2021 (4) TMI 298 - Tri - Insolvency and Bankruptcy

Tribunal grants moratorium under Insolvency Code, appoints Resolution Professional

The Tribunal admitted the application under Section 7 of the Insolvency and Bankruptcy Code, appointing an Interim Resolution Professional and imposing a ... Admission of application under Section 7 of the Insolvency and Bankruptcy Code - existence of debt and default - moratorium under Section 14 of the Insolvency and Bankruptcy Code - appointment of Interim Resolution Professional - public announcement of corporate insolvency resolution processAdmission of application under Section 7 of the Insolvency and Bankruptcy Code - existence of debt and default - Whether the application filed by the financial creditor under Section 7 is maintainable and admits the initiation of corporate insolvency resolution process by reason of proved debt and default. - HELD THAT: - The Tribunal found that the Financial Creditor established the contractual facility, security documents, and the outstanding liability alleged in the petition. The Corporate Debtor did not deny the existence of outstanding dues; its counter stated part payments and contentions regarding allocation of payments and charges but did not successfully dispute that default had occurred. On the material placed, the Tribunal concluded that the Financial Creditor proved existence of debt and default and that the Section 7 application was maintainable. Consequently, the petition was admitted and the Corporate Insolvency Resolution Process was ordered to commence. [Paras 6, 7]The Section 7 petition was admitted on the ground of proved debt and default and the CIRP was ordered to commence.Moratorium under Section 14 of the Insolvency and Bankruptcy Code - appointment of Interim Resolution Professional - public announcement of corporate insolvency resolution process - What interim measures and appointments should follow admission of the Section 7 petition. - HELD THAT: - On admission, the Tribunal declared the moratorium prohibiting specified suits, proceedings, transfer or disposal of assets, enforcement of security interests and recovery of property occupied by the corporate debtor. The Tribunal directed continuation of supply of essential goods or services during the moratorium where applicable, noted exceptions as may be notified, and directed immediate public announcement of the CIRP. The Tribunal appointed an Interim Resolution Professional, specifying that his fees shall comply with applicable IBBI regulations and directed communication of the order to the parties and the IRP. [Paras 6]Moratorium was declared with specified prohibitions; public announcement directed; Mr. Lingumgunta Venkata Shyam Sundar was appointed as Interim Resolution Professional and the Registry was directed to communicate the order.Final Conclusion: The Tribunal admitted the Section 7 petition on the finding of proved debt and default, appointed an Interim Resolution Professional, declared the moratorium with specified directions and directed immediate public announcement and communication of the order. Issues:Application under Section 7 of the Insolvency and Bankruptcy Code for initiation of Corporate Insolvency Resolution Process due to default in repayment by the Corporate Debtor.Analysis:The Financial Creditor filed an application under Section 7 of the Insolvency and Bankruptcy Code against the Corporate Debtor, citing a default in repaying an amount of Rs. 8,19,21,359.06 along with interest on a working capital term loan. The Applicant had sanctioned a loan repayable on demand with floating interest, and the Corporate Debtor had availed the loan by hypothecating movable properties and providing personal guarantees. The Corporate Debtor defaulted on repayment, leading to the account being classified as a Non-Performing Asset under the SARFAESI Act, 2002. Despite partial payments during proceedings, a significant balance remained outstanding.The Corporate Debtor, in response, claimed to have reduced the liability by selling company assets and accused the Applicant of holding funds in suspense without proper credit. The Corporate Debtor asserted its ability to honor commitments by selling assets and continuing business operations.Upon reviewing the evidence, the Tribunal found the existence of debt and default, with no denial from the Corporate Debtor regarding the outstanding dues. The application was admitted, appointing an Interim Resolution Professional and declaring a moratorium to protect the Corporate Debtor from legal actions and asset disposals. Essential supplies to the Corporate Debtor were to continue uninterrupted during the moratorium period. The order of moratorium was to remain in effect until the completion of the insolvency resolution process or liquidation, with public announcements and communication to relevant parties directed accordingly.In conclusion, the Tribunal admitted the petition, appointed the Interim Resolution Professional, and imposed a moratorium to facilitate the resolution process while safeguarding the Corporate Debtor's assets and operations.