2018 (1) TMI 1344 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - Held that - It is not known when the Loans and Advances shown in the Balance Sheets are payable. In these facts and circumstances, placing reliance on the Certificate of the Banker, it is not possible to assume that the Loans and Advances shown in the Balance Sheets are not paid. In view of the above discussion, it can only be held that Petitioners failed to establish the existence of financial debt as on 31.3.2012. When there is no mention about the names of the Petitioners in the Audited Accounts for the year 2012, basing upon the finding it is not possible to hold that a financial debt is due to the Petitioners from the Respondent. Even assuming that there is a financial debt, it is not known when it is payable. There is no material on record to show that when the so-called financial debt is payable. No demand is made by the Petitioners to recall financial debt by issuing notice, though issuance of notice is neither directory nor mandatory nor contemplated. In these circumstances, it is not possible to conclude that a default occurred in repayment of financial debt.

Summary

Issues:
Claim for Corporate Insolvency Resolution Process under Section 7 of the Insolvency and Bankruptcy Code - Authorization of the Petitioners - Existence of financial debt and default in repayment.

Analysis:
The petitioners, claiming as 'Financial Creditors', sought Corporate Insolvency Resolution Process for a company, alleging dues from the respondent. The petition included financial statements, bank certificates, and other documents to support the claim. However, the respondent objected, citing lack of proper authorization from the petitioners. The objection highlighted the absence of documentation proving the petitioners' authority to file the petition on behalf of the entities involved. The respondent also contested the clarity and authenticity of the balances shown in the financial statements submitted by the petitioners.

The respondent raised another objection regarding the lack of clarity in the financial statements provided by the petitioners. The objection pointed out discrepancies in the balances shown, questioning the origin and status of the amounts claimed to be due. The respondent emphasized the absence of any outstanding amounts specifically attributed to the petitioners in the respondent company's financial statements. The audited accounts from previous years indicated loans from one of the petitioners but did not mention any debt owed to the other petitioner.

The judgment further scrutinized the financial documents and the petitioner's claims. It highlighted the need for the petitioners to establish the existence of a 'financial debt' as of the specified date. The court noted that the petitioners failed to demonstrate the nature and timing of the alleged debt, as well as any formal demand for repayment. The absence of clear evidence regarding the debt's existence and repayment terms led to the dismissal of the petition. The court concluded that without sufficient proof of a financial debt and default in repayment, there were no grounds to admit the petition for Corporate Insolvency Resolution Process.

In summary, the judgment focused on the crucial aspects of authorization, clarity in financial statements, and evidence of financial debt and default. The lack of proper authorization, ambiguity in financial balances, and insufficient proof of debt and default were the key factors leading to the dismissal of the petition seeking Corporate Insolvency Resolution Process.