Vaman Textiles Pvt. Ltd. vs Punjab National Bank & Ors.

Part-III

Particulars of Financial / Operational Debt [Creditor wise, as applicable]

25 Copy of ledger account of Corporate Applicant for the period from 1.4.2015 to 31.3.2018 in respect of Shree Navkar Corporation showing outstanding due of Rs.44,66,852/-, Annexure-27

26 Copy of ledger account of Corporate Applicant for the period from 1.4.2015 to 31.3.2018 in respect of Shiv Enterprise showing outstanding due of Rs.15,39,050/-, Annexure-28

27 Copy of ledger account of Corporate Applicant for the period from 1.4.2015 to 31.3.2018 in respect of Shree Balaji Corporation showing outstanding due of Rs.29,26,979, Annexure-29

28 Copy of ledger account of Corporate Applicant for the period from 1.4.2015 to 31.3.2018 in respect of Kay Kay International showing outstanding due of Rs.12,78,176/-, Annexure-30

29 Copy of ledger account of Corporate Applicant for the period from 1.4.2015 to 31.3.2018 in respect of Amar Krupa Nero Fab showing outstanding due of Rs.79,17,987/-, Annexure-31

30 Copy of advertisement dated 22.6.2018 issued by Punjab National Bank in Gujarati Newspaper "Sandesh" of Surat Edition regarding e-auction of properties of Corporate Applicant, Annexure-32

31 Copy of balance sheet of Corporate Applicant as at 31.3.2016 to 31.3.2018 showing the dues, Annexure-33.

(A)

The Financial Creditor objects filing of present Petition by Corporate Applicant at this stage, when, the Financial Creditor classified the accounts of the Corporate Applicant as NPA on 31.03.2015 and Corporate Applicant remained silent till the date of filing of present Petition dated 03.07.2018 before this Hon'ble Tribunal and allowed Financial Creditor to invoke statutory provisions of Securitization Act. Therefore also, present Petition filed by the Corporate Applicant is nothing but sheer abuse of process of law. Hence, present Petition deserves to be dismissed. (B) It is submitted that Financial Creditor after classifying the accounts of Corporate Applicant as NPA on 31.03.2015, Authorized Officer of Financial Creditor had issued Demand Notice on 26.07.2016 u/s. 13(2) of the Securitization Act calling upon the Corporate Applicant & Ors. to pay Secured Debts of Rs.4,97,35,595/- plus interest thereon. (C) It is submitted that in spite of issuance of Demand Notice u/s. 13(2) of the Act, Corporate Applicant had failed to discharge in full its liabilities to repay the same to Financial Creditor. (D) It is submitted that Authorized Officer of the Financial Creditor had also taken further measures under Securitization Act and had taken possession of the Secured Assets known as Plot No. 9 to 12 and Plot No, 44 to 63 as described in Part 3 item No.5 in the present Petition and Corporate Applicant & Ors. have already filed S.A No. 85/2016 before Ld. DRT-II at Ahmedabad against Authorized Officer of Financial Creditor and the same is pending for hearing and final disposal before Ld. DRT-II at Ahmedabad. In the said SA, Corporate Applicant remained unsuccessful to get any order in their favour.

(E)

It is submitted that the said Secured Assets have been put up for Public Auction and the said Public Auction held on 27.07.2018 under the provisions of Securitization Act remained partly successful and the Financial Creditor have sold and disposed off in the said Public auction immovable properties known as Plot No. 9 & 10 for an amount of Rs.58,08,000/- being highest offer price to Shri R.S.Surekha as purchaser and upon receipt of Sale price of Rs.58,08,000/- from the purchaser, Authorized Officer of the Financial Creditor issued certificate of Sale of Immovable property dated 13.08.2018 for Plot No.9 & 10 to the Purchaser and thus, sold properties now came out from the purview of process of CIRP initiated by Corporate Applicant before this Hon'ble Tribunal.

