2022 (5) TMI 1207 - Tri - Insolvency and Bankruptcy

Tribunal rejects insolvency application, citing misuse of moratorium and ulterior motive

The Tribunal declined to admit the applicant's application for initiating the Insolvency Resolution Process under the Insolvency and Bankruptcy Code. The ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Personal Guarantors to Corporate Debtors - existence of debt and dispute or not - Section 94 read with section 122 of the Insolvency and Bankruptcy Code, 2016 under rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors), Rules, 2019 - HELD THAT:- In the present matter the respondents has already demonstrated that the recovery proceedings are already under process against the corporate debtor, applicant and other guarantors, even notice to arrest has already been issued against the applicant. In these circumstances, the applicant has filed present application with the ulterior motive to stall the recovery proceedings, which will result in loss of public money involved. In view of the facts of the present case it is apparent that the present application is filed only to misuse the protection of interim moratorium u/s. 96 of the Code. Application dismissed. Issues:Initiation of Insolvency Resolution Process against the Applicant under the Insolvency and Bankruptcy Code, 2016.Analysis:The applicant filed an application under Section 94 read with Section 122 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of the Insolvency Resolution Process against himself. The applicant, a personal guarantor to a corporate debtor, cited financial difficulties as the reason for the application. The applicant highlighted the creation of personal guarantee agreements and the subsequent assignment of the loan account to a respondent. The applicant provided details of assets, debts, and defaults to support the application.Analysis:The respondents, in their replies, objected to the application, alleging misuse of the law by the applicant. They argued that a recovery certificate had already been issued by the Debt Recovery Tribunal (DRT) in favor of one respondent, and proceedings were ongoing for recovery by another respondent. The respondents contended that granting an interim moratorium would hinder the recovery process. Additionally, one respondent mentioned a previous rejection of an application under Section 7 of the Code against the corporate debtor, questioning the maintainability of the present application.Analysis:The applicant, in response to the objections, argued that the issuance of a recovery certificate by the DRT constituted a fresh cause of action. The applicant disputed the objection of a time-barred debt and emphasized the invocation of the guarantee and the outstanding debt as grounds for the application's maintainability. The applicant defended the application, stating that utilizing legal remedies did not indicate malicious intent.Analysis:The Tribunal considered the arguments presented by all parties and referenced a previous NCLAT judgment regarding collusive filings under the Insolvency and Bankruptcy Code. The Tribunal noted ongoing recovery proceedings against the corporate debtor, applicant, and other guarantors, including a notice to arrest the applicant. The Tribunal concluded that the application was an attempt to misuse the protection of interim moratorium under the Code and rejected the applicant's application, citing an ulterior motive to delay recovery proceedings and potential loss of public funds.Conclusion:The Tribunal, after evaluating the facts and arguments presented, declined to admit the applicant's application for the initiation of the Insolvency Resolution Process. The Tribunal found that the application was filed with the intention to misuse the protection of interim moratorium and to stall ongoing recovery proceedings, ultimately leading to the rejection of the application.