2019 (5) TMI 382 - Tri - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - admission of the petition - default in repayment of the amount - Section 7 of Insolvency and Bankruptcy Code 2016 R/w Rule 4 of Insolvency Bankruptcy (Application to the Adjudicating Authority) Rules 2016. HELD THAT - The Financial Creditor had already invoked the shares pledged by the Corporate Debtor. This was done in the year 2015. The value of shares invoked is Rs. 161.14 crores. Maybe arbitration proceedings pending before the Arbitrator appointed in this connection by the Hon ble High Court of Kolkata and the Petitioner has not obtained any order in its favour when it filed the present petition under Section 7 of IBC to the effect that Corporate Debtor was liable to pay under RLA. The Financial Creditor is unable to establish the alleged debt and also the default. Application dismissed.

Summary

Issues Involved:
1. Whether the Corporate Debtor defaulted on the debt.
2. The impact of the invocation of pledged shares by the Financial Creditor.
3. The relevance of pending arbitration and other legal proceedings.
4. The admissibility of the petition under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016.

Issue-wise Detailed Analysis:

1. Whether the Corporate Debtor defaulted on the debt:

The Financial Creditor, M/s SREI Infrastructure Finance Limited, claimed that the Corporate Debtor, M/s Amrit Jal Ventures Private Limited, defaulted on repaying a loan of Rs. 30 crores, with the total amount due being Rs. 45,03,86,213/- as of 13.12.2017. The Rupee Loan Agreement (RLA) was executed on 19.04.2011, and the first disbursement of Rs. 30 crores was made on 04.06.2011. The Financial Creditor alleged that the Corporate Debtor committed default on 15.11.2015, which included the principal and interest.

The Corporate Debtor countered that it had paid Rs. 28.40 crores towards interest and that the Financial Creditor invoked the pledge of shares valued at Rs. 161.14 crores, which exceeded the debt amount. The Corporate Debtor argued that due to the Financial Creditor's failure to disburse the remaining Rs. 50 crores, it could not complete its projects, resulting in significant losses.

2. The impact of the invocation of pledged shares by the Financial Creditor:

The Corporate Debtor contended that the Financial Creditor had invoked the pledge of 6,57,72,050 shares, valued at Rs. 161.14 crores, and thus became a significant shareholder with a 44.30% stake. The Financial Creditor admitted to invoking the shares but argued that it had not sold them due to an injunction. The Tribunal noted that the invocation of pledged shares meant that the Financial Creditor became a shareholder, and thus, there was no debt due and payable by the Corporate Debtor.

3. The relevance of pending arbitration and other legal proceedings:

The Corporate Debtor highlighted ongoing arbitration proceedings and other legal cases, including those before the Debt Recovery Tribunal (DRT) and the Hon'ble High Court of Kolkata. The Financial Creditor argued that these proceedings did not bar the initiation of insolvency proceedings under Section 7 of the IBC. The Tribunal acknowledged the pending arbitration and legal proceedings but emphasized that the existence of these proceedings did not preclude the consideration of the insolvency petition.

4. The admissibility of the petition under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016:

The Tribunal examined whether the Financial Creditor established the existence of a debt and default. It referred to the definition of "debt" under Section 3(11) and "default" under Section 3(12) of the IBC. The Tribunal concluded that the Financial Creditor could not establish the alleged debt and default, particularly in light of the invocation of pledged shares and the ongoing arbitration proceedings. The Tribunal also noted that the Financial Creditor had not obtained any favorable order regarding the debt from the arbitration proceedings.

Conclusion:

The Tribunal rejected the petition, concluding that the Financial Creditor failed to establish the alleged debt and default. The invocation of pledged shares and the ongoing arbitration proceedings were significant factors in the decision. The petition under Section 7 of the IBC was deemed inadmissible as the Financial Creditor was unable to prove that the Corporate Debtor owed a debt that was due and payable.