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2019 (2) TMI 966 - Tri - Insolvency and BankruptcyInitiation of Corporate Insolvency Resolution Process - whether the petitioner would be covered by the definition of expression financial creditor as per the provisions of Sections 5(7) & (8) of the Code? - Held that - The definition of expression financial creditor as provided by Section 5(7) of the Code which means any person to whom a financial debt is owed and includes a person to whom such financial debt has been legally assigned or transferred. A perusal of the definition given in Section 5(8) of the Code would show that a financial debt would mean a debt along with interest which is disbursed against the consideration for the time value of money. The definition must be read in its contemporaneous meaning to cover all such, financial transactions as providers of finance commonly enter into. It appears that the petitioner fulfils the first ingredient of Section 5 (8) of the Code. In the present case it is evident from the perusal of reply to the notice sent by the Corporate Debtor to the Financial Creditor that as per agreements and addendums executed between them, a sum of ₹ 1,85,00,000/- (Rupees One Crore Eighty Five Lakh Only) belonging to the petitioners has been deposited with Trustworthy Gems & Jewellers Private Limited and Logical Jewellers Private Limited towards security of liabilities of K.K. Kohli & Brothers Private Limited (now known as SRS Automotive Components Pvt. Ltd.) for period upto 31.03.2008. It is also asserted by the Corporate Debtor that they have been fulfilling their part of obligation by payment of interest on the aforesaid amount through Trustworthy Gems & Jewellers Private Limited and Logical Jewellers Private Limited. However, the petitioners have remained unable to clear its own liabilities within maximum period of 5 years and alleged to have avoided the clearance of the aforesaid liabilities deliberately knowing fully well that interest and penalty is accruing day-by-day. The amount is to become due and payable on the performance of obligation undertaken by the Financial Creditor but not before that. In the petition a copy of the reply dated 06.12.2017 filed by the Corporate Debtor has been attached but no detailed explanation has been given has to how the Financial Creditor is not liable to perform its obligations. Accordingly, we are of the view that in the absence of performance of its own obligation the amount would not be due and payable to the Financial Creditor. As a sequel to the above discussion we find that the petitioners do not satisfy the requirements of Section 7 (5) of the Code in so far as no default appears to have occurred which is to arise only after fulfilling the obligations on the part of the Financial Creditor. The default would occur only when the amount is due and payable as stated in the above paras. Accordingly, the petition fails and the same is dismissed.
Issues Involved:
1. Whether the petitioners qualify as 'financial creditors' under Section 7 of the Insolvency and Bankruptcy Code, 2016. 2. Whether there has been a 'default' as defined under the Code. 3. Whether the Corporate Insolvency Resolution Process (CIRP) can be initiated against the respondent company. Issue-wise Detailed Analysis: 1. Qualification as 'Financial Creditors': The petitioners, claiming to be 'financial creditors', filed under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against the respondent company, Logical Jewellers Private Limited. The petitioners proposed the name of Shri Ashish Singh as the Resolution Professional, who met the requirements under Section 7 (3) (b) of the Code. The Tribunal examined whether the petitioners fell within the definition of 'financial creditor' as per Sections 5(7) and 5(8) of the Code. According to Section 5(7), a 'financial creditor' is any person to whom a financial debt is owed, including those to whom such debt has been legally assigned or transferred. Section 5(8) defines 'financial debt' as a debt along with interest, disbursed against the consideration for the time value of money. The Tribunal noted that the petitioners met the first ingredient of Section 5(8), as the debt included both principal and interest. 2. Existence of 'Default': The Tribunal further analyzed whether a default had occurred as per Section 3(12) of the Code, which defines default as non-payment of debt when due and payable. The Corporate Debtor argued that the petitioners had deposited ?1,85,00,000 with Trustworthy Gems & Jewellers Private Limited and Logical Jewellers Private Limited towards the security of liabilities of K.K. Kohli & Brothers Private Limited (now SRS Automotive Components Pvt. Ltd.) for the period up to 31.03.2008. The Corporate Debtor claimed to have fulfilled their obligation by paying interest on the amount, but alleged that the petitioners failed to clear their own liabilities within the agreed period, thus accruing penalties and interest. The Tribunal referred to the Supreme Court's decision in Innoventive Industries Ltd. v. ICICI Bank Ltd. (2018) 1 SCC 407, which emphasized that the Adjudicating Authority must be satisfied that a default has occurred, and the Corporate Debtor is entitled to show that no default has occurred. The Tribunal noted that the Corporate Debtor had asserted that the amount was not due and payable until the petitioners cleared their liabilities, which they had failed to do. 3. Initiation of CIRP: The Tribunal concluded that the petitioners did not satisfy the requirements of Section 7(5) of the Code, as no default had occurred. The default would only arise after the petitioners fulfilled their obligations. As the petitioners did not provide a detailed explanation for their failure to perform their obligations, the Tribunal determined that the amount was not due and payable to the petitioners. Conclusion: The Tribunal dismissed the petition, stating that the dismissal should not be construed as an opinion on the merits of the controversy in any other proceedings. These were summary proceedings, and the Tribunal was not persuaded to initiate the Corporate Insolvency Resolution Process.
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