2020 (10) TMI 963 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process Initiated, Moratorium Declared, Interim Resolution Professional Appointed

The application for initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor was admitted by the Tribunal. A moratorium was ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Debt or not - novation of contract - suppression and misrepresentation of the facts or not - existence of debt and dispute or not - HELD THAT:- This Tribunal is of the clear view that the Adjudicating Authority is only to satisfy that the default has occurred and that the ‘Corporate Debtor’ is entitled to point out that the default has not been occurred in the sense that the debt is not due. As no other person has a right to be heard at the stage of admission of the application under Section 7 and 9 of the I&B Code. This Tribunal does not consider the objection raised by the guarantors to arrive at a decision in this matter. To clear this confusion regarding treatment of assets of guarantors of the corporate debtor vis-à-vis the moratorium on the assets of the corporate debtor, it is clarified by way of an explanation that all assets of such guarantors to the corporate debtor shall be outside the scope of moratorium as per Section 14(3) (b) of the Code. It appears from the records that the Corporate Debtor nowhere denied the debt amount nor filed any documents to show that the claim is false, but in reply by way of counter the Corporate Debtor simply prayed to dismiss the application without showing any commendable and acceptable reasons - Under Sub-Section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. The applicant produced the statement of account for the loan account which shows that as on 30.11.2019 a sum of ₹ 32,39,45,078/-, is due from the Corporate Debtor. It has also been established that admittedly there is a “Default” as defined under Section 3 (12) of the Code on the part of the Corporate Debtor and the nature of debt is a ‘financial debt’ as defined under Section 5(8) of the Code. The application on behalf of Financial Creditor is complete and there is default in the payment of the financial debt. Therefore, as per Section 7(5)(a) of the code, the present application filed U/S 7 of the I&B Code deserves to be admitted against the Corporate Debtor. Application admitted - moratorium declared. Issues Involved:1. Default in repayment of financial debt by the Corporate Debtor.2. Nature of the debt as a 'Financial Debt.'3. Impleadment of guarantors.4. Validity of the application filed by the Financial Creditor.5. Moratorium and its implications.Detailed Analysis:1. Default in Repayment of Financial Debt by the Corporate Debtor:The Financial Creditor, M/s. Union Bank of India, filed an application seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against M/s. Green Gateway Leisure Ltd., alleging a default in repayment of Rs. 32,39,45,078/-. The Financial Creditor provided evidence of the term loan granted and subsequent renewals and restructuring. The Corporate Debtor acknowledged the debt but raised several contentions, including delays in additional loan sanctions and cost escalations due to design changes recommended by Starwood Asia Pacific Hotels and Resorts Pvt Ltd.2. Nature of the Debt as a 'Financial Debt':The Tribunal examined whether the debt qualifies as a 'Financial Debt' under Section 5(8) of the Insolvency and Bankruptcy Code (IBC). The Corporate Debtor did not deny the debt amount but argued for dismissal based on various grounds. The Tribunal, referencing the Supreme Court's ruling in 'Innoventive Industries Ltd. Vs. ICICI Bank and Ors.,' concluded that the debt is indeed a financial debt, and there was a default as defined under Section 3(12) of the Code.3. Impleadment of Guarantors:The Financial Creditor sought to implead the guarantors of the Corporate Debtor, which the Tribunal allowed. The Tribunal referred to case laws, including 'Axis Bank Ltd. V Lotus Three Developments Ltd. & Ors.' and 'State Bank of India V. Ramakrishnan & anr.,' to clarify that the guarantors' assets are outside the scope of the moratorium as per Section 14(3)(b) of the Code. The Tribunal emphasized that the Adjudicating Authority's role is to ascertain the occurrence of default and not to entertain objections from guarantors at the admission stage.4. Validity of the Application Filed by the Financial Creditor:The Corporate Debtor argued that the Financial Creditor's application was invalid due to suppression of material facts and malafide intentions. However, the Tribunal found the application complete and in compliance with Section 7(5)(a) of the IBC. The Tribunal noted that the Corporate Debtor did not provide any documents to refute the claim of default, and the Financial Creditor had furnished sufficient evidence of the debt and default.5. Moratorium and its Implications:Upon admitting the application, the Tribunal declared a moratorium prohibiting:- Institution or continuation of suits or proceedings against the Corporate Debtor.- Transferring, encumbering, or disposing of any assets of the Corporate Debtor.- Actions to foreclose, recover, or enforce any security interest.- Recovery of any property by an owner or lessor.The Tribunal also mandated the continuation of essential goods or services to the Corporate Debtor during the moratorium and appointed Mr. Raju Palanikunnathil Kesavan as the Interim Resolution Professional (IRP).Order:The application for initiating CIRP against the Corporate Debtor was admitted, and a moratorium was declared. The IRP was appointed to carry out the functions under the Code, and the Registry was directed to communicate the order to all relevant parties. No order as to costs was made.