2021 (11) TMI 1053 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - it is alleged that instead of responding to One Time Settlement (OTS) proposal of the Appellant Respondent No.2 filed application under section 7 of the IBC against the Corporate Debtor - HELD THAT - From perusal of the Impugned Order dated 26.8.2021 it is clear that in response to the section 7 application the Managing Director of Corporate Debtor representing Respondent Nos. 1 to 5 filed reply which was considered by the Adjudicating Authority. It is also mentioned in the Impugned Order paragraph 12 that Mr. Tushar Ravi Chief Manager State Bank of India Khanapara Branch filed an affidavit dated 4.8.2021 in which he stated that due to inadvertence names of the personal guarantors were inserted as Respondent Nos. 2 to 7 and the names of Respondent Nos. 2 to 7 be deleted from the instant application - the contention of the Appellant that the petitioner (financial creditor-State Bank of India) did not comply with the order given by the Adjudicating Authority on 26.7.2021 which was regarding filing of affidavit to delete names of personal guarantors from the section 7 application cannot be agreed upon. The other contention of the Learned Counsel of the Appellant is that the Appellant had submitted an OTS proposal to the financial creditor (State Bank of India) which was pending decision and hence the Adjudicating Authority should not have passed admission order on section 7 application. The acceptance of the settlement proposal by the financial creditor is a matter entirely in the ambit of the financial creditor (SBI) and we do not think that the proceedings before the Adjudicating Authority should have been held up and delayed waiting for a response by the State Bank of India. IBC does not provide for keeping the proceedings in abeyance and the application for admission has to be decided in a stipulated timeframe. If a settlement would have been reached the Appellant would have had recourse to Section 12A of the IBC. The Innoventive Industries judgment 2017 (9) TMI 58 - SUPREME COURT of the Hon ble Supreme Court does not put any bar on the admission of an application under section 7 if the defects as pointed out to the petitioner have been cured. Appeal dismissed.

Summary

Issues:
Admission of appeal against the order dated 26.8.2021 in CP (IB) No. 10/2021 by the Adjudicating Authority under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the Corporate Debtor M/s. Nayak Infrastructure Private Limited.

Analysis:

1. Defect in Application:
The Appellant challenged the maintainability of the section 7 application by State Bank of India, citing defects in making all directors and guarantors parties in the application. Despite pointing out these defects, no amendment was sought by the Respondent No. 1 or directed by the Adjudicating Authority. The Appellant argued that a defective application should not have been adjudicated upon, as per the proceedings before the Debt Recovery Tribunal and the lack of response to the One Time Settlement (OTS) proposal.

2. Compliance with Section 7 of IBC:
The Appellant contended that the Respondent failed to comply with the requirements under section 7 of the IBC, specifically regarding the deletion of personal guarantors from the application. However, the Adjudicating Authority noted that an affidavit was filed by the State Bank of India's Chief Manager, requesting the removal of names of personal guarantors, thereby refuting the Appellant's argument on non-compliance.

3. Settlement Proposal and Adjudication:
The Appellant's submission of an OTS proposal to the financial creditor, pending decision, was cited as a reason for the Adjudicating Authority not to admit the section 7 application. However, the judgment highlighted that the acceptance of a settlement proposal lies within the financial creditor's discretion. The IBC does not allow for proceedings to be delayed based on settlement proposals, emphasizing the need for timely decisions on admission applications.

4. Precedent and Intervention:
Reference was made to the Innoventive Industries judgment by the Hon'ble Supreme Court, clarifying that the admission of a section 7 application is not barred if identified defects are rectified. The judgment concluded that the Impugned Order did not warrant any intervention, leading to the dismissal of the appeal at the admission stage without imposing any costs.

This detailed analysis of the judgment provides insights into the legal arguments presented, the application of relevant provisions of the IBC, compliance issues, settlement proposals, and the application of legal precedents in determining the outcome of the appeal.