(F)

It is submitted that the said Secured Assets have been put up for Public Auction and the said Public Auction held on 27.07.2018 under the provisions of Securitization Act remained partly successful and the Financial Creditor have sold and disposed off in the said Public auction immovable properties known as Plot No. 11 & 12 for an amount of Rs.21,59,000/- being highest offer price to Shri R.S.Surekha as purchaser and upon receipt of Sale price of Rs.21,59,000/- from the purchaser, Authorized Officer of the Financial Creditor issued certificate of Sale of Immovable property dated 13.08.2018 for Plot No.11 & 12 to the Purchaser and thus, sold properties now came out from the purview of process of CIRP initiated by Corporate Applicant before this Hon'ble Tribunal. Since, the Immovable Properties known as Plot No. 9,10,11 & 12 of Corporate Applicant have been sold and disposed off to the Purchaser, the Purchaser became the absolute owner of said four Plots and said four Plots cannot form part of present CIRP process commence by Corporate Applicant and to be kept out of the purview of the present process. Annexed hereto and marked Annexure-A/1 are copies of two separate certificate of Sale of Immovable Property both dated 13.08.2018 issued by Authorized Officer of Financial Creditor in favour of successful purchaser for Plot No. 9 to 12.

(G)

xxx

(H)

It is submitted that the action of Sale of all the Secured Assets by Authorized Officer of Financial Creditor have already been challenged by Corporate Applicant by way of S.A. No. 85/2016 and there is no Stay against Financial Creditor to take further measures under Securitization Act. Since, the Corporate Applicant failed to obtain any positive results in their favour in pending S.A. 85/2016 from Ld.DRT-II, Ahmedabad and therefore, Applicant decided to challenge the Auction of the properties initiated by Financial Creditor.

(I)

It is submitted that since, Corporate Applicant had already challenged all the measures taken by way of an Appeal u/s. 17(1) of the Securitization Act, 2002 before Ld.DRT-II, Ahmedabad and the same is pending for hearing and final disposal, now, present Petition filed by Corporate Applicant at this stage is not permissible in the eyes of law, because Plot No. 9 to 12 have already been realized and disposed off by Financial Creditor under Securitization Act and therefore, present Petition is not maintainable before this Hon'ble Tribunal for the same cause of action.

(J)

xxxx

(K)

It is submitted that the Copy of Resolution produced at Page No.12 to 13 of the Paper Book of the present Petition does not comply statutory requirement of Clause C of Section 10(3) of the I.B.Code, 2016 and therefore also present Petition deserves to be dismissed. Since, the amendment in the Code is applicable to the present proceedings and therefore, present Petition deserves to be rejected.

(L)

It is submitted that since, physical possession of all properties being Secured Assets are in custody and control of the Authorized Officer of Financial Creditor and therefore, no fruitful purpose could be served, even if, present Petition is entertained and admitted by this Hon'ble Tribunal. Now, the only attempt on the part of Corporate Applicant is nothing but to stall the process of Sale of Secured Assets by Authorized Officer of Financial Creditor under Securitization Act and therefore, there are no chances of any positive result to get revival or resolution of the present situation of the Corporate Applicant. Since, possession is with the Financial Creditor, which is as per statutory scheme and provision of Securitization Act, 2002, the Financial Creditor is holding the Secured Assets, therefore also, the present Petition does not survive in the peculiar background, circumstances and facts of the case and the present Petition deserves to be dismissed summarily.

(M)

It is submitted that Financial Creditor have already filed O.A No. 235/2017 before Ld. DRT-II, Ahmedabad for recovery of Secured Debts from Corporate Applicant & Others and the same is pending for hearing and final disposal and therefore also, present Petition is not maintainable in the eye of law deserves to be rejected.

