2021 (1) TMI 187 - AT - Insolvency and Bankruptcy

Tribunal dismisses appeal against admission of insolvency application under Section 9 of IBC

The tribunal dismissed the appeal challenging the admission of an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, filed against a ... Admissibility of Application under Section 9 of Insolvency and Bankruptcy Code, 2016 - initiation of CIRP - Existence of debt and dispute or not - Appellant claims that there was collusion between the two Respondents and thus the admission Order was bad - grievance of the Appellant appears to be that it was the biggest Financial Creditor and instead of acting on its Application, the Application of Respondent No.2 was admitted. Alleged Collusion - HELD THAT:- The Appellant is banking on such defence recorded in earlier matter. On such basis, collusion and fraud is alleged. We do not find any substance in such averments made by the Appellant. Present Application under Section 9 is undisputedly filed by the Respondent No.2 at a time when CIRP against the Respondent No.2 had been set aside on 13.03.2020, has to be appreciated on its own facts and documents. The definition of Financial Creditor in Section 5(7) and definition of Operational Creditor in Section 5(20) “includes” any person to whom the debt has been legally assigned or transferred. This, however, does not apply to the definition of Corporate Debtor as found in Section 3(8). Section 3(8) states that “Corporate Debtor” means a corporate person who owes a debt to any person. Thus, when the definitions of Financial Creditor and Operational Creditor are read with the definition of Corporate Debtor, it is clear that while Financial Creditor and Operational Creditor can assign their debt, the same is not applicable to a Corporate Debtor. Thus no such defence can be taken to show existence of dispute - The claim of the Appellant trying to build a case of collusion and fraud is thus not appealing to us. Even if Respondent No.2, a Corporate Debtor had debts to pay of M/s. Guptaji, it can have debt of its own to recover from Respondent No.1 who is another Corporate Debtor. CIRP against Respondent No. 1 maintainable or not - HELD THAT:- Orris Infrastructure has itself filed Application seeking intervention pointing out proceedings which have taken place before Haryana Real Estate Regulatory Authority and High Court with the prayer that the amounts lying in Escrow Account in view of Orders of the High Court should be used only for the construction of Greenopolis Project. The IRP of the Corporate Debtor who has filed Reply (Diary No.23486) has stated (Reply para – 7.8) that it is denied that the development of the Greenopolis Project was in joint venture. IRP claims that there is no document in support. It is the Reply of IRP that Three C Shelters Pvt. Ltd. is the sole developer of the Greenopolis Project. Thus, we find that the contentions raised by the Appellant are not supported by documentary material and as regards the Intervention, Application filed by Orris Infrastructure, and the prayer made, it would be a matter for the IRP/RP to look into in the course of CIRP proceedings. The alleged Bar under Section 11 of IBC - HELD THAT:- If Section 11 of IBC is perused, the incompetency attached is to initiation. Specified person is not “entitle” to make an application. Thus, the bar under Sub-Section (a) is for making an application when the person who is a Corporate Debtor is undergoing Corporate Insolvency Resolution Process. Under Sub-Clause (b), the bar is to “making an application” by the person – Corporate Debtor having completed CIRP twelve months preceding the date of making of the application. Based on this, the grievance of the Appellant is that when IB 2721/2019 was filed, twelve months had not been completed from the date of 13.03.2020 vide which CIRP in IB 1071/2019 had been set aside. It is argued now when the earlier CIRP has been restored, sub-clause ‘a’ is also attracted - Date of filing of IB 2721/2019 is not pointed out to us. There is no dispute, however, that it was filed after Orders dated 13.03.2020 in Appeal, in earlier matter. It appears to us that when the IB 2721/2019 was filed, the CIRP against the Respondent No.2 had already been set aside in view of the Orders of this Tribunal dated 13th March, 2020. Thus the bar “to making the application” was not there. If subsequently on 28.09.2020, the earlier CIRP has been restored against Respondent No.2, that would not hit the making of the application which was already complete and even the Petition was allowed on 20.07.2020. Once the Application in IB 2721/2019 was allowed on 20th July, 2020, (read with continuation Order dated 16th October, 2020), management vests with the IRP/RP and subsequent developments in another matter will not make difference. The appeal is dismissed. Issues Involved:1. Admission of Application under Section 9 of Insolvency and Bankruptcy Code, 2016.2. Alleged collusion between the Respondents.3. Feasibility of CIRP against Respondent No.1 alone.4. Bar under Section 11 of IBC.5. Procedural irregularities in the Impugned Orders.Detailed Analysis:1. Admission of Application under Section 9 of Insolvency and Bankruptcy Code, 2016:The appellant, representing 350 home buyers, challenged the admission of the application under Section 9 of IBC filed by Respondent No.2 (Straight Edge Contracts Pvt. Ltd.) against Respondent No.1 (Three C Shelters Pvt. Ltd.). The admission order dated 20th July 2020 was challenged on grounds of being perverse and devoid of merit. The appellant claimed that Respondent No.2, being a corporate debtor in another petition, could not be an operational creditor.2. Alleged Collusion between the Respondents:The appellant alleged collusion between Respondent No.1 and Respondent No.2, arguing that Respondent No.2, in a separate matter, had taken a contrary stand, claiming that the debt was assigned to the principal employer. The tribunal found no substance in these allegations, stating that the definition of financial and operational creditors includes any person to whom the debt has been legally assigned or transferred, but this does not apply to a corporate debtor. The tribunal concluded that the claim of collusion and fraud was not appealing.3. Feasibility of CIRP against Respondent No.1 alone:The appellant argued that CIRP against Respondent No.1 alone was not feasible without including Orris Infrastructure Pvt. Ltd., with whom the project was developed. The tribunal noted that there was no pending CIRP against Orris Infrastructure and that the IRP of Respondent No.1 denied any joint venture agreement. The tribunal found no documentary support for the appellant's contentions and stated that the matter would be for the IRP/RP to look into during the CIRP proceedings.4. Bar under Section 11 of IBC:The appellant contended that Respondent No.2 could not initiate insolvency proceedings due to the bar under Section 11(b) of IBC, as it had exited CIRP on 13th March 2020 and twelve months had not elapsed. The tribunal clarified that the bar under Section 11 applies to the initiation of the application, and since the application was filed after the CIRP against Respondent No.2 was set aside, the bar did not apply. Further, the tribunal referred to the Insolvency and Bankruptcy Code (Amendment) Act of 2020, which clarified that nothing in Section 11 prevents a corporate debtor from initiating CIRP against another corporate debtor.5. Procedural Irregularities in the Impugned Orders:The appellant argued that the impugned orders were untenable and perverse as they lacked reasons. The tribunal acknowledged that the initial order dated 20th July 2020 had errors, which were corrected on 14th October 2020, and a detailed judgment was passed on 16th October 2020. The tribunal criticized the adjudicating authority for not passing a complete order initially but found no purpose in setting aside the CIRP on technical grounds. The tribunal noted that both respondents were now under CIRP and trusted the IRPs/RPs to follow the law.Order:The tribunal dismissed the appeal, finding no substance in the appellant's claims. All pending I.A.s and intervention applications were disposed of, with no orders as to costs.