2023 (6) TMI 153 - AT - Insolvency and Bankruptcy

Appeal dismissed, Section 7 application upheld with debt & default findings. Resolution Plan rejection upheld.

The appeal was dismissed, upholding the Adjudicating Authority's decision to admit the Section 7 Application. The Tribunal found there was a debt and ... Initiation of CIRP - Quantum of Debt - Period of Limitation - NCLT admitted the application - Directors of the Financial Creditors who submitted the application and Corporte directors are same - Interest on debt - jurisdiction to determine the amount in Default - HELD THAT:- It is not in dispute that the 1st Respondent’s Society was formed by the same set of Directors, who are in control of the Corporate Debtor. It is seen from the ‘Investigation Report’ that the Society was used as a channel to pool in funds from large number of small investors to fund the financial requirement of the Corporate Debtor. The Corporate Debtor is in the business of Real Estate and Construction and has secured the funds from the general Public through the 1st Respondent / Financial Creditor. The Balance Sheet on 31/03/2011 of the Corporate Debtor Company shows that a major chunk of the deposited amount of the 1st Respondent has been taken by the Corporate Debtor by way of Cash Credit Facility. As per the Books of Account, the loan received by the Corporate Debtor at that point of time was Rs.11,03,82,823/-. The limit of Cash Credit Facility was decided as Rs. 14 Crores without following the regulations. The Investigation Report establishes that the disposing of the said loan itself is a violation of ‘Karnataka Souharda Sahakari Act, 1997’ and the byelaws of the 1st Respondent’s Society. The Special Officer had categorically stated that the reversal of interest waiver, which the Appellant is relying upon to establish their case that the ‘Quantum of Debt’ is incorrect, is practically inaccurate. Moreover, once the ‘threshold on debt’ is crossed, the Adjudicating Authority has to admit or reject the Application based on the Provisions of the Code. Time Limitation - HELD THAT:- It was decided that once the ‘threshold’ is crossed, it is not for the Adjudicating Authority to decide the exact ‘Quantum of Debt’, but what has to be examined is whether there is a ‘Debt’ and ‘Default’. The grounds raised by the Company Secretary appearing on behalf of the Appellant that the Company was ‘not in Default’, is not supported by any documentary evidence. The Balance Sheet for the year ending 31/03/2018 clearly includes the amount due and payable. The total Debt as on 31/03/2020 stood at Rs. 12,09,45,192/- which includes the rebate amount drawn by the Corporate Debtor and the Corporate Debtor was not in any position to pay. The Liquidator had since proceeded with the filing of the Application under Section 7 of the Code. The Argument of the Appellant that the Application is barred by Limitation, is unsustainable, keeping in view that the material on record, evidences the amount payable by the Corporate Debtor and it is also recorded in the Balance Sheet. The loan demand was made on 04/12/2017 and the ‘Notice’ was served on 01/03/2018 and the Section 7 Application was filed on 16/06/2020. Therefore, viewed from any angle, the Application cannot be said to be barred by Limitation. In the instant case, the record establishes that there is a ‘debt’ and a ‘default’ and the Application is complete and the Adjudicating Authority has rightly admitted the Application under Section 7 of the Code. The argument of the Appellant that the Adjudicating Authority has no jurisdiction to determine the amount in ‘Default’ unless the dispute is decided by the Court of Deputy Registrar of Co-operative Society, cannot be sustained as the RP was in receipt of the Order dated 11/10/2021 whereby the Deputy Registrar of Co-operative Societies, Bangalore had allowed the JRD/KSCFL/4638/2018-19 and had held that the Corporate Debtor is liable to pay a sum of Rs. 5,13,71,863/- towards principal and Rs. 1,67,86,388 towards interest. Therefore, the case of the Appellant that the Corporate Debtor was ‘not in default’, the ‘debt amount was not crystallized’, and that the Deputy Registrar of Co-operative Societies should first decide the disputed amount, fails. It is pertinent to mention that the Adjudicating Authority has rejected the Resolution plan, though approved by the CoC, on the ground that it does not satisfy the provisions of Section 29A(G) read with Section 240 A of the Code - Appeal dismissed. Issues Involved:1. Justification of admitting the Section 7 Application.2. Determination of default and debt amount.3. Jurisdiction of the Adjudicating Authority.4. Limitation period for filing the application.5. Rejection of the Resolution Plan.Summary:1. Justification of admitting the Section 7 Application:The appeal was filed by the Promoter/Shareholder of the Corporate Debtor under Section 61 of the Insolvency and Bankruptcy Code, 2016, against the order admitting the Section 7 Application filed by the Financial Creditor. The Financial Creditor, a Co-operative Society, had provided Secured Cash Credit Facility to the Corporate Debtor, which is engaged in Real Estate and Construction. The Corporate Debtor failed to repay the loan, leading to the initiation of the Company Insolvency Resolution Process (CIRP).2. Determination of default and debt amount:The Corporate Debtor argued that there was no default and disputed the amounts claimed by the Financial Creditor. The Financial Creditor issued multiple notices demanding repayment, which the Corporate Debtor did not honor. The Adjudicating Authority found that the Corporate Debtor was commercially insolvent and unable to pay its debts, as evidenced by the Balance Sheet for the year ending 31/03/2018.3. Jurisdiction of the Adjudicating Authority:The Corporate Debtor contended that the Adjudicating Authority lacked jurisdiction to determine the amount in default, arguing that this should be decided by the Registrar of Co-operative Societies. However, the Adjudicating Authority held that once the threshold debt amount is crossed, it is not required to determine the exact quantum of debt but only to ascertain the existence of debt and default.4. Limitation period for filing the application:The Corporate Debtor argued that the application was time-barred. However, the Adjudicating Authority found that the application was within the limitation period, as the demand for repayment was made on 04/12/2017, the notice was served on 01/03/2018, and the Section 7 Application was filed on 16/06/2020.5. Rejection of the Resolution Plan:The Resolution Plan submitted by the Appellant and the Suspended Directors was rejected by the Adjudicating Authority, as it did not satisfy the provisions of Section 29A(g) read with Section 240A of the Code. The Appellant's argument that the Adjudicating Authority should not have admitted the Section 7 Application was dismissed.Conclusion:The appeal was dismissed as devoid of merits, and the Adjudicating Authority's decision to admit the Section 7 Application was upheld. The Tribunal found that there was a debt and default, and the application was complete and within the limitation period. The rejection of the Resolution Plan was also upheld.