(N)

xxx

(O)

It is submitted that if this Petition be entertained and admitted by this Hon'ble Tribunal, the same shall cause irreparable loss and injury and shall cause serious prejudice to the rights of Financial Creditor, which have already been crystallized and implemented by Financial Creditor. In such event, physical possession of the remaining Secured Assets shall be required to be handed over to the proposed RP for its Resolution Process and the same shall amount to grant of relief in the pending S.A. in favour of the Corporate Applicant, for which, Corporate Applicant with others were unsuccessful in getting return of their Assets under Securitization Act, 2002 and therefore also, Corporate Applicant have filed present Petition with malafide intention before this Hon'ble Tribunal so as to cause serious prejudice to the Financial Creditor and causing irreparable loss to the Corporate Applicant, which cannot be compensated in terms of money and therefore also, Corporate Applicant should not be allowed to succeed in their malafide intention and to make the situation more complicated for the Bank.

(P)

xxx

(Q)

It is submitted that if Petition be admitted, the same will nullify all the measures taken by Financial Creditor as Secured Creditor under Securitization Act and Financial Creditor shall be deprived of further exercise of other statutory legal rights under Securitization Act against Corporate Applicant for recovery of Secured Debts in accordance with law.

(R)

xxx

4 In view of the aforesaid objections raised by Financial Creditor as Secured Creditor, present Petition lacks merits and deserves to be rejected by this Hon'ble Tribunal on the grounds as urged by Financial Creditor and on the grounds available under law. It is submitted that propose RP proposed by Corporate Applicant is also strongly objected by Financial Creditor and not acceptable to Financial Creditor. This is not a case where discretion requires to be excised in favour of Corporate Applicant and against Financial Creditor. In all, objections filed by Financial Creditor deserve to be allowed by this Hon'ble Tribunal and consequently, present Petition deserves to be rejected. This will meet ends of justice and equity.

2 It is submitted that as permitted by this Hon'ble Tribunal vide order dated 26.10.2018, Respondent Bank is filing Additional Reply to place on record the status of SARFAESI actions in respect of Secured Assets belonging to Corporate Debtor, so that, those Secured Assets – Movable as well as Immovable which have been disposed off by Respondent Bank can be kept outside the purview of above proceedings in case of any order to be passed by this Hon'ble Tribunal. 3 The Financial Creditor humbly submits before this Hon'ble Tribunal that the details of Primary Securities mortgaged by the Corporate Debtor with the Financial Creditor-Respondent Bank are as under: PRIMARY SECURITIES:

1.

12 TFO Machines,

2.

3 Winding Machines

3.

1 Pulit Machine

4 The Financial Creditor humbly submits that all the above mentioned Primary Securities being movable Machineries have been disposed off by the Financial Creditor in Public Auction held on 12.09.2018 and realized proceeds have already been appropriated in the loan accounts of Corporate Debtor. Hence, those primary hypothecated securities belonging to Corporate Debtor may be kept outside the purview of present Petition filed by Corporate Debtor.

5 The financial Creditor humbly submits that Corporate Debtor mortgaged following properties as Collateral Security as Secured Assets with the Financial Creditor, details whereof are as under: COLLATERAL SECURITIES:

1.

Factory Land & Building at Plot No. 9 & 10, Gokul Industrial Estate, Block No. 130, RS No. 211/12, Behind Venus dyeing And Printing Mills Pvt. Ltd., Village: Tatithaiya, Taluka Palsana, Surat.

2.

Factory Land & Building at Plot No. 11 & 12, Gokul Industrial Estate, Block No. 130, RS No. 211/12, Behind Venus dyeing And Printing Mills Pvt. Ltd., Village: Tatithaiya, Taluka Palsana, Surat.

3.

Plot No.44 to 63, "Gokul Industrial Estate", B/h. Venus Dyeing and Printing Mill, Village : Tantithaiya, Palsana, Surat.

