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Home Case Index All Cases Insolvency and Bankruptcy Insolvency and Bankruptcy + Tri Insolvency and Bankruptcy - 2019 (2) TMI Tri This

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2019 (2) TMI 966 - Tri - Insolvency and Bankruptcy


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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