2022 (2) TMI 465 - AT - Insolvency and Bankruptcy

Tribunal Upholds Financial Creditor Status & Validity of CIRP Initiation

Amit Arora S/o Sh. Satnam Arora Suspended Director of Aryavir Buildcon Pvt. Ltd. Versus Tourism Finance Corporation of India, Aryavir Buildcon Pvt. Ltd.

The Tribunal found that TFCI qualified as a financial creditor under the IBC, the loan agreement's default conditions were correctly interpreted, the ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - enforcement of security interest over the assets of CD - HELD THAT:- There is no provision in the law that alleged default should be greater than the market value of the assets of the Corporate Debtor for admission of a Section 7 application. It could very well be that the Corporate Debtor is not very well managed, which has led to a default in debt repayment and even if the Corporate Debtor is a going concern, improved management as a result of insolvency resolution could certainly result in better and more robust functioning of the corporate Debtor from the financial and management angles - On perusing the extract of the minutes of the Board of Directors meeting of Tourism Finance Corporation of India Limited held on 17.5.2004 (attached at pg. 225 of Appeal Paperbook Vol. I), it is found that Board of Director has provided authorization in favour of Shri N. Ramachandran, Manager (law) to file suits/claims or initiating legal proceedings against defaulting assisted concerns and/are all guarantors of loans and/or against any such person/persons, body corporate, firms for recovery of dues of the company and/or otherwise inappropriate courts or tribunal. The power of attorney has been issued on the basis of such an authorization by the Board of Directors of the TFCI. Hence there are no strength in this argument of the Appellant that the application under Section 7 is defective on account of improper authorization of the person filing the application. In the light of loan agreement dated 28.3.2018, Respondent No. 1/TFCI is clearly a financial creditor who had provided loan of ₹ 50 crores to the Corporate Debtor/Aryavir Buildcon Private Limited. The repayment of this loan was in default, and consequently the financial creditor sent a notice dated 18.02.2020 to the corporate debtor informing him about the default in repayment as per agreed terms and conditions. As the debt is in default and due for payment to the financial creditor, the Section 7 application has been correctly admitted by the Adjudicating Authority. Appeal dismissed - decided against appellant. Issues Involved:1. Whether TFCI qualifies as a financial creditor under the IBC.2. Whether the loan agreement and default conditions were properly interpreted.3. Whether the Section 7 application was validly filed and maintained.4. Whether the Corporate Insolvency Resolution Process (CIRP) initiation was justified.Issue-wise Detailed Analysis:1. TFCI as a Financial Creditor:The appellant argued that TFCI was only interested in enforcing a security interest over the assets of the corporate debtor (CD) and did not satisfy the test of being a 'financial creditor' under the IBC. The Tribunal noted that TFCI had provided a loan of Rs. 50 crore to the CD, which was disbursed against the consideration for the time value of money. Hence, TFCI qualifies as a financial creditor as per the IBC, and the argument that TFCI was not a financial creditor was dismissed.2. Interpretation of Loan Agreement and Default Conditions:The appellant contended that there was no default under the loan agreement as the loan installments were to be paid until 15.01.2031, and TFCI could not recall the loan earlier. The Tribunal examined the loan agreement dated 28.03.2018, which included clauses for default in payment of principal or interest. The Tribunal found that the default in repayment of interest had occurred, which was brought to the borrower's notice via a notice dated 18.02.2020 under the SARFAESI Act. The Tribunal held that the lender's right to convert the loan into equity shares was an option, not an obligation, and TFCI's decision to file a Section 7 application was permissible under law.3. Validity and Maintenance of Section 7 Application:The appellant claimed that the individual who filed the Section 7 application did not have the necessary authorization. The Tribunal reviewed the minutes of the Board of Directors meeting of TFCI, which authorized the filing of legal proceedings for recovery of dues. Therefore, the Tribunal found that the application was validly filed and maintained.4. Justification for Initiation of CIRP:The appellant argued that the Corporate Debtor was a profit-making hotel and the initiation of CIRP would jeopardize the business. The Tribunal noted that the default amount was Rs. 50,78,74,188, and the market value of the hotel's assets was irrelevant to the admission of a Section 7 application. The Tribunal emphasized that improved management through insolvency resolution could benefit the Corporate Debtor. The Tribunal also dismissed the argument that TFCI was not interested in the growth of the Corporate Debtor, stating that the financial creditor's role was to ensure repayment of the loan.Conclusion:The Tribunal concluded that TFCI was a financial creditor, the loan agreement's default conditions were correctly interpreted, the Section 7 application was validly filed, and the initiation of CIRP was justified. The appeal was dismissed, and the order of the Adjudicating Authority was upheld. There was no order as to costs.