2017 (2) TMI 1391 - Tri - Companies Law

Corporate insolvency process - financial debt - Held that - Respondent No. I- Company has committed default in respect of financial debt owed to the petitioner/ financial creditor. The reasons for our satisfaction are that the factum of advance has not been disputed. The payment of interest @12% per annum was being made. It satisfies the requirement of time value of money in such like transaction as is required by Section 5(8) to constitute it as a Financial Debt . The Respondent No. I Company has acknowledged the receipt of advance by confirming the same on 1.4.2016. It is also evident that no reply to the demand notice dated 10.8.2016 has been entered by the Respondent No. I-Company. Therefore we are of the view that the present petition warrants admission. The arguments advanced on behalf of R-1 company have failed to impress us because the theory of advance money for purchase of shares cannot be accepted because the shares were purchased in the year 2015 and no intimation of the purchase of share has been sent to the petitioner. On the contrary the Respondent No. 1-Company have been paying interest @ 12 % to the petitioner company. The argument with regard to written agreement for advancing loan is also devoid of merit once it is accepted that the amount has been received and interest thereon has been paid at the rate of 12 %. We are also unable to appreciate that the confirmation of accounts on 1.4.2016 by one Mr. Neeraj Sharma under the seal of R-I Company is liable to be ignored on the ground that he was not authorised to issue such certificate. The defence of the Respondent No. 1 Company is wholly illusory and we have no hesitation to reject the same. - Petition admitted.

Summary

Issues Involved:
1. Determination of the petitioner as a 'Financial Creditor'.
2. Existence of a 'Financial Debt'.
3. Default in repayment of the loan.
4. Validity of the defense raised by the respondent.
5. Initiation of the insolvency resolution process.

Issue-wise Detailed Analysis:

1. Determination of the petitioner as a 'Financial Creditor':
The petitioner, M/S Tomorrow Sales Agency Pvt. Ltd., is a non-banking financial company registered with the RBI. It claims to be a 'Financial Creditor' under Section 7 of the Insolvency and Bankruptcy Code 2016 (IBC). The tribunal acknowledges the petitioner as a financial creditor, referencing the judgment in Nikhil Mehta and Sons (HUF) & Ors. v. M/s AMR Infrastructure Ltd., which states, "Section 5(7) of IBC defines the expression 'Financial Creditor' and Section 5(8) of IBC defines the expression 'Financial debt' which has been used in Section 5(7) of IBC."

2. Existence of a 'Financial Debt':
The petitioner advanced a loan of ?15 crores to the respondent at an interest rate of 12% per annum. The tribunal examines whether this constitutes a 'Financial Debt' as per Section 5(8) of the IBC, which requires the debt to be disbursed against the consideration for the time value of money. The tribunal concludes that the loan satisfies this requirement, noting, "The key feature of financial transaction as postulated by section 5(8) is its consideration for time value of money."

3. Default in repayment of the loan:
The tribunal finds that the respondent defaulted on the repayment of the loan. The loan amount and the accrued interest were acknowledged by the respondent through a confirmation of account dated 1.4.2016. Despite this, the respondent failed to repay the loan, and no reply was received to the demand notice sent by the petitioner on 10.8.2016. The tribunal states, "We are also satisfied that Respondent No. I- Company has committed default in respect of financial debt owed to the petitioner/ financial creditor."

4. Validity of the defense raised by the respondent:
The respondent argued that there was no written agreement for the loan and that the amount was an advance payment for purchasing shares. The tribunal rejects this defense, stating, "The theory of advance money for purchase of shares cannot be accepted because the shares were purchased in the year 2015 and no intimation of the purchase of share has been sent to the petitioner." The tribunal also dismisses the argument regarding the lack of a written agreement, emphasizing that the receipt of the amount and the payment of interest at 12% were accepted.

5. Initiation of the insolvency resolution process:
The tribunal admits the petition and initiates the insolvency resolution process against the respondent. The tribunal appoints an interim Insolvency Resolution Professional (IRP) to manage the operations of the respondent company and suspends the powers of the Board of Directors. The tribunal issues several interim orders, including prohibiting the respondent from transferring or disposing of its assets and restraining the respondent from instituting or continuing any legal proceedings. The tribunal states, "The petition is admitted. Mr. Sanjay Grover, Company Secretary as named by the petitioners, is appointed as an interim Insolvency Resolution Professional to conduct the corporate insolvency process."

Conclusion:
The tribunal concludes that the petitioner is a 'Financial Creditor', the loan constitutes a 'Financial Debt', and the respondent defaulted on the repayment. The defense raised by the respondent is rejected, and the insolvency resolution process is initiated, with specific directions issued to the interim Insolvency Resolution Professional and the respondent company. The case is listed for further consideration on 25.4.2017.