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2020 (10) TMI 1071 - HC - Insolvency and Bankruptcy


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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