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2020 (10) TMI 1071 - HC - Insolvency and BankruptcyScheme of the special Statute - Fraudulent / malicious petition - It is the case of the petitioner that simultaneously, there also an execution of Deferred Payment Facility Agreement dated 15.11.2010 between CD and respondent No.3 which is a financial company in the name of BMW India Financial Services Private Limited. - principles of natural justice - HELD THAT -This Insolvency and Bankruptcy Code, 2016 is the Act to consolidate and amend laws relating to re- organization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such person, who promote entrepreneurship, availability of credit and balance, the interest of stake holders including alteration in the order of priority of payment of Government dues and to establish an insolvency and bankruptcy board of India and for matters connected therewith and incidental thereto. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in a very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non- payment of even part thereof or an installment amount. The Code gets triggered the moment default is of ₹ 1 lakh or more in view of Section 4 of the Code. The corporate insolvency resolution process may be triggered even by the corporate debtor itself or a Financial Creditor or Operational Creditor. A clear distinction is made by the Code between debt owned to Financial Creditors and Operational Creditors. The Code has further prescribed that when it comes to Financial Creditor, triggering the process under Section 7 becomes relevant under the explanation to Section 7(1), a default is in respect of financial debt owned by any Financial Creditor of the Corporate Debtor, it needs to be a debt owned to the applicant Financial Creditor. A debt may not be due if it is not payable in law or in fact, but the moment the adjudicating authority is satisfied that a debt has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the default within seven days of the receipt of the notice from the adjudicating authority. In the instant case, the financial creditor, namely, BMW Indian Financial Services Private Limited has presented the petition being Company Petition (IB) No.161 of 2017, in which a clear opportunity of hearing is given to the petitioner and the corporate debtor, as well. The corporate debtor i.e. CD has filed detailed objection raising multiple contentions. Petition dismissed.
Issues Involved:
1. Maintainability of the Section 7 application under the Insolvency and Bankruptcy Code (IBC). 2. Classification of the debt as financial or operational. 3. Alleged collusion and fraud between the respondents. 4. Jurisdiction and principles of natural justice. 5. Validity of the order passed by the National Company Law Tribunal (NCLT). Detailed Analysis: 1. Maintainability of the Section 7 application under the Insolvency and Bankruptcy Code (IBC): The petitioner argued that the Section 7 application filed by BMW India Financial Services Private Limited should be treated as an application under Section 9 of the IBC, contending that the claim relates to operational debt rather than financial debt. The court examined the scheme of the IBC, emphasizing that the Code is designed to ensure insolvency resolution in a time-bound manner. The court noted that the NCLT had provided a clear opportunity for the corporate debtor to present its objections, which were duly considered. The NCLT concluded that the debt was due and defaulted, and the application was complete for initiating the Corporate Insolvency Resolution Process (CIRP). 2. Classification of the debt as financial or operational: The petitioner contended that the debt should be classified as operational rather than financial, as it arose from transactions related to the sale of vehicles. The court referred to the definitions of "financial creditor" and "financial debt" under the IBC, noting that a financial debt is disbursed against the consideration for the time value of money. The court highlighted that the NCLT had examined the financial arrangements, including the Floorplan Financing Agreement and the Working Capital Demand Credit Facility Agreement, and concluded that the debt was indeed financial in nature. 3. Alleged collusion and fraud between the respondents: The petitioner alleged collusion and fraud between BMW India Private Limited (respondent No. 2) and BMW India Financial Services Private Limited (respondent No. 3). The court noted that the NCLT had rejected the application under Section 65 of the IBC, which alleged fraudulent and malicious intent, on the grounds that respondent No. 2 was not a party to the main insolvency petition. The NCLT found that the corporate debtor had acknowledged its default and promised to make payments on multiple occasions, thus dismissing the claims of collusion and fraud. 4. Jurisdiction and principles of natural justice: The petitioner argued that the NCLT's order violated principles of natural justice and was passed without proper consideration of the objections raised. The court referred to the Supreme Court's judgment in Swiss Ribbons Private Limited v. Union of India, which upheld the constitutionality of the IBC and affirmed the distinction between financial and operational creditors. The court emphasized that the NCLT had followed due process, provided opportunities for the corporate debtor to present its case, and adhered to principles of natural justice. 5. Validity of the order passed by the National Company Law Tribunal (NCLT): The court examined the NCLT's order, which admitted the insolvency petition and appointed an Interim Resolution Professional (IRP). The court found that the NCLT had conducted a detailed examination of the material presented, including financial agreements and communications between the parties. The court concluded that the NCLT's order was not perverse and was passed based on relevant material and in compliance with legal principles. The court also noted that the petitioner's challenge to the NCLT's order was filed belatedly, and the insolvency process had already been set in motion. Conclusion: The court dismissed the petition, finding no merit in the arguments presented by the petitioner. The court held that the NCLT had acted within its jurisdiction, followed due process, and adhered to principles of natural justice. The court also emphasized that the petitioner could pursue other legal remedies if available. The petition was dismissed with no order as to costs.
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