Idbi Bank Ltd vs Odisha Slurry Pipeline Infrastructure ...

For Appellant : Mr. Arun Kathpalia, Senior Advocate assisted by Mr. Shantanu Chaturvedi, Ms. Srishti Khare, Ms. Misha and Ms. Charu, Advocates

For Respondent : Mr. Amar Dave and Ms. Neeha Nagpal, Advocates

ORDER

15.01.2019 The appellant - 'financial creditor' filed an application under

Section 7 of the Insolvency and Bankruptcy Code, 2016 (for short, the 'I&B Code')

on 12th March, 2018 before the Adjudicating Authority (National Company Law

Tribunal), Kolkata Bench, Kolkata but without hearing the Adjudicating

Authority adjourned the appeal number of times for one or other reason such as

filing reply or filing of rejoinder. Till date no final order has been passed though

more than 10 months have passed. In view of non-disposal of application under

Section 7, the appeal has been preferred by 'Financial Creditor' against the order

of adjournment, which has been adjourned for 16th January, 2019.

It has come to our notice that the 'corporate debtor' is from the state of

'Odisha' and the matter may be transferred to 'National Company Law Tribunal',

Cuttack Bench which is likely to be opened on 22nd January, 2019. Therefore, 2

we are of the view that order under Section 7 required to be passed before the

case is transferred and thereby prolongs.

It is needless to say that if there is a 'debt' and 'default' and the record is

otherwise complete, the application is to be admitted. On the other hand, if there

is no 'debt' payable in law or in fact then it is to be rejected. In that view of the

matter we are not passing any specific directions, as the matter will be taken up

on 16th January, 2019 we expect that the Adjudicating Authority (National

Company Law Tribunal), Kolkata will pass appropriate order either admitting or

rejecting the application under Section 7 of the I&B Code taking into the

consideration of the decision of the Hon'ble Supreme in 'M/s. Innoventive

Industries Ltd. Vs. ICICI Bank Ltd. - (2018) 1 SCC 407', wherein Hon'ble

Supreme Court 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 to

Company Appeal (AT) (Insolvency) No. 51 of 2019 3

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

Company Appeal (AT) (Insolvency) No. 51 of 2019 4

prescribed, which takes 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

Company Appeal (AT) (Insolvency) No. 51 of 2019 5

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

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 subsection (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

Company Appeal (AT) (Insolvency) No. 51 of 2019 6

or arbitration proceedings, which is pre-existing

-- i.e. before such 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."

Further, we may observe that except the applicant (financial creditor) and

the 'corporate debtor', there is no requirement of hearing a third party including

Intervenor at the stage of admission. The order is required to be passed as per

decision of by the Hon'ble Supreme Court, as quoted above. The appeal stands

disposed of with aforesaid observations and directions. No cost.

Company Appeal (AT) (Insolvency) No. 51 of 2019 7

Let a copy of this order be forwarded to the Hon'ble President, National

Company Law Tribunal, New Delhi and Mr. Jinan K.R., Member (Judicial) and

Mr. Madan B. Gosavi, Member (Judicial), National Company Law Tribunal,

Kolkata Bench, Kolkata for information.

[Justice S.J. Mukhopadhaya] Chairperson

[ Justice Bansi Lal Bhat ] Member (Judicial)

/ns/gc/

Company Appeal (AT) (Insolvency) No. 51 of 2019