APPLICATION FOR INITIATION OF CIRP AGAINST DEBTOR ADMITTED BY TRIBUNAL

Last Updated on August 30, 2020 by Satish Mishra

UNITED BANK OF INDIA/ Financial Creditor filed this application to adjudicating authority under Section 7 of Insolvency & Bankruptcy Code read with Rule 4 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016, for Initiating Corporate Insolvency Resolution Process (CIRP) as against M/s. Jotisriram Himaghar Private Limited/ Corporate Debtor.

FACTS OF THE CASE:

IN THE NATIONAL COMPANY LAW TRIBUNAL, KOLKATA BENCH, KOLKATA

APPLICANT: UNITED BANK OF INDIA

CORPORATE DEBTOR: M/S. JOTISRIRAM HIMGHAR PRIVATE LIMITED

DATE OF DECISION: 13^TH MARCH 2020

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Financial Creditor filed this application for initiating Corporate Insolvency Resolution Process against Corporate Debtor on allegation that Corporate Debtor availed various loans to the tune of Rs.988.75 lakh by executing various documents inclusive of Demand Promissory Notes, Agreement of Term Loan, Agreement of Hypothecation etc., of which particulars are given in FORM I, Part IV, committed default in repayment and thereby the Financial Creditor classified the accounts of Corporate Debtor as Non-Performing Assets with effect from 30.06.2016 and thereby committed default in repayment and accordingly filed this application for initiating Corporate Insolvency Resolution Process.

Adding to the contentions,

Loan agreement and other related documents executed by the Corporate Debtor in favor of the Financial Creditor have been narrated in Part V of the Form I.
As proof of record of default, Financial Creditor attached copy of demand notice 12.07.2016 issued by Creditor to Debtor and produced records of defaults issued by NeSL (National E-Governances Service Limited) by supplementary affidavit.

Financial Creditor further submitted that Corporate Debtor despite demand failed to repay and therefore committed default and, therefore, this application is liable to be admitted by passing an order of CIRP against the Corporate Debtor.

Section 7 of IBC: Initiation of corporate insolvency resolution process by financial creditor.

A financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.
The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed.
The financial creditor shall, along with the application furnish—

(a) record of the default recorded with the information utility or such other record or evidence of default as may be specified;

(b) the name of the resolution professional proposed to act as an interim resolution professional; and

The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3).
Where the Adjudicating Authority is satisfied that—

(a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or

(b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application:

Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority.

The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5).
The Adjudicating Authority shall communicate—

(a) the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor;

(b) the order under clause (b) of sub-section (5) to the financial creditor, within seven days of admission or rejection of such application, as the case may be.

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Rule 4 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016

Application by Financial Creditor:

A financial creditor, either by itself or jointly, shall make an application for initiating the corporate insolvency resolution process against a corporate debtor under section 7 of the Code in Form 1, accompanied with documents and records required therein and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
Where the applicant under sub-rule (1) is an assignee or transferee of a financial contract, the application shall be accompanied with a copy of the assignment or transfer agreement and other relevant documentation to demonstrate the assignment or transfer.
The applicant shall dispatch forthwith, a copy of the application filed with the Adjudicating Authority, by registered post or speed post to the registered office of the corporate debtor.
In case the application is made jointly by financial creditors, they may nominate one amongst them to act on their behalf.

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Respondent Corporate Debtor appeared and objected the application mainly contending that

Debt claimed by Creditor is not a debt due and payable and there was no default as alleged by the Financial Creditor.
Claim of interest @ 13.5% p.a. on the monthly rest on and from 1^st January, 2019 is illegal and against the terms of the loan agreement.
It is incorrect to say that Debtor has committed default in repayment on 30.06.2016 as alleged.
It is incorrect to say that the Corporate Debtor has executed the Demand Promissory Note, Letter of continuity, Letter of Lien and Agreement for Term Loan dated 27.03.2015 as alleged. The application is not maintainable and ought to be dismissed with costs.