6 The Financial Creditor humbly submits that said Collateral Properties as Secured Assets mentioned at Sr./ No. 1 & 2 were sold by the Financial Creditor in Public Auction held on 27.07.2018. Further the Financial Creditor humbly submits that properties mentioned at Sr. No.3 under the head Collateral Securities are put for E-Auction, which is scheduled to be held on 22.11.2018. 7 The Financial Creditor humbly submits that in view of the above clarification regarding disposal of the Primary and Collateral Securities by the Financial Creditor, those disposed off securities may be kept outside the purview of above referred proceedings. 8 The Financial Creditor humbly submits that said Collateral Securities at Sr. No.3 are presently in possession of the financial Creditor, which are already put for E-Auction scheduled to be held on 22.11.2018. 9 The Financial Creditor humbly submits that as per RBI guidelines and prudential income recognition norms prescribed by RBI for classification of accounts, Financial Creditor classified the accounts of Corporate Debtor as NPA on 31.03.2015 in the books of accounts of financial Creditor and therefore, Corporate Debtor ought to have file the Application date of NPA in the books of accounts of the Financial Creditor at the earliest and by not filing the same, Corporate Debtor allowed the Financial Creditor to disposed off Secured Assets under the provisions of SARFAESI act, 2002 and therefore also the prime object to reorganize and to commence Insolvency Resolution of Corporate persons in time bound manner for maximization of value of the Assets of such persons to promote entrepreneurship, availability of credit and balance the interest of all the stake holders shall not be achieved by entertaining present Petition. Therefore also, Petition deserves to be dismissed.

2 I am filing the present affidavit in compliance of the order dated 24.9.2019 made by this Hon'ble Tribunal. I say that by order dated 24.9.2019, this Hon'ble Tribunal advised the Corporate Applicant to submit latest valuation report of the assets available of Corporate Applicant as on the date filing of the application and to furnish that whether any statutory proceedings pertaining to tax recovery or statutory dues are pending other than recovery proceedings initiated by the secured creditors by way of an affidavit.

3 I say that the Corporate Applicant held three properties. I say that out of the same, two properties are auctioned by Punjab National Bank, the sole financial creditor of the Corporate Applicant by way of auction after filing of the captioned petition. I say that the Corporate Applicant thus holds only one property as on date. I say that at present, the applicant is having valuation report of the unsold property as on 30.8.2012 prepared by Rajiv S. Lasania, Valuer. I beg to annex copy of the valuation report dated 30.8.2012 at Annexure-I. I crave leave to produce copy of latest valuation report of the unsold property of Corporate Applicant within such reasonable time, as this Hon'ble Tribunal may grant, in the interest of justice.

4 I say that so far as the query as to whether any statutory proceedings pertaining to tax recovery or statutory dues are pending other than recovery proceedings initiated by the secured creditors is concerned, I say that the Tax Recovery Officer-2 from the office of Commissioner of Income Tax, Surat has issued order of attachment of immovable properties of Corporate Applicant vide order dated 26.11.2018 calling upon the Corporate Applicant to pay a sum of Rs.12,38,16,905/- in respect of certificate Form No. ITCP1 dated 26.10.2018. I beg to annex copy of the order of attachment order dated 26.11.2018 made by Tax Recovery Officer-2, Surat at Annexure-II.

5 I say that thereafter, the Tax Recovery Officer-2 Surat has also addressed letters dated 28.12.2018, 28.12.2018, 28.12.2018 and 28.12.2018 to Associate Cooperative Bank Ltd., HDFC Bank, Mehsana Urban Cooperative Bank Ltd. and Surat District Cooperative Bank Ltd. In which the Corporate Applicant maintained bank account, requiring the Banks to pay the amount as per Sec. 226(3) of Income Tax Act to the Tax Recovery Officer-2, Surat on the ground that a sum of Rs.1,238,16,906/- is due from the Corporate Applicant. I beg to annex a copy of each of the letters dated 22.12.2018 addressed to above referred Banks at Annexure-III Colly.

"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".

1 This appeal has been preferred by the appellant – Unigreen Global Private Limited (Corporate Debtor) against order dated 8th May, 2017 passed by the Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi whereby and whereunder the application preferred by the appellant – Corporate Debtor under Section 10 of the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as the 'I & B Code') in Form 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (hereinafter referred to as the 'Adjudicating Authority Rules') has been rejected. The Adjudicating Authority has also imposed penalty of Rs. Ten Lakhs on the appellant – Corporate Debtor under Section 65 of the I & B Code.

