Dismissal of Appeal Affirms IBC Application, CIRP Initiation

The appeal was dismissed, affirming the Adjudicating Authority's order admitting the Financial Creditor's application under Section 7 of the IBC, 2016, and initiating Corporate Insolvency Resolution Process for the Corporate Debtor. The Tribunal held that the pendency of SARFAESI proceedings does not bar IBC proceedings, confirmed the existence of financial debt and default, and upheld the appointment of an Interim Resolution Professional, declaring a moratorium. The Tribunal found no legal flaws in the decision and rejected the appeal, closing related applications.

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Issues Involved:
1. Whether the Financial Creditor can initiate proceedings under the Insolvency and Bankruptcy Code (IBC), 2016, despite having initiated recovery proceedings under the SARFAESI Act, 2002.
2. Whether the application under Section 7 of the IBC, 2016, is maintainable given the alleged possession of secured assets by the Financial Creditor.
3. Whether there exists a financial debt and default on the part of the Corporate Debtor.
4. Whether the Adjudicating Authority correctly admitted the application and initiated Corporate Insolvency Resolution Process (CIRP).

Issue-wise Detailed Analysis:

1. Initiation of Proceedings under IBC despite SARFAESI Proceedings:
The Adjudicating Authority noted that the pendency of actions under the SARFAESI Act does not obstruct the filing of an application under Section 7 of the IBC, 2016, due to the overriding effect of Section 238 of the IBC. The Tribunal referred to previous judgments, including Rakesh Kumar Gupta v. Mahesh Bansal and M/s Anandram Developers Pvt Ltd v. NCLT, which established that IBC proceedings aim to resolve the Corporate Debtor's insolvency rather than merely recover debts. This principle was reaffirmed by the Hon’ble NCLAT in Harkirat S Bedi v. Oriental Bank of Commerce.

2. Maintainability of Section 7 Application and Possession of Secured Assets:
The Appellant argued that the Financial Creditor, having taken possession of the secured asset worth more than the alleged default amount, should not be allowed to proceed under Section 7 of the IBC. However, the Tribunal found that the Financial Creditor had only taken symbolic possession of an incomplete building and had not realized any sale proceeds. The Tribunal emphasized that the IBC’s provisions, particularly Section 238, override the SARFAESI Act, and the Financial Creditor is entitled to initiate CIRP despite the possession of the secured asset.

3. Existence of Financial Debt and Default:
The Tribunal confirmed the existence of a financial debt and default. The Corporate Debtor had availed a housing loan of Rs. 3.78 crore, of which Rs. 2 crore was disbursed, and there was a default of Rs. 2,74,49,023 as of 5.6.2019. The Tribunal referred to the Hon’ble Supreme Court’s decisions in Innoventive Industries Ltd v. ICICI Bank and Mobilox Innovations Pvt Ltd v. Kirusa Software Pvt Ltd, establishing that the existence of a financial debt and default mandates the admission of a Section 7 application.

4. Admission of Application and Initiation of CIRP:
The Tribunal found that the application under Section 7 was complete, and there was no disciplinary proceeding against the proposed Resolution Professional. The Corporate Debtor’s arguments regarding the valuation and possession of the secured asset were insufficient to negate the existence of a financial debt and default. The Tribunal upheld the Adjudicating Authority’s decision to admit the application, appoint an Interim Resolution Professional, and declare a moratorium.

Disposition:
The appeal was dismissed, affirming the Adjudicating Authority’s order dated 13.11.2020 in IBA/779/2019, which admitted the Financial Creditor’s application under Section 7 of the IBC, 2016, and initiated CIRP for the Corporate Debtor. The Tribunal found no legal infirmities in the impugned order and concluded that the appeal lacked merit. Consequently, the stay application and the application seeking exemption from filing a certified copy of the impugned order were also closed.

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