Section 7 IBC admission upheld; bank officer's authority validated, default proved without Information Utility certificate, CIRP and moratorium commenced

NCLT (Kolkata) held that the Section 7 IBC application filed by the Financial Creditor, a bank, was maintainable and duly instituted. The Assistant General Manager who signed and verified the application was held to be a validly authorised officer, acting under a power of attorney and letter of authority; the Corporate Debtor's challenge to his competency was rejected. The Tribunal further held that production of a certificate of default from an Information Utility under Section 7(3)(a) is not mandatory where other cogent documentary evidence of debt and default is furnished. The application was admitted, CIRP initiated, and moratorium declared under Sections 13 and 14 IBC.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the statutory requirements for admission of an application under section 7 of the Insolvency and Bankruptcy Code, 2016 were satisfied, in particular existence of financial debt and default.

1.2 Whether the application under section 7 was maintainable when filed and verified by an Assistant General Manager of the financial creditor under a power of attorney and letter of authority.

1.3 Whether production of a certificate of default from an Information Utility is mandatory for maintainability of an application under section 7.

1.4 Whether the financial creditor was barred from initiating CIRP in view of the RBI press release/circular dated 13.06.2017 referring to a monetary threshold of Rs. 5,000 crores.

1.5 Whether an intervenor's application seeking to stay the section 7 proceedings and to offer a resolution/investment proposal prior to admission is maintainable.

1.6 Whether the application for early hearing in view of the main petition having been heard and reserved had any subsisting cause.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Statutory conditions for admission under section 7: existence of financial debt and default

Interpretation and reasoning

2.1 The Tribunal recorded that the corporate debtor did not dispute two crucial facts: (i) existence of a financial debt and its liability to pay, and (ii) commission of default in paying the said debt.

2.2 The material on record showed grant and disbursal of term loans by the financial creditor under a consortium arrangement, repeated revival of the facilities at the request of the corporate debtor, and non-repayment despite demand, indicating inability to repay.

2.3 In view of these admitted and established facts, the Tribunal held that the statutory parameters of "financial debt" and "default" under the Code stood satisfied.

Conclusions

2.4 The requirements for admission of an application under section 7 of the Insolvency and Bankruptcy Code, 2016 were fulfilled, as a financial debt in excess of the statutory minimum existed and default was committed by the corporate debtor.

Issue 2 - Validity of authorisation of the bank officer filing the section 7 application

Legal framework

2.5 Section 7(1) of the Insolvency and Bankruptcy Code, 2016 provides that "a financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government, may file an application" for initiating CIRP when a default has occurred.

Interpretation and reasoning

2.6 The corporate debtor objected that the application was filed on the strength of a power of attorney dated 29.01.2007 (prior to the Code) and a letter of authority dated 15.03.2018, and contended that this was not proper authorisation for filing a section 7 application.

2.7 The Tribunal examined and relied on decisions of the Appellate Tribunal and of this Tribunal where officers of banks were held competent to file insolvency proceedings on the basis of pre-Code powers of attorney and authorisation letters, treating such officers as authorised representatives for filing applications under sections 7, 9 or 10.

2.8 Applying these principles, the Tribunal noted that the applicant is the financial creditor "itself" within section 7(1), that the application was signed and verified by an Assistant General Manager of the bank, and that he was validly authorised by the existing power of attorney and letter of authority.

2.9 The Tribunal further observed that, absent any demonstration by the corporate debtor as to who would be more competent than such a senior officer, and in the face of admitted debt and default, the objection to the competence of the signatory was merely an attempt to avoid CIRP.

Conclusions

2.10 The application under section 7 was held to be filed by a duly authorised person on behalf of the financial creditor and was maintainable on that count; the objection to authorisation was rejected.

Issue 3 - Requirement of certificate of default from an Information Utility under section 7(3)(a)

Legal framework

2.11 Section 7(3)(a) of the Insolvency and Bankruptcy Code, 2016 requires that the financial creditor shall, along with the application, furnish "the record of the default recorded with the information utility or such other record or evidence of default as may be specified".

