Harkirat S.Bedi vs Oriental Bank Of Commerce

For Appellant: Mr. Balaji Srinivasan and Ms. Pallavi Sengupta, Advocates

ORDER

08.05.2019 This appeal has been preferred by Mr. Harkirat S. Bedi,

Director of 'M/s. IDEB Projects Pvt. Ltd.' (Corporate Debtor) against order dated

29th March, 2019 passed by the Adjudicating Authority (National Company Law

Tribunal), Bengaluru Bench admitted application u/s 7 of the Insolvency and

Bankruptcy Code, 2016 (for short, the 'I&B Code') filed by 'Oriental Bank of

Commerce (Financial Creditor).

2. Learned counsel appearing on behalf of the Appellant submitted that the

recovery proceeding is already pending before the 'Debt Recovery Tribunal'

(DRT) which is the subject matter of the application u/s 7 of the I&B Code. She

further submitted that the challenge before the DRT is made with regard to

violation of clause 35 of the 'Memorandum of Understanding' (MOU) dated 9th

May, 2012. It is submitted that the 'Recovery Certificate' bearing No. 9473 dated

23rd March, 2016 issued by the DRT in O.A. No. 862/2010, which is the basis of 2

Section 7 application, has not attained finality as it is pending for consideration

before the Authority in a Revision Case No. 4174 of 2017 filed by the Appellant

bearing Miscellaneous No. 10 of 2018 seeking cancellation of the order in the

light of the fraud committed by consortium.

3. Learned counsel for the Appellant submits that the amount of 'debt' is also

in dispute and it cannot be held that there is a 'default' as the matter is pending

for consideration in the Revision Application, which is pending before the 'DRT'.

4. We have heard the learned counsel appearing on behalf of the Appellant

and perused the record.

5. Hon'ble Supreme Court in "Innoventive Industries Ltd. v. ICICI Bank,"

- (2018) 1 SCC 407] while dealing with the application u/s 7, observed 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

Company Appeal (AT)(Ins) No. 499 of 2019 3

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 disbursed against consideration for the

time value of money. As opposed to this, an

operational creditor means a person to whom an

operational debt is owed and an operational debt

under Section 5(21) means a claim in respect of

provision of goods or services.

28. When it comes to a financial creditor triggering the

process, Section 7 becomes relevant. Under the

Explanation to Section 7(1), a default is in respect of

a financial debt owed to any financial creditor of the

corporate debtor -- it need not be a debt owed to the

applicant financial creditor. Under Section 7(2), an

application is to be made under sub-section (1) in

such form and manner as is prescribed, which takes

Company Appeal (AT)(Ins) No. 499 of 2019 4

us to the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016. Under Rule 4,

the application is made by a financial creditor in

Form 1 accompanied by documents and records

required therein. Form 1 is a detailed form in 5 parts,

which requires particulars of the applicant in Part I,

particulars of the corporate debtor in Part II,

particulars of the proposed interim resolution

professional in Part III, particulars of the financial

debt in Part IV and documents, records and evidence

of default in Part V. Under Rule 4(3), the applicant is

to dispatch a copy of the application filed with the

adjudicating authority by registered post or speed

post to the registered office of the corporate debtor.

The speed, within which the adjudicating authority

is to ascertain the existence of a default from the

records of the information utility or on the basis of

evidence furnished by the financial creditor, is

important. This it must do within 14 days of the

receipt of the application. It is at the stage of Section

7(5), where the adjudicating authority is to be

satisfied that a default has occurred, that the

corporate debtor is entitled to point out that a default

has not occurred in the sense that the "debt", which

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may also include a disputed claim, is not due. A debt

may not be due if it is not payable in law or in fact.

The moment the adjudicating authority is satisfied

that a default has occurred, the application must be

admitted unless it is incomplete, in which case it may

give notice to the applicant to rectify the defect within

7 days of receipt of a notice from the adjudicating

authority. Under sub-section (7), the adjudicating

authority shall then communicate the order passed

to the financial creditor and corporate debtor within

7 days of admission or rejection of such application,

as the case may be.

29. The scheme of Section 7 stands in contrast with the

scheme under Section 8 where an operational

creditor is, on the occurrence of a default, to first

deliver a demand notice of the unpaid debt to the

operational debtor in the manner provided in Section

8(1) of the Code. Under Section 8(2), the corporate

debtor can, within a period of 10 days of receipt of

the demand notice or copy of the invoice mentioned

in sub-section (1), bring to the notice of the

operational creditor the existence of a dispute or the

record of the pendency of a suit or arbitration

proceedings, which is pre-existing--i.e. before such

Company Appeal (AT)(Ins) No. 499 of 2019 6

notice or invoice was received by the corporate

debtor. The moment there is existence of such a

dispute, the operational creditor gets out of the

clutches of the Code.

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 yet become

due in the sense that it is payable at some future

date. It is only when this is proved to the satisfaction

of the adjudicating authority that the adjudicating

authority may reject an application and not

otherwise."

6. From the aforesaid finding, it is evident that even if a claim is disputed

and if the amount payable is more than Rupees 1 lakh, the application u/s 7 of

the I&B Code is maintainable. Mere pendency of the case before the DRT for

adjudicating of such disputed amount cannot be a ground to reject the

application u/s 7 of the I&B Code, if the Adjudicating Authority is satisfied that

there is a 'debt' and 'default' and the application is complete. On the other hand,

Company Appeal (AT)(Ins) No. 499 of 2019 7

in view of Section 14 all such proceedings in respect of any debt will remain

stayed and cannot proceed during the period of moratorium.

7. For the reasons aforesaid, we are not inclined to interfere with the

impugned order in appeal. It is accordingly dismissed. No cost.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice A.I.S. Cheema] Member (Judicial)

[Kanthi Narahari] Member (Technical) ns/gc

Company Appeal (AT)(Ins) No. 499 of 2019