NATIONAL COMPANY LAW APPELLATE TRIBUNAL

Allahabad Bank Vs. Poonam Resorts Limited and Ors.

MANU/NL/0234/2020

22.05.2020

Company

Adjudicating Authority is only required to ascertain existence of default from records of an information utility

The twin appeals preferred by the same 'Financial Creditor' viz 'Allahabad Bank' against two different 'Corporate Debtors' primarily assail the orders passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench. The impugned orders have been assailed on basis that, the Adjudicating Authority has, apart from giving a go by to the provisions of the Insolvency and Bankruptcy Code, 2016 ("I&B Code"), also failed to follow the dictum of law laid down by the Hon'ble Apex Court in "Innoventive Industries Limited v. ICICI Bank and Anr.”.

The question for consideration is whether the Adjudicating Authority was justified in ignoring the time frame prescribed under Section 7 of the 'I&B Code' and embarking upon an enquiry to determine whether the applications filed under Section 7 contained false information, when the matters were at the very threshold stage.

'I&B Code' consolidates and amends the law relating to insolvency resolution of corporate persons in a time bound manner for various objects sought to be achieved by the statute as specified in the preamble. The plain language of sub-section (4) of Section 7 leaves no room for doubt that, the Adjudicating Authority is required to ascertain existence of default from records of an information utility. The Adjudicating Authority can also ascertain the same from other evidence furnished by the 'Financial Creditor'. This has to be done within 14 days of the receipt of application. The 'I&B Code' has specified time frame for conclusion of 'Corporate Insolvency Resolution Process' within 180 days and the extended period prescribed is 270 days. With the latest amendment, provision has been made for inclusion of period of judicial intervention, thereby taking the total extended period upto 330 days. A mere glance at the legal framework governing 'Corporate Insolvency Resolution Process' brings it to the fore that speed is the password and all authorities under the 'I&B Code' have to adhere to the prescribed timelines.

The dictum of law propounded by the Hon'ble Apex Court in "Innoventive Industries Limited v. ICICI Bank and Anr.” is loud and clear. The satisfaction in regard to occurrence of default has to be drawn by the Adjudicating Authority either from the records of the information utility or other evidence provided by the 'Financial Creditor'. The Adjudicating Authority cannot direct a forensic audit and engage in a long drawn pre-admission exercise which will have the effect of defeating the object of the 'I&B Code'. If the 'Financial Creditor' fails to provide evidence as required, the Adjudicating Authority shall be at liberty to take an appropriate decision. If the application is incomplete, it can return the same to the 'Financial Creditor' for rectifying the defect. This has to be done within 7 days of the receipt of notice from the Adjudicating Authority.

However, the 'I&B Code' does not envisage a pre-admission enquiry in regard to proof of default by directing a forensic audit of the accounts of the 'Financial Creditor', 'Corporate Debtor' or any 'financial institution'. Viewed thus, the impugned order cannot be supported. Application under Section 75 of the 'I&B Code' on behalf of the 'Corporate Debtors' cannot be permitted to frustrate the provisions of the 'I&B Code' when the matter is at the stage of admission. Section 75 is a penal provision which postulates an enquiry and recording of finding in respect of culpability of the Applicant regarding commission of an offence. The same cannot be allowed to thwart the initiation of 'Corporate Insolvency Resolution Process' unless in a given case forgery or falsification of documents is patent and prima facie established.

The "common written submissions" filed on behalf of the 'Corporate Debtors' clearly admits liability to the extent of Rs. 44,60,09,790 as regards 'Poonam Resorts Limited' and Rs. 6,52,03,922 as regards 'Link House Industries Limited'. Therefore, it is futile on the part of 'Corporate Debtors' to contend that the applications under Section 7 filed by the 'Financial Creditor' must pass the muster of Section 65 of the 'I&B Code' at the pre-admission stage. The argument raised in this regard is repelled.

The impugned orders suffer from grave legal infirmity and cannot be sustained. The impugned orders in both appeals are set aside and the appeals are allowed. The Adjudicating Authority is directed to address the issue regarding admission of the applications filed by the 'Financial Creditors'. However, before proceeding further, the Adjudicating Authority may provide an opportunity to parties to settle the claims. Both the appeals are allowed.

Relevant

Innoventive Industries Ltd. vs. ICICI Bank and Ors. MANU/SC/1063/2017

Tags : Application Admission Entitlement

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