2021 (5) TMI 5 - Tri - Insolvency and Bankruptcy

Admission of CIRP Petition due to Loan Default: Debt Acknowledged, Moratorium Declared

Algae Apparels and Ors. Versus SWE Fashions Private Limited

The Adjudicating Authority admitted the Petition for Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor due to default on a loan ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - HELD THAT:- As the Respondent was willing to settle the claim of the Petitioner, the Company Petition was earlier disposed of by an Order dated 18.01.2021, by directing the Parties to settle the issue amicably between themselves failing liberty was granted to the Petitioner to approach the Adjudicating Authority with appropriate Petition. Accordingly, the Respondent vide its letter dated 25.01.2021 by inter alia stating that it could not pay its outstanding liabilities due to cash crunch. However, the Respondent failed to pay its admitted debt despite its best efforts and thus filed IA No. 92 of 2021 by seeking to initiate CIRP as prayed for. The Debt and Default in question are not disputed by the Respondent - Application allowed - moratorium declared. Issues involved:1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of IBC, 2016 regarding default by the Corporate Debtor.2. Dispute over financial liabilities and inability to repay by the Corporate Debtor.3. Appointment of Insolvency Resolution Professional (IRP) and declaration of moratorium.Issue 1: Initiation of CIRP under Section 7 of IBC, 2016 regarding default by the Corporate Debtor:The case involves a Petition filed by the Financial Creditor seeking to initiate CIRP against the Corporate Debtor due to default on a loan amount. The Financial Creditor had given a loan of Rs. 2,50,00,000/- to the Corporate Debtor, who defaulted on payments amounting to Rs. 2,48,95,572.83/-. The Respondent did not dispute the debt and default, leading to the filing of the Petition for CIRP. The Respondent expressed inability to pay the installments due to financial difficulties, acknowledging the loan agreement and default amount. The Adjudicating Authority admitted the Petition, appointed an IRP, and declared a moratorium on various actions against the Corporate Debtor.Issue 2: Dispute over financial liabilities and inability to repay by the Corporate Debtor:The Respondent, in its reply, admitted the debt owed to the Financial Creditor and acknowledged the financial difficulties faced by the company. The Corporate Debtor highlighted a deficit in assets compared to liabilities, indicating an inability to meet financial commitments. Despite having other significant liabilities, the Respondent did not dispute the default amount claimed by the Petitioner. The Respondent's lack of objection to initiating CIRP further emphasized the financial strain and inability to repay the loan amount.Issue 3: Appointment of Insolvency Resolution Professional (IRP) and declaration of moratorium:The Adjudicating Authority appointed a qualified Insolvency Professional as the IRP to oversee the CIRP process. The IRP was directed to adhere to all provisions of the IBC, 2016, and submit progress reports periodically. A moratorium was declared prohibiting various actions against the Corporate Debtor, including legal proceedings, asset transfers, and recovery actions. The Board of Directors and staff of the Corporate Debtor were instructed to cooperate with the IRP during the resolution process. The case was scheduled for further proceedings to review the IRP's report.This detailed analysis of the judgment covers the key issues related to the initiation of CIRP, financial disputes, and the appointment of an IRP with the declaration of a moratorium to facilitate the resolution process effectively.