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2019 (4) TMI 1732 - Tri - Insolvency and BankruptcyAdmissibility of petition - initiation of Corporate Insolvency Resolution Process - Corporate Debtor - Section 7 of the Insolvency and Bankruptcy Code 2016 read with rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016 - precise case of the Petitioner is that the total amount in default due to the financial creditor by the corporate debtor as on 18.07.2018 is Rs. 75, 52, 68, 314.29/-along with future interest and as well as penal interest per annum - HELD THAT - It is pertinent to mention here that the Code requires the Adjudicating Authority to only ascertain and record satisfaction in a summary adjudication as to the occurrence of default before admitting the application. The material on record clearly goes to show that respondent had availed the loan facilities which were duly disbursed and it has committed default in repayment of the outstanding loan amount. It is thus patent that all requirements of Section 7 of the Code for initiation of Corporate Insolvency Resolution Process by a Financial Creditor stand fulfilled. In that regard the application is complete as per the requirements of Section 7 (2) of the Code and other conditions prescribed by Rule 4 (1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016. There is overwhelming evidence to prove default and name of the resolution professional has also been clearly specified. Petition admitted - moratorium declared.
Issues Involved:
1. Authorization to initiate proceedings 2. Material particulars and compliance with the Code 3. Classification of account as NPA 4. Pending adjudication before Debt Recovery Tribunal 5. Allegations of arbitrary actions by Financial Creditor 6. Excessive interest charges 7. RBI Circular applicability 8. Completeness of application under Section 7 of the Code 9. Declaration of moratorium Issue-wise Detailed Analysis: 1. Authorization to initiate proceedings: The respondent challenged the initiation of proceedings, arguing that the person initiating the application was not duly authorized. However, the Tribunal found that the Power of Attorney (POA) was signed by two Directors of the Bank and countersigned by the General Manager, establishing authority in favor of the Assistant General Manager to file the application. The POA was widely worded, authorizing the attorney to act on behalf of the Bank in all matters incidental to bankruptcy or insolvency. Thus, the objection was dismissed, and it was established that the application was filed by an authorized person. 2. Material particulars and compliance with the Code: The respondent claimed that the application lacked material particulars and was contrary to the Code. The Tribunal noted that the Financial Creditor had placed various documents on record, including loan agreements, balance and security confirmation letters, demand promissory notes, and statements of accounts certified under the Banker’s Books Evidence Act, 1891. These documents substantiated the disbursement and utilization of loan facilities by the respondent, proving the financial debt and default. The application was found to be complete and in compliance with the Code and its Rules. 3. Classification of account as NPA: The respondent argued that their account was wrongly classified as a Non-Performing Asset (NPA). The Tribunal held that for an application under Section 7 of the Code, it is immaterial when the account was declared as NPA. The primary consideration is whether there is a debt due and a default in payment. The Tribunal cited a precedent stating that the provision of NPA relates to the SARFAESI Act, 2002, and has nothing to do with the Code. Therefore, the objection regarding the wrongful declaration of NPA was not a ground to reject the application. 4. Pending adjudication before Debt Recovery Tribunal: The respondent contended that the debt amount and its legality were pending adjudication before the Debt Recovery Tribunal (DRT). The Tribunal clarified that the pendency of DRT proceedings and initiation of action under the SARFAESI Act cannot impede or bar the initiation of Corporate Insolvency Resolution Process under Section 7 of the Code. 5. Allegations of arbitrary actions by Financial Creditor: The respondent raised multiple allegations against the Financial Creditor, including arbitrary refusal to release sanctioned funds, wrongful levy of interest, and illegal actions causing losses. The Tribunal found that the Financial Creditor had acted in accordance with the terms of the sanction letter and banking practices. The interest charged was based on the terms agreed upon, and the respondent had acknowledged the debt in their balance sheet. The Tribunal dismissed these allegations as they did not affect the existence of debt and default. 6. Excessive interest charges: The respondent alleged that the Financial Creditor charged excessive interest. The Tribunal noted that the interest was charged as per the terms of the sanction letter and banking norms. The Financial Creditor provided evidence of the interest calculations and the respondent’s continuous violation of terms. The Tribunal found no merit in the allegation of excessive interest charges. 7. RBI Circular applicability: The respondent argued that the Financial Creditor’s action was discriminatory and based on an RBI Circular dated 12.02.2018. The Tribunal referred to a Supreme Court judgment declaring the RBI Circular as ultra vires and of no effect in law. The Tribunal concluded that the proceedings were not initiated solely because of the RBI Circular, and the defaulted amount was significantly less than the threshold specified in the Circular. Thus, the objection based on the RBI Circular was dismissed. 8. Completeness of application under Section 7 of the Code: The Tribunal examined whether the application under Section 7 of the Code was complete. It found that the application was filed in the prescribed form, accompanied by required details and evidence of default. The Tribunal held that the application was complete as per Section 7(2) of the Code and Rule 4(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The application warranted admission as it satisfied all requirements, including the absence of disciplinary proceedings against the proposed Interim Resolution Professional. 9. Declaration of moratorium: Upon admitting the application, the Tribunal declared a moratorium under Section 14 of the Code, prohibiting the institution or continuation of suits or proceedings against the corporate debtor, transferring or disposing of assets, enforcement of security interests, and recovery of property. The Tribunal directed the Interim Resolution Professional to make a public announcement and perform his duties as per the Code. The Financial Creditor was instructed to deposit Rs. 2 lakhs with the Interim Resolution Professional for expenses related to the insolvency process. In conclusion, the Tribunal admitted the application for initiating Corporate Insolvency Resolution Process against the respondent, appointed an Interim Resolution Professional, and declared a moratorium, ensuring compliance with the provisions of the Insolvency and Bankruptcy Code, 2016.
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