2019 (10) TMI 1602 - Tri - IBC

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 ... Maintainability of petition - initiation of CIRP u/s 7 of IBC - Corporate debtor defaulted in the repayment of all the Credit facilities - existence of debt and default or not - effect of judgement of Hon’ble Supreme Court in Dharani Sugars and Chemicals Ltd. [2019 (4) TMI 230 - SUPREME COURT] - Financial Creditor refused to go ahead with the restructuring process despite the approval of the same due to the 12.02.2018 RBI circular. Effect of judgement of Hon’ble Supreme Court in Dharani Sugars and Chemicals Ltd. [2019 (4) TMI 230 - SUPREME COURT] - HELD THAT:- At the outset, it is pertinent to note that the decision of Hon’ble Supreme Court in Dharani Sugars and Chemicals Ltd. [2019 (4) TMI 230 - SUPREME COURT] wherein the circular issued by Reserve Bank of India on 12.02.2018 regarding the revised framework for the resolution of stressed assets was set aside, and all actions against the Corporate Debtor under the I&B Code initiated only because of the operation of the impugned circular were declared non-est - It may be noted that the Hon’ble Supreme Court has held that all the cases in which debtor have been proceeded against by financial creditors under Section 7 of the I&B Code, only because of the operation of the impugned circular will be proceedings which, being faulted at the very inception, are declared to be non-est. But no bar was imposed upon the financial creditors to file a section 7 application against the defaulting financial debtor. The reason for not executing the debt restructuring scheme as well as filing of an application under section 7 of I&B Code is the debt and default committed by the Corporate Debtor and not the RBI Circular dated 12.02.2018. Therefore, the present application filed under section 7 of I&B Code is nowhere affected by the judgment of the Hon’ble Supreme Court in Dharani Sugars and Chemicals Ltd. as it is not filed under said RBI Circular dated 12.02.2018. Existence of debt due and payable - HELD THAT:- On perusal of the documents submitted by the applicant, it is clear that on 17.01.2019, debt amounting to ₹194,26,53,633/- is due and payable by the Corporate Debtor to the Applicant. The debt is established by the deed sanctioning the renewed limits executed on 28.09.2015 - The Applicant Bank sent a loan recall notice, dated 10.09.2018, to the Corporate Debtor recalling an outstanding amount of ₹160,68,00,839.10 as on 31.08.2018. The CIBIL Report of Corporate Debtor dated 07.01.2019 also reflects an amount of ₹94,46,61,982/- against working capital and term loan facilities being classified as Doubtful. Further, debt and default are admitted by the Corporate Debtor in its affidavit in reply. Therefore, the debt and default of more than Rupees One Lac are established - The application filed by the financial creditor is on proper Form 1, as prescribed under the Adjudicating Authority Rules and application is complete. Conclusion - HELD THAT:- The Application under sub-section (2) of Section 7 of I&B Code, 2016 filed by the financial creditor for initiation of CIRP in prescribed Form 1, as per the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 is complete. The existing financial debt of more than Rupees One Lakh against the corporate debtor and its default is also proved. Accordingly, the petition filed under section 7 of the Insolvency and Bankruptcy Code for initiation of corporate insolvency resolution process against the corporate debtor deserves to be admitted. Petition admitted. 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.