No Illegibilities u/s 11 of IBC: NCLT Admits CIRP u/s 10 Amid COVID-19 Losses [Read Order]

The National Company Law Tribunal (NCLT), New Delhi, admitted the Corporate Insolvency Resolution Process (CIRP) application under Section 10 of the Insolvency and Bankruptcy Code (IBC), 2016, as no illegibilities were restricting the CIRP under Section 11.

M/s Universal Journeys India Private Limited (“Corporate Applicant”) applied under Section 10 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against itself as the Corporate Debtor.

The application stated that the company had defaulted on payment of financial and operational debts totaling over Rs. 14.05 crore. The Corporate Applicant is a private limited company incorporated on 23 December 2011, engaged in providing visa services, travel consultancy, and managing business tours, meetings, and conferences.

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The Corporate Applicant highlighted that its business had been severely impacted by the COVID-19 pandemic, resulting in no income inflow since March 2020. Multiple loans availed by the company had been declared Non-Performing Assets (NPAs) by banks and financial institutions, and the company had accumulated a negative net worth of Rs. 17.75 crore. T

o address its financial distress, the Corporate Applicant passed a Board resolution on 2 February 2024 and a Special Resolution in a general meeting on 1 March 2024, approving the filing of a Section 10 application. All statutory requirements, including submission of Form 6 and details of the proposed Interim Resolution Professional (IRP), were complied with.

The Corporate Applicant argued that it had complied with all statutory mandates under Section 10 of the IBC, including furnishing details of debt, occurrence of default, and pending litigation. It asserted that it was not disqualified under Section 11 of the Code.

It further contended that the COVID-19 pandemic had caused significant losses, making it impossible to repay outstanding financial and operational debts. The applicant maintained that it had acted in good faith and there was no intention to abuse the provisions of the Code.

Kotak Mahindra Bank opposed the admission of the application, arguing that it was malafide and an abuse of the process of law. The bank contended that the Corporate Applicant had defaulted on loans assigned to it from Magma Fincorp, with an outstanding amount of Rs. 27.44 lakh, and was attempting to use CIRP to escape repayment obligations. The bank argued that admitting the application would cause irreparable harm to financial creditors and unfairly protect the borrowers and guarantors.

The operational creditor alleged that the Corporate Applicant had misrepresented its business capabilities and falsely claimed association with high-profile clients. RITCO Travels stated that the company had defaulted on payments for travel services amounting to Rs. 31.88 lakh and was evading recovery proceedings in the Commercial Court, New Delhi. The creditor argued that the Corporate Applicant was filing the Section 10 application to delay legitimate recovery efforts and frustrate creditors.

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The Tribunal examined the application, objections, rejoinder, and supporting documents. The tribunal observed that the existence of debt and default was established, and the Corporate Applicant was not subject to Section 11 disqualifications.

The tribunal referred to precedents, including Unigreen Global Pvt. Ltd. v. Punjab National Bank, noting that once an application is complete and statutory requirements are met, the authority must admit the application. Allegations of malicious intent or ongoing recovery proceedings could not bar admission under Section 10 if the Corporate Applicant complied with statutory requirements.

The two-member bench comprising Atul Chaturvedi (Technical Member) and Manni Sankariah Shanmuga Sundaram (Judicial Member) concluded that CIRP should be admitted, appointed Mr. Ashok Arora as the Interim Resolution Professional, and directed a public announcement.

The Corporate Applicant was instructed to deposit Rs. 2 lakh to cover IRP expenses. A moratorium under Section 14 was declared, preventing the continuation of suits, the transfer of assets, or the enforcement of security interests against the Corporate Debtor. The IRP was directed to manage day-to-day affairs, protect assets, and perform all functions under Sections 15–21 of the Code.

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