2020 (10) TMI 821 - Tri - Insolvency and Bankruptcy

Dismissal of CIRP Petition for Premature Insolvency Claim

M. Visveswaraya Co-operative Bank Ltd. Versus Golden Gate Properties Ltd.

M. Visveswaraya Co-operative Bank Ltd. Versus Golden Gate Properties Ltd. - TMI Issues Involved:1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the I&B Code, 2016.2. Maintainability of the Petition.3. Financial health and solvency of the Corporate Debtor.4. Adequacy of security and alternative remedies available to the Financial Creditor.5. Impact of CIRP on ongoing projects and stakeholders.6. Settlement efforts between the Financial Creditor and Corporate Debtor.Issue-wise Detailed Analysis:1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the I&B Code, 2016:The Petitioner, Sir M. Visveswaraya Co-operative Bank Limited, filed a petition under Section 7 of the I&B Code, 2016, seeking to initiate CIRP against M/s. Golden Gate Properties Limited for defaulting on a loan amounting to Rs. 15,95,02,995/- as of 31.07.2018. The Corporate Debtor had borrowed Rs. 13,00,00,000/- in 2016 for part funding of developmental charges for a residential layout and subsequently defaulted on repayment.2. Maintainability of the Petition:The Respondent opposed the petition, arguing that the petition is not maintainable as the Financial Creditor is a secured creditor and has not exhausted the remedies available under the loan agreement, such as selling the mortgaged property. The Tribunal noted discrepancies in the petition regarding the specific loan being pursued and considered the petition defective on these grounds.3. Financial Health and Solvency of the Corporate Debtor:The Respondent contended that it is a solvent company with assets exceeding liabilities and ongoing projects. It argued that the default was due to external factors such as changes in the CDP Master Plan and delays in plan approvals, which were beyond its control. The Tribunal found that the Corporate Debtor is not a willful defaulter and has the potential to repay the debt given more time.4. Adequacy of Security and Alternative Remedies Available to the Financial Creditor:The Corporate Debtor had mortgaged land valued at Rs. 40-42 Crores as security for the loan, which is significantly higher than the loan amount. The Tribunal noted that the Financial Creditor had sufficient security and other remedies available under the loan agreement for debt recovery, making the petition premature.5. Impact of CIRP on Ongoing Projects and Stakeholders:The Tribunal emphasized that initiating CIRP would adversely affect the Corporate Debtor's ongoing projects, impacting hundreds of home buyers and employees. It highlighted that CIRP could reduce the value of assets and disrupt the business, which would be detrimental to all stakeholders, including the Financial Creditor.6. Settlement Efforts Between the Financial Creditor and Corporate Debtor:The Tribunal observed that both parties had engaged in settlement negotiations and were close to reaching an agreement. The Corporate Debtor had agreed to repay the principal amount and reasonable interest, but the Financial Creditor insisted on initiating CIRP. The Tribunal encouraged continued settlement efforts and suggested alternative recovery mechanisms as per the loan agreement.Conclusion:The Tribunal dismissed the petition as premature, directing both parties to continue settlement efforts and allowing the Corporate Debtor reasonable time to organize funds. The Financial Creditor was granted liberty to approach the Tribunal again if the debt remained unpaid, while ensuring the protection of the Financial Creditor's interests as a custodian of public money. No order as to costs was made.