Tribunal dismisses CIRP petition under IBC Section 7, citing enforcement of security.

The tribunal dismissed the petition for initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, finding that the financial creditor had to enforce security and sell mortgaged assets to recover dues, as per the debenture trust deed terms. The tribunal held that no default under the IBC occurred as the creditor had agreed to specific recourses in the registered deed. Therefore, the petition was dismissed, and the registry was instructed to inform both parties promptly.

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Issues Involved:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Validity and enforceability of the Debenture Trust Deed-cum-Indenture of Mortgage.
3. Determination of default under the provisions of the IBC.
4. Rights and obligations of the financial creditor and corporate debtor under the Debenture Trust Deed.
5. Enforcement of security and realization of secured assets.

Issue-wise Detailed Analysis:

1. Initiation of CIRP under Section 7 of the IBC:

The petitioner, Beacon Trusteeship Ltd., filed a company petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against Neptune Ventures and Developers P. Ltd. The financial creditor claimed a sum of Rs. 32,08,76,450 as on December 31, 2019, which was said to be the debt and default. The petition was based on the execution of a debenture trust deed-cum-indenture of mortgage between the petitioner and the corporate debtor.

2. Validity and Enforceability of the Debenture Trust Deed-cum-Indenture of Mortgage:

The debenture trust deed was registered on January 10, 2018, and a supplementary debenture trust deed was executed on September 20, 2019, to amend the terms and conditions of the debenture interest rate. The corporate debtor defaulted on the payment terms of the debenture and supplementary debenture trust deed, leading to the financial creditor's claim. The debenture trust deed and supplementary debenture trust deed were registered with the Ministry of Corporate Affairs.

3. Determination of Default under the Provisions of the IBC:

The corporate debtor denied the allegations made by the petitioner, arguing that the value of the security provided exceeded the claim of the debenture holders. The corporate debtor contended that the default alleged by the financial creditor did not constitute a default under the provisions of the IBC. The debenture trust deed-cum-indenture of mortgage provided specific remedies and recourses for the financial creditor in case of default, including the enforcement of security.

4. Rights and Obligations of the Financial Creditor and Corporate Debtor under the Debenture Trust Deed:

The debenture trust deed-cum-indenture of mortgage outlined the events of default and the remedies available to the financial creditor. Clause 17.1 defined the events of default, and Clause 17.2.1 specified that the security created under the agreement would become enforceable upon the occurrence of an event of default. The financial creditor had various options to enforce the security, including selling the mortgaged properties, appointing a receiver, and taking possession of the mortgaged properties.

5. Enforcement of Security and Realization of Secured Assets:

The debenture trust deed-cum-indenture of mortgage provided that the financial creditor had recourse to enforce the security and sell the mortgaged assets to recover the money due. Clause 19.1 stated that the security created in favor of the debenture trustee would become enforceable upon the occurrence of an event of default. The corporate debtor argued that the financial creditor could not claim default under the IBC without first enforcing the security and realizing the secured assets.

Findings:

The tribunal concluded that the petitioner had absolute rights in the mortgaged property and could not initiate any action under Section 7 of the IBC upon non-payment of dues under the debenture trust deed. The petitioner was required to enforce the security and sell the mortgaged assets to recover the money due. The tribunal found that there was no default as contemplated under the provisions of the IBC, as the financial creditor had agreed to recourse as envisaged under the registered debenture trust deed-cum-mortgage. Consequently, the petition was dismissed.

Order:

The registry was directed to communicate the order to both parties immediately.

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