2023 (9) TMI 140 - AT - Insolvency and Bankruptcy

Tribunal affirms Corporate Debtor's CIRP admission, rejects creditor status appeal, and upholds CoC's liquidation decision.

SAJ Housing Pvt. Ltd. Versus Ms. Priyanka Chouhan, Liquidator, M/s Drishti Industries Ltd., Committee of Creditors of Drishti India Limited

The Tribunal upheld the admission of the Corporate Debtor into Corporate Insolvency Resolution Process (CIRP) based on default, deeming the amount as ... Admission of the Corporate Debtor into CIRP by the Adjudicating Authority - claim made by SHPL that they should be treated as Financial Creditor and the CIRP be started afresh with a newly constituted CoC is legally tenable? - affirmation of proposal of the CoC to liquidate the Corporate Debtor. HELD THAT:- Respondent No.2 was not a signatory to the DA is therefore undisputed. There is no other agreement between Respondent No. 2 and SHPL either prior to or subsequent to the payment of Rs. 1.90 crore which has been placed on record. We notice that Respondent No.2 in Part IV had attached copies of their passbook of Canara Bank which clearly shows that there was a direct disbursal to the Corporate Debtor and there is no denial on that count by the Corporate Debtor. It is trite law that under the IBC once a debt which becomes due or payable, in law and in fact, and if there is incidence of non-payment of the said debt in full or even part thereof, CIRP may be triggered by the financial creditor as long as the amount in default is above the threshold limit. It is also well accepted that debt means a liability in respect of a claim and claim means a right to payment even if it is disputed. There is sufficient material on record to prove that there was disbursal of funds by Respondent No.2 to the Corporate Debtor in their account. Admittedly, the amount so disbursed is Rs.1.90 crore. The bank transaction details were made a part of Part IV before the Adjudicating Authority - the submission advanced that Corporate Debtor was not required to repay Respondent No.2 does not inspire our confidence as it is a mere assertion not supported by evidence. Clearly the CoC had decided in the 3rd CoC meeting after considering all facts and circumstances that it was not feasible to keep the Corporate Debtor as a going concern and that there was no possibility for resolution plans in the present matter and hence with 100% voting had recommended that an application for liquidation of the corporate debtor be filed before the adjudicating authority - Once the CoC with 100% vote share had found that the company is not a running company and cannot be revived as there is no employee or any business activity, the decision of the CoC becomes a business decision of the majority of the CoC. Under such circumstances, the Resolution Professional had rightly placed the liquidation proposal before the Adjudicating Authority. Whether there is force in the contention of SHPL that they should have been treated as Financial Creditor and that not having taken place, CIRP should be started afresh with a newly constituted CoC? - HELD THAT:- The publication in the newspapers not having been denied by SHPL is ample proof that wide publicity was caused to invite claims. SHPL was also sent a written email by the Resolution Professional to submit claims which has also not been controverted. Nothing prevented them from filing their claims but instead they chose to adopt a wait and watch strategy - having failed to file their claim in the appropriate format and in a timely manner due to their own negligence, they should be ready to suffer the consequences of late and improper filing. SHPL cannot be accorded the status of Financial Creditor and therefore the prayer of SHPL to reconstitute the CoC does not merit consideration. Further, since the Adjudicating Authority has already approved the liquidation and allowed SHPL to file its claim, we are satisfied that the interests of SHPL have not been put to prejudice. The second impugned order of 04.08.2022 approving the liquidation of the Corporate Debtor has subsumed the first impugned order dated 01.11.2021 which had admitted the Corporate Debtor into CIRP - there are no reasons which warrant any interference in the second impugned order of the Adjudicating Authority - appeal dismissed. Issues Involved:1. Sustainability of the Admission of the Corporate Debtor into CIRP.2. Legality of Treating SHPL as Financial Creditor and Reconstituting the CoC.3. Error in Affirming the Proposal to Liquidate the Corporate Debtor.Summary:Issue I: Sustainability of the Admission of the Corporate Debtor into CIRPThe Adjudicating Authority admitted the Corporate Debtor into CIRP based on the default of Rs. 1.90 crores, reflecting in the balance sheet as 'long-term borrowing.' The Corporate Debtor argued that the amount was a consideration under a Development Agreement (DA) and not a loan. However, the Tribunal noted that the DA was executed after the payment and did not involve Respondent No.2. The Tribunal found sufficient material to prove the debt and default, satisfying the prerequisites of Section 7 of IBC. The Tribunal held that the transaction entailed time value of money, thus qualifying as financial debt under Section 5(8) of IBC. Therefore, the admission into CIRP was upheld.Issue II: Legality of Treating SHPL as Financial Creditor and Reconstituting the CoCSHPL contended that their payment should be treated as financial debt similar to Respondent No.2. However, the Tribunal found that SHPL's payment was part of a reciprocal development agreement with the Corporate Debtor, making SHPL an Operational Creditor. The Tribunal noted that SHPL failed to file their claim within the prescribed time and initially filed as an Operational Creditor. The Resolution Professional acted within the regulations, and the Tribunal found no material irregularity. Therefore, SHPL's request to reconstitute the CoC was denied.Issue III: Error in Affirming the Proposal to Liquidate the Corporate DebtorThe CoC, with 100% voting, recommended liquidation, considering the Corporate Debtor had no operations or employees. The Tribunal emphasized the commercial wisdom of the CoC, which cannot be questioned by the Adjudicating Authority. The Tribunal found that the Resolution Professional followed due process, and the CoC's decision was a business decision. The Tribunal upheld the liquidation order, noting that SHPL could file their claim before the liquidator.Conclusion:The Tribunal dismissed the appeals, upholding both the admission of the Corporate Debtor into CIRP and the subsequent liquidation order. The liquidator was directed to continue with the liquidation process, allowing SHPL to submit their claim.