2 The questions involved in this appeal are:

i)

Whether non-disclosure of facts beyond the statutory requirement under the I & B Code read with relevant form, prescribed under the Insolvency and Bankruptcy (Application to Adjudicating Authority), Rules, 2016 can be a ground to dismiss an application for initiation of Corporate Insolvency Resolution Process ? and

ii) Whether the penalty imposed by the Adjudicating Authority under Section 65 of the I & B Code is legal or not?

3 The brief facts of the case are that the appellant – Corporate Debtor / Corporate Appellant filed an application under Section 10 in Form 6 for initiation of Corporate Insolvency Resolution Process against it on the ground that it has failed to pay the debt due to financial creditors and other creditors. On notice, Punjab National Bank (Financial Creditor) appeared and alleging the suppression of facts on the ground that the appellant has not disclosed the full facts and has not furnished full particulars in relation to the assets mortgaged or the securities furnished to the financial creditors. It was also alleged that the legal proceeding in respect of certain properties includes Khari Baoli property has been entangled by the owners themselves. In view of such submission the application preferred by the appellant has been rejected.

13 It was further submitted that the appellant is not precluded in law to initiate proceedings under the provisions of SARFAESI Act, 2002 as has been initiated and the appellant is duty bound to bring the aforesaid facts to the notice of the Adjudicating Authority.

14 We have heard the parties, noticed the rival contentions and perused the record.

15 Before deliberating on the question involved, it is desirable to refer 'Statement of Objects and Reasons' of I & B Code, 2016, as noticed by the Hon'ble Supreme Court in "Innoventive Industries Ltd. Vs. ICICI Bank and Ors." – 2017 SCC online SC 1025 and as quoted below :

12 The Insolvency and Bankruptcy Code, 2016 has been passed after great deliberation and pursuant to various committee reports, the most important of which is the report of the Bankruptcy Law Reforms Committee of November, 2015. The Statement of Objects and Reasons of the Code reads as under:

"STATEMENT OF OBJECTS AND REASONS

There is no single law in India that deals with insolvency and bankruptcy. Provisions relating to insolvency and bankruptcy for companies can be found in the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Companies Act, 2013. These statutes provide for creation of multiple fora such as Board of Industrial and Financial Reconstruction (BIFR), Debt Recovery Tribunal (DRT) and National Company Law Tribunal (NCLT) and their respective Appellate Tribunals. Liquidation of companies is handled by the High Courts. Individual bankruptcy and insolvency is dealt with under the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920 and is dealt with by the Courts. The existing framework for insolvency and bankruptcy is inadequate, ineffective and results in undue delays in resolution, therefore, the proposed legislation.

2.

The objective of the Insolvency and Bankruptcy Code, 2015 is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development.

3.

The Code seeks to provide for designating the NCLT and DRT as the Adjudicating Authorities for corporate persons and firms and individuals, respectively, for resolution of insolvency, liquidation and bankruptcy. The Code separates commercial aspects of insolvency and bankruptcy proceedings from judicial aspects. The Code also seeks to provide for establishment of the Insolvency and Bankruptcy Board of India (Board) for regulation of insolvency professionals, insolvency professional agencies and information utilities. Till the Board is established, the Central Government shall exercise all powers of the Board or designate any financial sector regulator to exercise the powers and functions of the Board. Insolvency professionals will assist in completion of insolvency resolution, liquidation and bankruptcy proceedings envisaged in the Code. Information Utilities would collect, collate, authenticate and disseminate financial information to facilitate such proceedings. The Code also proposes to establish a fund to be called the Insolvency and Bankruptcy Fund of India for the purposes specified in the Code.

4.

The Code seeks to provide for amendments in the Indian Partnership Act, 1932, the Central Excise Act, 1944, Customs Act, 1962, Income-Tax Act, 1961, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Finance Act, 1994, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, the Payment and Settlement Systems Act, 2007, the Limited Liability Partnership Act, 2008, and the Companies Act, 2013.

5.

