https://www.taxtmi.com/css/info/rss_sitemap/rss_feed.css?v=1746094055 https://www.taxtmi.com Business/Tax/Law/GST/India/Taxation/Policies/Legal/Corporate Tax/Personal Tax/Vat Law/Legal Information/Tax Information/Legal Services/Tax Services Tax Management India. Com / MS Knowledge Processing Pvt. Ltd. All rights reserved. One stop solution for Direct Taxes and Indirect Taxes https://www.taxtmi.com/caselaws?id=769156 https://www.taxtmi.com/caselaws?id=769156 Maintainability of Section 7 application filed by the Appellant - seeking to initiate Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor - existence of debt which was due and payable by the Corporate Debtor qua the Appellant with incidence of default - Section 7 application was filed with the intent of insolvency resolution or otherwise. Whether there existed a debt due and payable by the Corporate Debtor to the Appellant-Debenture Trustee with an incidence of default justifying initiation of CIRP under Section 7 of the IBC? - HELD THAT:- The Appellant was aware of the restructuring proposal is amply borne out from the contents of the above communication of 28.03.2022 wherein there is also a clear advertence to the fact that the Corporate Debtor was seeking a NOC from them and that they had agreed and confirmed that upon receipt of the Rs.152 Cr from the Corporate Debtor in their Escrow Account, they would issue the requisite NOC. Interestingly, the letter is also marked to all debenture holders which reaffirms the fact that the Debenture Holders and the Appellant-Debenture Trustee were keeping each other informed of their intent on the modalities of how to proceed with the restructuring and moratorium proposal - it was always in the notice and knowledge of the Appellant that the Corporate Debtor and the Edelweiss Group were negotiating a restructuring proposal. It is also found that these correspondences and reference to various discussions between the parties mentioned in the letters were part of the record before the Adjudicating Authority. The Appellant and the Debenture Holders by their express conduct had agreed to implement the restructuring and moratorium proposal. No material has been placed on record to show that the Appellant had ever questioned the ECLF on the instructions being issued by them in furtherance of the moratorium. Neither did the Appellant ever question the ECLF that they cannot speak on behalf of the other entities of the other Edelweiss group. With the conclusion of the Sapphire transaction, the moratorium had come into force. Hence, there was no debt due or payable until September 2023. That being so there was no question of any default having been committed by the Corporate Debtor. In the present case, the Adjudicating Authority therefore did not commit any mistake in going through the fact situation of the present case and come to the finding that with the conclusion of the Sapphire transaction, the restructuring and moratorium proposal had commenced. Thus, to answer the first issue, the Adjudicating Authority had correctly held that on account of moratorium being in place, there was no occasion for default and hence the Section 7 application was not fit for admission. Whether the purpose of the Section 7 application in the present case was with the intent of insolvency resolution of the Corporate Debtor or otherwise? - HELD THAT:- It is clear that the Corporate Debtor was suddenly besieged by a fast-paced flurry of coercive steps taken by the Appellant which were geared towards recovery of debt inspite of the Corporate Debtor having already paid Rs 152 Cr. under the Sapphire transaction to the Appellant on the underlying previous understanding that grant of moratorium for 18 months was subject to compliance in concluding the Sapphire transaction. The Corporate Debtor had held their end of the bargain by carrying out the Sapphire transaction within the time-line which was fixed for 25.03.2022. The conclusion of the Sapphire transaction was also communicated to ECLF. The Appellant on the instructions of ECLF also acted upon the terms of the restructuring proposal by releasing the charge on property and Rs 9.33 Cr. This was clearly a sign to the Corporate Debtor that the restructuring and moratorium proposal stood confirmed by the Appellant. The Appellant was aware of the intent of the majority debenture holders of agreeing to the restructuring and moratorium proposal and accordingly also acted on their directions like release of charge on Bandra property, release of Rs 9.33 Cr. etc. towards extending moratorium until September 2023. The pattern of conduct prior to the Section 7 petition shows that both Appellant and the majority debenture holders were working on a common understanding that the restructuring proposal was a done deal. There seems to be substance in the contention of the Corporate Debtor that the Appellant along with the Debenture holders had engineered the default thereby acting in a malafide manner causing grave prejudice to the interests of the Corporate Debtor. The Appellant as Debenture Trustee instead of acting with fairness in protecting the interests of the Corporate Debtor by their conduct seem to have acted in unison with the majority Debenture Holders in catalysing their dubious designs to drag the Corporate Debtor towards insolvency. The intent of the Appellant behind orchestrating the default was to push the Corporate Debtor into insolvency despite having substantial and valuable assets. There was sufficient proof to substantiate that the Appellant was trying to take undue advantage of the situation to bring the Corporate Debtor under the rigours of CIRP which manifest their ulterior and pernicious motive - the Adjudicating Authority having gone through the documents placed before it and after hearing rival contentions of both the parties, has duly applied its mind based on the totality of circumstances demonstrated before it, in returning the findings that the intent behind initiating the CIRP proceedings in the present facts of the case was something other than insolvency resolution. Conclusion - i) The moratorium is validly in place until September 2023, precluding any default and debt becoming due and payable, thus justifying dismissal of the Section 7 application. ii) Section 7 application was not filed with the intent of insolvency resolution but rather with an ulterior motive to coerce the Corporate Debtor. There are no cogent reasons warranting interference in the impugned order - appeal dismissed. Case-Laws IBC Wed, 16 Apr 2025 00:00:00 +0530