Freya Shipping Agencies (P) Ltd v. ML Chopra Shipping (P) Ltd.

INSOLVENCY AND BANKRUPTCY CODE, 2016

--Initiation of corporate insolvency resolution process by financial creditor --Application against non-repayment of loan amount Existence of default committed by corporate debtor not proved by financial creditor ----Where financial creditor filed an application under section 7 against corporate debtor for non-repayment of loan amount, but High Court passed an order to maintain status quo with respect to business, properties and assets, which included the financial creditor and the corporate debtor and the financial creditor had also failed to prove existence of default committed by the corporate debtor, therefore, the application was not maintainable. --Financial creditor filed an application under section 7 against corporate debtor on the ground that the corporate debtor had committed default in repayment loan amount. The corporate debtor averred that the financial creditor and the corporate debtor were sister concern and in relation to family settlement, High Court passed an order to maintain status quo with respect to business, properties and assets, which included the financial creditor and the corporate debtor. Further that, there was no default as defined under section 3(12), as the amount of claim had not become due or payable to satisfy the requirement of section 7(1). Therefore, the application was not maintainable. Held: The financial creditor and the corporate debtor were sister concern. Further that, director of the financial creditor and director of the corporate debtor were brothers. There was a family settlements finalized into an award and that an execution of the award was pending before the High Court. Therefore, the financial creditor was prohibited from altering the status quo with regard to the business, properties and assets in the possession of the financial creditor. Further that, the status quo order also would applicable to the assets of the corporate debtor. If the application was to be admitted, then, it would defeat the very purpose of execution of the award. Therefore, the application was not maintainable because of the order of status quo was in force. Further that, the financial creditor failed to prove existence of default committed by the corporate debtor. Thus, the application was rejected.