The Code seeks to achieve the above objectives. (Emphasis Supplied)"

17 In the said case, Hon'ble Supreme Court while it noticed the scheme of the Code also noticed Section 7, which stands in contrast with the scheme under section 9 and 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 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 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 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."

18 At this stage, it is desirable to compare the provisions of Section 7 with Section 10 of the I & B Code.

Section 7 is as follow:

"7.

(1) 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. Explanation.—For the purposes of this subsection, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor.

(2)

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.

(3)

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 (c) any other information as may be specified by the Board.

(4)

The Adjudicating Authority shall, within fourteen days of the receipt of the application under subsection (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).

(5)

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.

(6)

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

(7)

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."

19 Similar is the provision of Section 10, which reads as follows:

"10.

(1) Where a corporate debtor has committed a default, a corporate applicant thereof may file an application for initiating corporate insolvency resolution process with the Adjudicating Authority.

(2)

The application under sub-section (1) shall be filed in such form, containing such particulars and in such manner and accompanied with such fee as may be prescribed.

(3)

The corporate applicant shall, along with the application furnish the information relating to—

(a)

its books of account and such other documents relating to such period as may be specified; and

(b)

the resolution professional proposed to be appointed as an interim resolution professional.

(4)

The Adjudicating Authority shall, within a period of fourteen days of the receipt of the application, by an order— (a) admit the application, if it is complete; or (b) reject the application, if it is incomplete: Provided that Adjudicating Authority shall, before rejecting an application, give a notice to the applicant to rectify the defects in his application within seven days from the date of receipt of such notice from the Adjudicating Authority.

(5)

The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (4) of this section."

20 Under both Section 7 and Section 10, the two factors are common i.e. the debt is due and there is a default. Sub-section (4) of Section 7 is similar to that of sub-section (4) of Section 10. Therefore we, hold that the law laid down by the Hon'ble Supreme Court in "Innovative Industries Ltd. (Supra) is applicable for Section 10 also, wherein the Hon'ble Supreme Court observed as "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".

21 In an application under Section 10, the 'financial creditor' or 'operational creditor', may dispute that there is no default or that debt is not due and is not payable in law or in fact. They may also oppose admission on the ground that the Corporate Applicant is not eligible to make application in view of ineligibility under Section 11 of the I & B Code. The Adjudicating Authority on hearing the parties and on perusal of record, if satisfied that there is a debt and default has occurred and the Corporate Applicant is not ineligible under Section 11, the Adjudicating Authority has no option but to admit the application, unless it is incomplete, in which case the Corporate Applicant is to be granted time to rectify the defects.

22 Section 10 does not empower the Adjudicating Authority to go beyond the records as prescribed under Section 10 and the informations as required to be submitted in Form 6 of the Insolvency and Bankruptcy (Application to the Adjudicating Authority) Rules, 2016 subject to ineligibility prescribed under Section 11. If all informations are provided by an applicant as required under Section 10 and Form 6 and if the Corporate Applicant is otherwise not ineligible under Section 11, the Adjudicating Authority is bound to admit the application and cannot reject the application on any other ground.

25 Similarly, if any action has been taken by a 'Financial Creditor' under Section 13(4) of the SARFAESI Act, 2002 against the Corporate Debtor or a suit is pending against Corporate Debtor under Section 19 of DRT Act, 1993 before a Debt Recovery Tribunal or appeal pending before the Debt Recovery Appellate Tribunal cannot be a ground to reject an application under Section 10, if the application is complete.

26 Any proceeding under Section 13(4) of the SARFAESI Act, 2002 or suit under Section 19 of the DRT Act, 1993 pending before Debt Recovery Tribunal or appeal pending before Debt Recovery Appellate Tribunal cannot proceed in view of the order of moratorium as may be passed.

27 It is also desirable to refer to Section 238 of the I & B Code, as quoted below : "238. Provisions of this Code to override other laws - The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law."

In view of the aforesaid provision also, I & B Code shall have the effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force including DRT Act, 1993; SARFAESI Act, 2002; money suit etc.