Bombay High Court Allows Insolvency Plea Of Orbit Corp’s Former Directors

The Bombay High Court allowed a plea filed by two former directors of troubled Orbit Corp. Ltd. claiming their inability to repay debts, pronouncing them insolvent.

A single-judge bench of Justice SC Gupte dismissed all objections raised by the creditors and appointed an official assignee to manage and initiate sale of the properties belonging to Ravikiran Aggarwal and Pujit Aggarwal—the two directors of the real estate company before it was ordered to be wound up by the court in April 2018.

The duo had filed an application last year to be declared as insolvent under the Presidency Towns Insolvency Act due to their inability to pay Rs 56 crore to Vardhaman Developers Ltd. The act allows debtors to voluntarily file an insolvency application if they owe an amount more than Rs 500 and are unable to service the debt.

The Aggarwals, the creditors argued, owe more than Rs 384 crore to Life Insurance Corporation of India and LIC Housing Finance Ltd. on account of personal guarantees extended by them against the loans taken by Orbit Corp. A consortium comprising State Bank of India, Union Bank and Axis Bank, too, filed claims exceeding Rs 290 crore with the Debt Recovery Tribunal.

Venkatesh Dhond, senior counsel appearing for Vardhaman Developers, opposed the insolvency petition, alleging the former directors failed to make a complete disclosure. The guarantee deeds signed by them were not genuine. The high court has power to refuse an insolvency application if it is an abuse of the process of law.

The Aggarwals had not disclosed that they were holding assets in the name of various shell entities and individuals. These assets exceeded the debts owed by the duo to their creditors, Vardhaman Developers alleged.

The court, however, accepted submissions by Aggarwals’ counsels Chirag Balsara and Gaurang Mehta.

The Bombay High Court allowed the insolvency application on the following grounds:

• The Presidency Towns Insolvency Act allows a debtor to file a petition in the high court for being declared as an insolvent if he alleges his inability to service debt.
• Such filing of petition itself is “an act of insolvency” and the court can decide such matter unless it lacks jurisdiction.
• The law does not provide an opportunity to the court for examining correctness of an insolvency application.
• It does not require a court to conduct any probe if conditions specified in the law are met. As such, a debtor’s own statement about inability to service debt is sufficient for triggering the insolvency process.
• An admission of insolvency merely results in appointment of an official assignee, which is beneficial for all creditors.
• Priority of claims by the creditors can be contested after the admission of insolvency.