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Financial Creditor filed a rejoinder denying the averments in reply affidavit of Corporate Debtors and reiterated the particulars mentioned in Form No. I and further submitted that Corporate Debtor from time to time had acknowledged the debt by executing the letter confirming the balances under the credit facility availed by them and also submitted the audited report dated 05.09.2016 and in the said balance sheet they also acknowledged and admitted the bank dues and the said documents were annexed with the application and therefore this application is liable to be admitted.

After hearing on both sides and referring to documents and citations, tribunal held that Financial Creditor initiated Corporate Insolvency Process against Corporate Debtor alleging that Corporate Debtor has committed default in repayment of loan. Availing of loan by Corporate Debtor was not at all in dispute, though there is denial of non-execution of Demand Promissory Note, Letter of Continuity etc. Nothing was argued on side of Corporate Debtor so as to discard the evidences led in on the side of Financial Creditor regarding availing of loans by Corporate Debtor. Annexure-6 attached with the application is loan sanctioned letter dated 27.12.2013, wherein Corporate Debtor has been give Term Loan, Working Capital, Cash Credit and Bank Guarantee totaling to Rs.988.75 lakh. As per the terms of Sanction, said loan availed by Corporate Debtor shall be repayable in 18 half yearly unequal installments commencing from September, 2014 and ending in March, 2023. Being so, evidence on side of Financial Creditor is sufficient to prove that Corporate Debtor has availed the loan. Nothing was provided on side of Corporate Debtor to show that loan availed by is repaid as per repayment schedule. It is in this financial background Financial Creditor has issued demand notice on 12.07.2016 recalling the entire loan amount aggregating to Rs.9, 98, 83,000 classifying the account stand in the name of Debtor as Non-performing assets with effect form 30.06.2016.

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Despite demand, Corporate Debtor has not paid the amount. So, according to Counsel of Financial Creditor default has been committed by Corporate Debtor on 30.06.2016 and therefore filing of this application on 25.01.2019 is well within the period of limitation. They also submitted that there is an acknowledgement of debt by Corporate Debt in Financial Year 2015-16. The entries in balance sheet show the acknowledgement admitting the liability by Corporate Debtor.

Here, Learned Counsel for Corporate Debtor referred to“B.K. Educational Services Private Limited vs. Parag Gupta and Associates reported in (2019) 11 SCC 633” and “Jignesh Shah and Another vs. Union of India and Another reported in (2019) 10 SCC 750” attempted to argue that date of default as per loan sanctioned on 27.12.2013 was in the year 2015. As per particulars given in Part V in Form I was executed on 27.03.2015 and therefore, the date of default would be on 27.03.2015, so filing this application on 25.01.2019 is barred by limitation.

In both the cases referred by Learned Counsel for Corporate Debtor Supreme Court held that Article137 of Limitation Act will be applicable to applications filed under Section 7 of the Insolvency Bankruptcy Code and further quoted Para 27 from Judgment of “B.K. Educational Services Private Limited vs. Parag Gupta and Associates reported in (2019) 11 SCC 633”:

It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. “The right to sue”, therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.

and filed this application is barred by Limitation as period of Limitation is to be counted from 27.03.2015.

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Article 137 of Limitation Act, 1963 states that:

Any other application for which no period of limitation is provided elsewhere in this Division, the period of limitation is three years and the time from which period begins to run is when the right to apply accrues.

But no further evidence was produced by Learned Counsel for Corporate Debtor. But Learned Counsel for Financial Creditor has submitted the report issued by NeSL to the Financial Creditor on 06.03.2020. This report was submitted very lately and was submitted by Creditor only at time of hearing and was also objected on the side of Corporate Debtor. However, even without the report also, the evidence on Financial Creditor side is enough to prove that Corporate Debtor has committed default as on 30.06.2016. Report issued by NeSL just added strength to the Financial Creditor submissions. Therefore Corporate Debtor failed to prove that debt claimed by Financial Creditor is not due and payable, whereas, Financial Creditor has succeeded in proving that debt is due and payable.

