2023 (4) TMI 1080 - AT - Insolvency and Bankruptcy

Appeal Dismissed, CIRP Initiated Against Corporate Debtor; Liability Admitted, Settlement Proposal Rejected

The appeal was dismissed, and the Tribunal upheld the initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The ... Maintainability of petition - initiation of CIRP - Default in payment of term loan - Financial Creditors - one time settlement scheme (credit facilities) - stand of the Appellant is that, the Term Loan, is repayable over 90 monthly instalments, beginning from April 2016 and entire Loan, will get Repaid, only in October 2023, hence, on 01.06.2019, the Sum in Default, cannot not be Rs.107.48 Crores, at all - on behalf of 1st Respondent / Bank, it is projected that when there is a clear Admission of Liability, and there was an undertaking, to discharge, the Loan Liability, under One Time Settlement, the Appellant, is not justified, in coming out with vexatious and frivolous issues - existence of debt due and payable or not? HELD THAT:- The very fact that the Corporate Debtor, had admitted its Liability, cementing on the One Time Settlement dated 18.12.2021, the same unequivocally, points out the factum, of Financial Debt, (as per ingredients of Section 5 (8) of the I & B Code, 2016), which is due and liable to be paid by it, to the 1st Respondent / Bank / Financial Creditor, (as per Section 5 (7) of the Code) - The very fact that the Loan Account of the Corporate Debtor / Company, slipped into the category of Non Performing Asset, on 01.06.2019, in accordance with the guidelines of the Reserve Bank of India, the contra plea taken on behalf of the Appellant that the Default, took place before the Covid-19 Pandemic, is turned down, by this Tribunal. Admittedly, the main CP (IB) / 279 (CHE) / 2021, preferred by the 1st Respondent / Bank / Financial Creditor, under Section 7 of the Code on 27.10.2021, before the Adjudicating Authority / Tribunal. The Corporate Debtor’s Loan Account, was declared as NPA, on 01.06.2019. As such, the main CP (IB) / 279 (CHE) / 2021, was filed well within the Limitation Period, by the 1st Respondent / Bank / Financial Creditor / Petitioner, and the point, is so answered. In the present case, it cannot be lost sight of that the One Time Settlement, dated 18.12.2021, amounting to Rs.84.81 Crores was rejected, by the 1st Respondent / Bank on 18.12.2021 itself, whereby and whereunder the Corporate Debtor / Company, was requested to raise the OTS Sum, which is a clear cut pointer, about the Existence of Financial Debt and Default - in the instant case, the Corporate Debtor’s Financial Debt, with the 1st Respondent / Bank / Financial Creditor, is established by means of a Default, committed by the Corporate Debtor. The available material records projected on the side of the 1st Respondent / Bank, supports the case of the Bank that the Corporate Debtor, had committed Default, in respect of the Debt, due and payable. Suffice it, for this Tribunal, to pertinently make a mention that as the Debt, due and payable by the Corporate Debtor, is not interdicted by any Law, and this Tribunal, on being subjectively satisfied as to the Default, committed by the Corporate Debtor, in respect of the Financial Debt, due and payable, then, the view arrived at, by the Adjudicating Authority/Tribunal, in holding that the Financial Debt of the Corporate Debtor, was proved by the 1st Respondent / Bank / Financial Creditor, is free from any Legal Flaws. Appeal dismissed. Issues Involved:1. Admission of Liability and Existence of Financial Debt2. Date of Default and Limitation3. Impact of COVID-19 and Economic Recession4. One Time Settlement (OTS) Proposal and Rejection5. Allegations of Malicious Intent and Abuse of ProcessSummary:1. Admission of Liability and Existence of Financial Debt:The Appellate Tribunal noted that the Corporate Debtor admitted its liability based on the One Time Settlement (OTS) dated 18.12.2021, which proved the existence of a 'Financial Debt' due and payable to the Financial Creditor. The Tribunal emphasized that the default occurred before the COVID-19 pandemic and could not be sheltered under Section 10A of IBC, 2016.2. Date of Default and Limitation:The Tribunal observed that the Corporate Debtor's Loan Account was declared Non-Performing Asset (NPA) on 01.06.2019. Given this date, the application filed under Section 7 of IBC, 2016 on 27.10.2021 was within the limitation period. The Tribunal rejected the Appellant's contention that the date of default could not be 01.06.2019 due to subsequent loan renewals.3. Impact of COVID-19 and Economic Recession:The Appellant argued that the Corporate Debtor was already suffering due to general economic recession before the COVID-19 pandemic, which further impacted its operations. However, the Tribunal held that the default occurred before the pandemic, and the Corporate Debtor could not use the pandemic as a defense.4. One Time Settlement (OTS) Proposal and Rejection:The Tribunal recorded that the OTS proposal dated 18.12.2021 amounting to Rs.84.81 crores was rejected by the Financial Creditor, who requested an increase in the OTS amount. This rejection further proved the existence of a 'Financial Debt' and 'default.' The Tribunal also noted that the Financial Creditor had issued a demand notice and possession notice under the SARFAESI Act, 2002, which went unheeded by the Corporate Debtor.5. Allegations of Malicious Intent and Abuse of Process:The Appellant contended that the application by the Financial Creditor was malicious and an abuse of process. However, the Tribunal found that the Corporate Debtor's financial debt and default were established, and the Financial Creditor's actions were justified. The Tribunal dismissed the appeal, stating that the debt was due and payable, and the adjudicating authority's decision to admit the application was free from legal flaws.Conclusion:The appeal was dismissed, and the Tribunal upheld the initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The connected interim applications were also closed.