Interpretation and reasoning

2.12 The corporate debtor contended that in absence of a certificate of default issued by an Information Utility, the application was not maintainable.

2.13 The Tribunal interpreted section 7(3)(a) to mean that submission of a record of default from an Information Utility is not mandatory in every case; the creditor may instead produce "such other records or evidence of default".

2.14 The Tribunal found that the financial creditor had placed voluminous documentary evidence on record proving (i) existence of debt and (ii) default by the corporate debtor in payment.

Conclusions

2.15 Production of an Information Utility default certificate is not a mandatory precondition for the maintainability of a section 7 application, so long as adequate other evidence of debt and default is furnished. The objection based on non-production of an Information Utility certificate was rejected.

Issue 4 - Effect of RBI press release/circular dated 13.06.2017 prescribing a Rs. 5,000 crores threshold

Interpretation and reasoning

2.16 The corporate debtor argued that, in view of the RBI press release dated 13.06.2017, the bank ought not to have initiated CIRP since the outstanding debt was less than Rs. 5,000 crores.

2.17 The Tribunal noted that no substantive submissions were advanced by the corporate debtor's counsel on this point during hearing.

2.18 The Tribunal clarified that even if the bank had ignored any RBI circular while initiating CIRP, any consequences of such non-compliance would fall on the bank, not on the adjudicatory process under the Code.

2.19 The Tribunal emphasised that, for admitting a section 7 application, its concern is limited to ascertaining (i) whether a debt due and payable in excess of Rs. 1 lakh exists, and (ii) whether default has been committed. Those conditions stood proved in the present case.

Conclusions

2.20 The RBI press release/circular dated 13.06.2017 and the reference to a Rs. 5,000 crores threshold did not bar or affect initiation or admission of CIRP under section 7. The objection based on the RBI circular was rejected as irrelevant to the Tribunal's jurisdiction at the admission stage.

Issue 5 - Maintainability of intervenor's application offering pre-admission resolution/investment and seeking stay of proceedings

Interpretation and reasoning

2.21 An intervenor applied for stay of the section 7 proceedings on the ground that it wished to invest in the corporate debtor and was ready to pay the bank loans, contending that admission into CIRP would frustrate its proposal.

2.22 The Tribunal observed that the intervenor's application in substance attempted to offer a resolution of the corporate debtor before admission into CIRP and outside the structured process prescribed in Chapter II of the Code.

2.23 The Tribunal held that such an application is not maintainable at the pre-admission stage because resolution of the corporate debtor's liabilities must follow the scheme and procedure set out in the Code, including post-admission processes overseen by the Interim Resolution Professional and the Committee of Creditors.

2.24 The Tribunal found that the intervenor's application had been filed with the intent to delay the process of admission of the corporate debtor into CIRP.

2.25 In view of this, the Tribunal rejected the intervenor's application with costs and directed the intervenor to pay the specified amount to the Prime Minister's Relief Fund, with a further direction that failure to pay would bar consideration of any other application/plan by the intervenor in the proceeding.

Conclusions

2.26 An intervenor cannot, at the pre-admission stage, seek to stay a section 7 proceeding on the basis of a proposed investment or resolution outside the Chapter II process. Such an application is not maintainable and, when found to be a device to delay admission, is liable to be rejected with costs.

Issue 6 - Status of the application for early hearing after hearing and reservation of the main petition

Interpretation and reasoning

2.27 The financial creditor's application seeking early hearing of the main petition was considered in light of the fact that the main section 7 application had already been heard and reserved for orders.

2.28 In those circumstances, the Tribunal held that no further orders were necessary on the early hearing application since its purpose had been exhausted.

Conclusions

2.29 The application for early hearing was rendered infructuous upon hearing and reservation of the main petition and was disposed of on that basis.

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