All the requirements under Section 7(3) of Insolvency and Bankruptcy Code, 2016have been produced and Financial Creditor has proposed the name of Shri Shyamal Kumar Bhattacharjee, as the Insolvency Professional to be appointed for initiating Corporate Insolvency Resolution Process (CIRP). The Form 2 and written communication dated on 08.11.2018 produced along with the application by Shri Shyamal Kumar Bhattacharjee proves that no disciplinary proceeding is pending against him and he is eligible to be appointed as an Interim Resolution Professional (IRP).

Financial Creditor succeed in proving all the requirements under Section 7(3) of Insolvency and Bankruptcy Code, 2016 and the claim of Financial Creditor has not been barred by law of limitation and debt is due and payable by Corporate Debtor and held the application is liable to be admitted.

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Tribunal admitted the application and issued the following orders:

The application was filed by Financial Creditor/UNITED BANK OF INDIA under Section 7 of Insolvency and Bankruptcy Code, 2016 for initiating Corporate Insolvency Resolution Process against the Corporate Debtor/M/s. Jotisriram Himaghar Private Limited.
Moratorium is declared for the purposes referred to in Section 14 of Insolvency Bankruptcy Code, 2016. The Interim Resolution Professional (IRP) shall cause a public announcement of the initiation of Corporate Insolvency Resolution Process (CIRP) and call for the submission of claims under Section 15.

Moratorium under Section 14 of Insolvency Bankruptcy Code, 2016, prohibits the following:

(a) The institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

(b) Transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

(c) Any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(d) The recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

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Section 15 of IBC, 2016

Public announcement of corporate insolvency resolution process:

(1) The public announcement of the corporate insolvency resolution process under the order referred to in section 13 shall contain the following information, namely:—

(a) name and address of the corporate debtor under the corporate insolvency resolution process;

(b) name of the authority with which the corporate debtor is incorporated or registered;

(d) details of the interim resolution professional who shall be vested with the management of the corporate debtor and be responsible for receiving claims;

(e) penalties for false or misleading claims; and

(f) the date on which the corporate insolvency resolution process shall close, which shall be the one hundred and eightieth day from the date of the admission of the application under sections 7, 9 or section 10, as the case may be.

The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated, suspended or interrupted during moratorium period.
The provisions of sub- section (1) of Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.
The order of moratorium shall have the effect from the date of admission till the completion of the corporate insolvency resolution process.

Provided that where at any time during the Corporate Insolvency Resolution Process Period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of Section 31 or passes an order for liquidation of the corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be.

Approval of resolution plan, Section 31 of IBC, 2016:

If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.

Initiation of Liquidation, Section 33 of IBC, 2016:

(1) Where the Adjudicating Authority, —

(a) before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under section 12 or the fast track corporate insolvency resolution process under section 56, as the case may be, does not receive a resolution plan under sub-section (6) of section 30; or

(b) rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein, it shall—

(i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter;

(ii) issue a public announcement stating that the corporate debtor is in liquidation; and

(iii) require such order to be sent to the authority with which the corporate debtor is registered.

(2) Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).

(3) Where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).

(4) On receipt of an application under sub-section (3), if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).

(5) Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor:

Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority.

(6) The provisions of sub-section (5) shall not apply to legal proceedings in relation to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

(7) The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator.

Mr. Shyamal Kumar Bhattacharjee, insolvency professional is hereby appointed as Interim Resolution Professional by this Tribunal for ascertaining the particulars of creditors and convening a meeting of Committee of Creditors for evolving a resolution plan.

The Interim Resolution Professional should convene a meeting of the Committee of Creditors and submit the resolution passed by the Committee of Creditors and shall identify the prospective Resolution Applicant within 105 days from the insolvency commencement date.
The registry here is directed under section 7(7) of IBC, 2016 to communicate the order to the Financial Creditor and to the I.R.P by speed post as well through email.
The matter be listed on 28.04.2020 for filing of the progress report.

Certified copy of the order may be issued to all the concerned parties, if applied for, upon compliance with all requisite formalities.

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This post is written by Diwakar Ayyala. More on 99888-17966.