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2021 (2) TMI 787 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - Whether the amount claimed by the applicant falls under the definition of Financial Debt or not? - HELD THAT - The Petitioner has failed to produce on record any document to show that the amount which is actually given to the Corporate Debtor for interest i.e. loan disbursed against the time value of money. From the careful perusal of the definition of Financial Debt, makes it clear that a debt will not become financial debt if it was not advanced for time value money. The letter dated 03.04.2016 at annexure D and the various balance sheets relied upon by the Petitioner makes it abundantly clear that there is no interest payable on the loan advanced by the Petitioner. Apart from the above, no time is fixed for repayment in the absence of which it cannot be said that the loan was lent for time value money. Thus, there should be no hesitation in holding that the above amount claimed in the above Petition does not fall under the definition of financial debt and the above Company Petition is liable to be dismissed. Petition dismissed.
Issues:
1. Whether the amount claimed qualifies as a financial debt under the Insolvency and Bankruptcy Code, 2016? Analysis: The petitioner sought the Corporate Insolvency Resolution Process of the Corporate Debtor due to default in payment amounting to ?2,70,00,000 under Section 7 of the Code. The loan was provided as an unsecured, interest-free loan to avoid fund flow issues during a crisis. The loan terms included immediate repayment upon the petitioner's resignation from the board of directors, which was acknowledged by the Corporate Debtor in its audited accounts and ledger entries. Despite formal notices for repayment, the Corporate Debtor failed to repay the dues. The Corporate Debtor contended that the loan was a book entry without actual funds transfer, raising issues under FEMA regulations and ICAI disclosure requirements. They argued that the loan was used to shift liabilities and questioned the source of funds. Additionally, they raised concerns about FATCA compliance and requested NCLT to obtain global asset and liability statements of the petitioner. The key issue was whether the loan amount qualified as a financial debt under the Code. The definition of financial debt includes debts disbursed against the time value of money. The Corporate Debtor argued that since there was no stipulation for interest and no fixed repayment time, the loan did not meet the criteria for a financial debt. They cited NCLAT judgments to support their position, emphasizing the importance of disbursal against the time value of money. The tribunal analyzed the definition of financial debt and the case laws cited by the Corporate Debtor. It concluded that without evidence of disbursal against the time value of money, the loan did not fall under the definition of financial debt. As a result, the Company Petition was dismissed, with observations that the petitioner could pursue legal avenues for recovery. The tribunal did not address other contentions raised by the Corporate Debtor regarding RBI permission and book entry nature of the amount. In summary, the judgment focused on interpreting the definition of financial debt under the Code and emphasized the requirement of disbursal against the time value of money. The decision highlights the importance of clear terms in loan agreements to determine the nature of the debt and its qualification under insolvency proceedings.
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