TaxTMI 
TaxTMI 
TaxTMI 
2019 (1) TMI 84
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....Corporate Debtor'). 3. The Adjudicating Authority (National Company Law Tribunal), Guwahati Bench, by impugned order dated 19th March, 2018, rejected joint application preferred by Ms. Neha Himatsingka and Mr. Kanishka Himatsingka- ('Financial Creditors'), by exercising its inherent powers to address some extraordinary situations regardless of the fact, which otherwise is not required for determination under the provisions of the 'I&B Code'. 4. 'Himatsingka Auto Enterprises', another 'Financial Creditor' filed an application under Section 7 of the 'I&B Code' for initiation of 'Corporate Insolvency Resolution Process' against 'M/s. Himatsingka Resorts Private Limited'- ('Corporate Debtor'). 5. The same very Adjudicating Authority, Guwahati Bench, by other impugned order dated 5th April, 2018 citing similar facts held there is lack of merit since the debt which the 'Financial Creditors' firm made available to the 'Corporate Debtor' during the period become not due even on the representation of the application and thereby, there is no default in repayment of loan. 6. The Adjudicating Authority in both the cases has not disputed that the Appellants are the 'Financial Creditors' and....
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....4 (afternoon) and payment for the same will be made as per Schedule "A" attached hereto." "Schedule A To shareholder 3,71,68,000.00 Unsecured Loan 2,20,00,000.00 State Bank of India Loan 6,68,47,077.00 Allahabad Bank loan 49,53,200.00 Statutory and Other Liability 1,60,51,723.00 For land 29,80,000.00" "Clause-8: That the Second party will arrange for funds to invest in the repayment of unsecured loan amounting to Rs. 2,20,00,000.00 (Rupees two Crore twenty lakh) only and balance amount of unsecured loan if any will be arranged and repaid by party of the first part. Loan standing against Allahabad Bank amounting to Rs. 43,53,200.00 (Rupees Forty nine Lakh fifty three thousand two hundred) only, statutory and other liability amounting to Rs. 1,00,41,723/- (Rupees one Crore Sixty lakh fifty one thousand seven hundred twenty three) only will paid and settled by the 2nd party." 12. Therefore, according to the 'Corporate Debtor', the application as well as the documents, do not disclose any default having been committed by the 'Corporate Debtor' in repayment of debt due to the 'Financial Creditors'. 13. The 'Corporate Debtor' also raised the question about the status of ....
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.... was not met before availing of aforesaid term loan. The Adjudicating Authority while dealing with the matter observed as follows: "49. Since there was no proof whatsoever of securing any undertaking from the unsecured creditors of the CD including the FCs herein, it needs to be concluded that such a very vital condition was not met before availing of aforesaid term loan, provided by the Bank. In other words, in securing the aforesaid term loan, the CD has ruthlessly violated some very inviolable terms under which the term loan was made available to the CD and therefore, it is impossible for the BK Group to enforce conditions in clause No. 3 against the unsecured creditors of the CD including the FCs. xxx xxx xxx 52. On ....
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....B Code' observed and held as follows: "27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of "debt", we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a "claim" and for the meaning of "claim", we have to go back to Section 3(6) which defines "claim" to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor. A distinction is made by the Code between debts owed to financial creditors and operational creditors. A financial creditor has been defined under Section 5(7) as a person to whom a financial debt is owed and a financial debt is defined in Section 5(8) to mean a debt which is di....
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....passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. xxx xxx xxx 30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is "due" i.e. payable unless interdicted by some law or has not....
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..... 2. The objective of the 'I&B Code' is Resolution. The Purpose of Resolution is for maximisation of value of assets of the 'Corporate Debtor' and thereby for all creditors. It is not maximisation of value for a 'stakeholder' or 'a set of stakeholders' such as Creditors and to promote entrepreneurship, availability of credit and balance the interests. The first order objective is "resolution". The second order objective is "maximisation of value of assets of the 'Corporate Debtor'' and the third order objective is "promoting entrepreneurship, availability of credit and balancing the interests". This order of objective is sacrosanct. In the matter of "Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta and Ors.", the Hon'ble Supreme Court observed that "the 'Corporate Debtor' consists of several employees and workmen whose daily bread is dependent on the outcome of the CIRP. If there is a resolution applicant who can continue to run the corporate debtor as a going concern, every effort must be made to try and see that this is made possible". 3. 'Financial Creditors' as members of the 'Committee of Creditors' and their Role. a. The Bankruptcy Law Reforms Committee (BL....
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....es the value for a or a set of stakeholder such as 'Financial Creditors'. One or a set of stakeholders cannot benefit unduly stakeholder at the cost of another. d. The 'I&B Code' prohibits any action to foreclose, recover or enforce any security interest during resolution period and thereby prevents a creditor from maximising his interests. e. It follows from the above: i. The liabilities of all creditors who are not part of 'Committee of Creditors' must also be met in the resolution. ii. The 'Financial Creditors can modify the terms of existing liabilities, while other creditors cannot take risk of postponing payment for better future prospectus. That is, 'Financial Creditors' can take haircut and can take their dues in future, while 'Operational Creditors' need to be paid immediately. iii. A creditor cannot maximise his own interests in view of moratorium.' iv. If one type of credit is given preferential treatment, the other type of credit will disappear from market. This will be against the objective of promoting availability of credit. v. The 'I&B Code' aims to balance the interests of all stakeholders and does not maximise value for 'Financial Creditors'. ....
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....ery: Recovery is an individual effort by a creditor to recover its dues through a process that has debtor and creditor on opposite sides. When creditors recover their dues - one after another or simultaneously- from the available assets of the firm, nothing may be left in due course. Thus, while recovery bleeds the 'Corporate Debtor' to death, resolution endeavors to keep the 'Corporate Debtor' alive. In fact, the 'I&B Code' prohibits and discourages recovery in several ways. It is not liquidation: Liquidation brings the life of a corporate to an end. It destroys organisational capital and renders resources idle till reallocation to alternate uses. Further, it is inequitable as it considers the claims of a set of stakeholders only if there is any surplus after satisfying the claims of a prior set of stakeholders fully. The 'I&B Code', therefore, does not allow liquidation of a 'Corporate Debtor' directly. It allows liquidation only on failure of 'Corporate Insolvency Resolution Process'. It rather facilitates and encourages resolution in several ways." 28. Therefore, the Adjudicating Authority giving reference to exercising inherent powers cannot decide any dispute in a procee....
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....judicating Authority has taken similar plea as was taken in the earlier case. 35. The Respondents have taken plea that one Sri Bhagya Kalita or for the matter the 'Corporate Debtor' had no obligation whatsoever to repay the entire unsecured loans, obtained by the 'Corporate Debtor' prior to 15th December, 2014 due to change of management. The Adjudicating Authority has referred to an agreement dated 15th December, 2014, wherein one Sri Bhagya Kalita, who is the Managing Director of the 'Corporate Debtor' had agreed to purchase the entire shareholdings of Mr. Rajesh Himatsingka, his son Mr. Kanishka Himatsingka and his daughter-in-law Ms. Neha Himatsingka. Giving reference to their cases and the agreement dated 15th December, 2014, the Adjudicating Authority has exercised inherent power and refused to entertain the application. 36. We are not going on the detailed reason given by the Adjudicating Authority for exercising inherent power as we have already held that the Adjudicating Authority has no jurisdiction to exercise inherent power for deciding any disputed question whether claim is bonafide or malafide. 37. For the reasons aforesaid, we set aside the impugned order dated 15....