2021 (11) TMI 466 - Tri - Insolvency and Bankruptcy

NCLT Mumbai Bench Admits Petition for Corporate Insolvency Resolution

The NCLT Mumbai Bench admitted the petition under Section 7 of the IBC, initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate ... 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:- Hon'ble Supreme Court in SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. [2019 (1) TMI 1508 - SUPREME COURT] upholding the Constitutional validity of IBC, the position is very clear that unlike Section 9, there is no scope of raising a 'dispute' as far as Section 7 petition is concerned. As soon as a 'debt' and 'default' is proved, the adjudicating authority is bound to admit the petition. In the present matter from Bank statement and Financial Statement it is clear that there is debt and resignation letters were handed over to existing directors of the Corporate Debtor with understanding that the Corporate Debtor would clear the loan amount given by the Financial Creditors on the date of acknowledging the resignation letters of the Financial Creditors form these submissions debt and default stand established. The application made by the Financial Creditor is complete in all respects as required by law. It clearly shows that the Corporate Debtor is in default of a debt due and payable, and the default is in excess of minimum amount stipulated under section 4(1) of the IBC. Therefore, the debt and default stands established and there is no reason to deny the admission of the Petition. In view of this, this Adjudicating Authority admits this Petition and orders initiation of CIRP against the Corporate Debtor. Petition admitted - moratorium declared. Issues Involved:1. Jurisdiction and Admissibility2. Existence of Financial Debt3. Default by the Corporate Debtor4. Submissions of the Corporate Debtor5. Admission of the Petition and Initiation of CIRPDetailed Analysis:1. Jurisdiction and Admissibility:The petition was filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) by the Financial Creditors to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Corporate Debtor is a private company incorporated under the Companies Act, 1956, with its registered office in Pune, Maharashtra, thus falling under the jurisdiction of the Mumbai Bench of the National Company Law Tribunal (NCLT).2. Existence of Financial Debt:The Financial Creditors, former directors of the Corporate Debtor, had extended loans amounting to Rs. 3,14,00,000/-, out of which Rs. 54,00,000/- was repaid, leaving a balance of Rs. 2,60,00,000/-. The loans were reflected in the Corporate Debtor’s balance sheet under 'Current Liabilities - Short Term Borrowings,' and acknowledged by the Corporate Debtor’s directors. The Financial Creditors provided evidence of the loans through bank statements and other financial documents.3. Default by the Corporate Debtor:The default occurred on 07.04.2017, when the Financial Creditors resigned from the Corporate Debtor’s directorship, with an understanding that the Corporate Debtor would clear the outstanding loan amount. The term 'default' as defined in Section 3(12) of the IBC was met, as the Corporate Debtor failed to repay the debt when it became due. The balance sheet entries and financial statements confirmed the existence of the debt, fulfilling the criteria for default under the IBC.4. Submissions of the Corporate Debtor:The Corporate Debtor contested the petition, arguing that no loan was provided by the Financial Creditors and that the petition was a pressure tactic. They claimed that the Financial Creditors had previously filed Section 9 petitions, initiated arbitration proceedings, and that there were pending civil suits and criminal complaints against the Financial Creditors. The Corporate Debtor also argued that the entries in the financial statements were unsupported and fraudulent, and that the Financial Creditors failed to provide sufficient documentary proof. However, these arguments were not substantiated with credible evidence.5. Admission of the Petition and Initiation of CIRP:Upon reviewing the submissions and evidence, the NCLT concluded that the debt and default were established. The petition met all statutory requirements under the IBC. The tribunal referred to the Supreme Court’s ruling in Innoventive Industries Ltd. v. ICICI Bank Ltd., which emphasized that once a default is established, the insolvency resolution process must commence. Consequently, the NCLT admitted the petition and ordered the initiation of CIRP against the Corporate Debtor. The tribunal appointed an Interim Resolution Professional (IRP) and imposed a moratorium as per Section 14 of the IBC, prohibiting suits, asset transfers, and other specified actions against the Corporate Debtor during the CIRP period.Conclusion:The NCLT Mumbai Bench admitted the petition under Section 7 of the IBC, initiating CIRP against the Corporate Debtor, and appointed an IRP to manage the process. The tribunal's decision was based on the establishment of financial debt and default, despite the Corporate Debtor's objections.