement and accompanying documents and observed that the corporate debtor did not deny having taken the Rupee Term Loan from the financial creditor. The corporate debtor was contractually obliged to repay principal and interest in 48 quarterly instalments and failed to do so. Relying on the statutory test under Section 7 and the scheme in Innoventive Industries, the Authority held that the petitioner proved existence of debt and default from documentary evidence. The petition was found complete and within limitation (date of default 13.07.2018). Consequently, the petition was admitted, moratorium under Section 14 was declared, and the proposed interim resolution professional was appointed after verification of registration and absence of disciplinary proceedings. [Paras 28, 30, 31, 33, 34]The Section 7 petition is admitted: CIRP of the corporate debtor is initiated, moratorium under Section 14 is ordered, and the nominated IRP is appointed.Final Conclusion: The Tribunal admitted the Section 7 petition filed by the financial creditor, held that the RBI circular of 7th June 2019 does not apply retrospectively, found pendency of regulatory proceedings and receipt of certain payments did not preclude admission, declared moratorium under Section 14 of the Code, and appointed the proposed Interim Resolution Professional to proceed with the CIRP. Issues Involved1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency & Bankruptcy Code, 2016.2. Financial assistance and loan agreements between the parties.3. Default in repayment obligations by the Corporate Debtor.4. Delays and issues in the project implementation.5. Demand letters and recall of the loan by the Financial Creditor.6. Objections raised by the Corporate Debtor regarding maintainability of the petition.7. Applicability of RBI circular dated 7th June 2019.8. Allegations of suppression of material facts and direct payments received by the Financial Creditor.9. Requirement of documents from information utility showing default.Detailed Analysis1. Initiation of Corporate Insolvency Resolution Process (CIRP)The petition was filed by the Financial Creditor under Section 7 of the Insolvency & Bankruptcy Code, 2016, seeking initiation of CIRP against the Corporate Debtor due to its inability to repay its financial debt.2. Financial Assistance and Loan AgreementsThe Corporate Debtor approached the Financial Creditor for financial assistance to part finance its project, which was agreed upon, and a Rupee Term Loan Assistance was sanctioned. The loan was to be repaid in 48 equal quarterly installments along with interest.3. Default in Repayment ObligationsThe Corporate Debtor defaulted on its repayment obligations, leading to the issuance of demand letters by the Financial Creditor and the subsequent recall of the loan. The outstanding amount as of March 31, 2019, was INR 2416.96 crores.4. Delays and Issues in Project ImplementationThe project faced significant delays due to various reasons, including the failure of GIC to adhere to its obligations under the corporate guarantee. The Corporate Debtor attributed the delays to factors beyond its control, including issues with UPPTCL.5. Demand Letters and Recall of LoanDemand letters were issued by the Financial Creditor on multiple occasions, and the loan was recalled on October 10, 2018, demanding the outstanding amount inclusive of interest and delay charges. Bank guarantees were invoked, realizing an amount of INR 580.37 crores.6. Objections Raised by the Corporate DebtorThe Corporate Debtor raised several objections, including:- The petition's maintainability due to ongoing proceedings before the Uttar Pradesh Electricity Regulatory Commission.- Alleged arbitrary and illegal approach by the Financial Creditor.- Failure to consider RBI directions applicable to NBFCs.- Concealment of material facts and direct payments received by the Financial Creditor.7. Applicability of RBI Circular Dated 7th June 2019The Corporate Debtor argued that the RBI circular dated 7th June 2019 was applicable. However, it was contended that the circular could not have a retrospective effect and did not override the provisions of the Code. The Adjudicating Authority agreed with this contention.8. Allegations of Suppression of Material Facts and Direct PaymentsThe Corporate Debtor alleged that the Financial Creditor received direct payments from UPPTCL without informing the Corporate Debtor. The Financial Creditor admitted receiving payments and adjusted them against the debt owed by the Corporate Debtor. The Adjudicating Authority found these objections unworthy of consideration.9. Requirement of Documents from Information Utility Showing DefaultThe Corporate Debtor objected to the lack of documents from the information utility showing default. The Financial Creditor argued that the default could be established based on other evidence, which was accepted by the Adjudicating Authority.ConclusionThe Adjudicating Authority, after considering the application and documents, found that:- There was a duly established financial debt.- There was a default in payment by the Corporate Debtor.- The documents attached with the application showed the default in payment of debt.The petition was found complete and within the limitation period. The application was admitted, and a moratorium in terms of Section 14 of the Insolvency & Bankruptcy Code, 2016, was declared. The proposed Interim Resolution Professional (IRP) was appointed, and the registry was directed to communicate the order to the parties involved. The case was listed for the filing of the progress report on 20.08.2020.