2021 (12) TMI 10 - AT - Insolvency and Bankruptcy

Tribunal upholds jurisdiction on loan moratorium under Insolvency & Bankruptcy Code

The Tribunal upheld the Adjudicating Authority's jurisdiction to admit the application and declare a moratorium on a loan classified as a Non-Performing ... 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:- There is no denial of the fact that because of the default committed by the ‘Corporate Debtor’ in regard to the repayment of Credit Facility in violation of the sanctioned terms, loan documents, the Respondent No. 1/Bank had classified the accounts of the ‘Corporate Debtor’ on NPA on 30.05.2016. It cannot be ignored that the Respondent No. 1/Bank, after issuing ‘Demand Notice’ and also issued Notice under Section 13(2) of the SARFAESI Act to the ‘Corporate Debtor’ and ‘Guarantors’ requiring them to repay the dues before 22.09.2016. A mere running of the eye of the OTS proposal dated 06.12.2018, 12.12.2018, 11.01.2019 addressed to the Chief Manager of the Respondent No. 1/Bank, Trivandrum International Health Services Ltd unerringly pointed out that the ‘Corporate Debtor’ had admitted its liability and had prayed for the OTS of Credit Facility and mooted an abnormal offer of ₹ 8.15 Crores on 11.01.2019 towards the ‘Full and Final Settlement’ of all the ‘outstanding liabilities’ with the ‘Bank’, which was approved by the Bank as per its Sanction Letter dated 22.01.2019 which was accepted by the ‘Corporate Debtor’ on 24.01.2019. But the fact of the matter is that the ‘Corporate Debtor’ had prayed for time till 20.02.2019 for payment of 5% advance sum under the OTS scheme and indeed, the ‘Corporate Debtor’ in accordance with the OTS was to repay the liabilities of the Respondent No. 1/Bank by 30.06.2019. Therefore, in the instant case, the default is on 30.06.2019. It is well settled that it is not for the ‘Adjudicating Authority’ to arrive at the quantum of the outstanding amount due to be paid by the ‘Corporate Debtor’ to the ‘Financial Creditor’. It is to be remembered that IBC, 2016 is not a ‘Debt Enforcement Procedure’ - the ‘proceedings’ under IBC are summary in nature and not an adversary one. Suffice it for this ‘Tribunal’ to relevantly point out that the ‘proceedings’ under IBC are not like that of a regular ‘Civil Suit’. As such, the aspects of the exorbitant interest, penal interest, purportedly imposed on the ‘Corporate Debtor’ by the Respondent No. 1/Bank are not gone into by this ‘Tribunal’ in ‘Appeal’. This ‘Tribunal’ taking note of the facts and circumstances of the present case, in accumulative manner, comes to a resultant conclusion that the Debt of the ‘Corporate Debtor’ and ‘Default’ committed by it were proved and that the ‘Adjudicating Authority’ on being satisfied with the disbursement of various loans to the ‘Corporate Debtor’ by the Bank came to the right conclusion of admitting the ‘Application’ - Application admitted - moratorium declared. Issues Involved:1. Jurisdiction of the Adjudicating Authority.2. Classification of loan as Non-Performing Asset (NPA).3. Acknowledgment of debt and limitation period.4. Imposition of exorbitant interest and penal interest.5. Maintainability of the Section 7 Application under the Insolvency and Bankruptcy Code (IBC).Detailed Analysis:1. Jurisdiction of the Adjudicating Authority:The Corporate Debtor contended that the Adjudicating Authority has jurisdiction only where loans were availed by the company and that one of the properties involved in the transaction is a Trust property. The Corporate Debtor argued that Trust property cannot be proceeded with by the Adjudicating Authority in Insolvency Resolution Process. However, the Tribunal found that the Adjudicating Authority had the jurisdiction to admit the application and declare a moratorium.2. Classification of Loan as Non-Performing Asset (NPA):The loan amount of the Corporate Debtor was classified as NPA on 30.05.2016 by the Financial Creditor. The Corporate Debtor argued that the classification as NPA and subsequent actions were prejudicial. The Tribunal noted that the default by the Corporate Debtor in repaying the credit facility led to the classification of the loan as NPA. The Tribunal found that the Financial Creditor had followed due process, including issuing a Demand Notice and a Notice under Section 13(2) of the SARFAESI Act.3. Acknowledgment of Debt and Limitation Period:The Corporate Debtor argued that the application was barred by limitation as per Article 137 of the Limitation Act, 1963, since the loan was classified as NPA on 30.05.2016, which is beyond three years from the date of filing the application on 10.12.2019. However, the Tribunal found that the acknowledgment of debt by the Corporate Debtor through various communications, including the One Time Settlement (OTS) proposals dated 06.12.2018, 12.12.2018, and 11.01.2019, extended the limitation period. The Tribunal cited relevant case law to support the contention that acknowledgment of debt before the expiration of the limitation period extends the period of limitation.4. Imposition of Exorbitant Interest and Penal Interest:The Corporate Debtor argued that the Financial Creditor had imposed exorbitant interest and penal interest, which was against RBI rules and should not be considered as default. The Tribunal noted that it is not for the Adjudicating Authority to determine the quantum of the outstanding amount or the interest rates imposed. The proceedings under IBC are summary in nature and not adversarial, and the Tribunal did not delve into the aspects of exorbitant interest and penal interest.5. Maintainability of the Section 7 Application under IBC:The Corporate Debtor contended that the Section 7 Application was not maintainable due to the imposition of exorbitant interest and penal interest. The Tribunal found that the debt and default were established, and the Financial Creditor had followed due process in filing the application. The Tribunal upheld the Adjudicating Authority's decision to admit the application and declare a moratorium, finding no patent illegalities in the process.Result:The Tribunal dismissed the appeal, finding it devoid of merits. The connected application seeking a stay of the Impugned Order dated 07.02.2020 was also closed.