Financial creditor's Section 7 petition admitted for CIRP initiation against corporate debtor with Rs.194 crore debt default

NCLT Mumbai admitted a petition under Section 7 of IBC for initiating CIRP against a corporate debtor. The financial creditor established debt of Rs.194,26,53,633/- due and payable as of 17.01.2019, with default admitted by the corporate debtor. The tribunal held that the Dharani Sugars SC judgment setting aside RBI's 12.02.2018 circular did not affect this petition, as it was filed due to actual debt and default, not merely because of the circular. The application in prescribed Form 1 was complete and satisfied all requirements for CIRP initiation.

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Issues Involved:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Impact of the Supreme Court judgment in Dharani Sugars and Chemicals Ltd. on the current proceedings.
3. Validity and enforceability of the Corporate Debt Restructuring (CDR) proposal and Master Restructuring Agreement (MRA).
4. Establishment of debt and default by the Corporate Debtor.
5. Appointment of the Interim Resolution Professional (IRP).

Issue-wise Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP):
The application was filed by UCO Bank, a financial creditor, against Gangakhed Sugar & Energy Limited, the corporate debtor, under Section 7 of the Insolvency & Bankruptcy Code, 2016, to initiate CIRP. The applicant claimed an outstanding amount of Rs. 194,26,53,633/- as of 17.01.2019, which includes interest. The corporate debtor defaulted on the repayment of credit facilities, leading to the classification of its account as a Non-Performing Asset (NPA) on 31.01.2017. The bank issued a loan recall notice on 10.09.2018, demanding an outstanding amount of Rs. 160,68,00,839.10 as of 31.08.2018.

2. Impact of the Supreme Court Judgment in Dharani Sugars and Chemicals Ltd.:
The corporate debtor relied on the Supreme Court judgment in Dharani Sugars, which set aside the RBI circular dated 12.02.2018 regarding the resolution of stressed assets. The debtor argued that actions taken under the circular, including applications under the I&B Code, were rendered non-est. However, the tribunal clarified that the present application was not filed due to the said RBI circular but was based on defaults committed by the corporate debtor. Therefore, the Supreme Court judgment did not affect the current proceedings.

3. Validity and Enforceability of the Corporate Debt Restructuring (CDR) Proposal and Master Restructuring Agreement (MRA):
The corporate debtor contended that a CDR proposal was approved by a Joint Lender Forum and an MRA was executed on 11.05.2017. The debtor argued that the CDR scheme could not be executed due to the RBI circular, and after its quashing, the financial creditor was obligated to comply with the sanctioned schemes. However, the tribunal noted that the restructuring proposal was put on hold due to reported fraud in loans sanctioned to farmers against the corporate guarantee of the debtor. The consortium members expressed their inability to extend additional funds, leading to the decision to refer the matter to NCLT.

4. Establishment of Debt and Default by the Corporate Debtor:
The tribunal examined the documents submitted by the applicant, including the deed sanctioning renewed limits, balance confirmation letter, audited balance sheets, and account statements. The debt amounting to Rs. 194,26,53,633/- was established as due and payable by the corporate debtor. The debtor acknowledged the outstanding balance and security interest created in favor of the applicant. The CIBIL report also classified the debtor's accounts as doubtful. The tribunal found that the debt and default of more than Rs. 1 lakh were established, satisfying the criteria for initiating CIRP.

5. Appointment of the Interim Resolution Professional (IRP):
The applicant proposed Mr. Ankur Kumar, a registered Insolvency Resolution Professional, as the IRP to carry out the functions under the I&B Code. The proposed IRP declared that no disciplinary proceedings were pending against him. The tribunal found the application complete and in the prescribed form, and thus admitted the petition for initiation of CIRP against the corporate debtor.

Order:

The tribunal admitted the petition filed under Section 7 of the I&B Code, initiating the CIRP against the corporate debtor. A moratorium was declared under Section 14 of the I&B Code, prohibiting various actions against the corporate debtor, including the institution of suits, transferring assets, and recovery of property. The tribunal appointed Mr. Ankur Kumar as the Interim Resolution Professional and directed the immediate communication of the order to the relevant parties.

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