2018 (12) TMI 1669 - Tri - Insolvency and Bankruptcy

Maintainability of application - Initiation of Corporate Insolvency Resolution Process (CIRP) - Corporate Debtor - conversion of petition u/s 7 of the l B Code - whether the loan advanced by the Financial Creditor to the Corporate Debtor is the financial debt? - whether for non-suggesting the name of I.R.P. in the application, the application is required to be rejected? HELD THAT - Section 7(3) of I B code states that, the Financial Creditor shall along with the application furnish -(a) record of the default recorded with information utility or such other record or evidence of default as may be satisfied; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. - Section 7(5) of l B Code further states that / where the Adjudicating Authority is satisfied that- (a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, if may, by order, admit such application; or (b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application. In this case, the Financial Creditor produced on record the statement of loan account of the Corporate Debtor maintained by them. A perusal of them proves that the loan was given to the Corporate Debtor and it has not been repaid. In fact, there is no dispute about this fact. It is the only say of the Corporate Debtor that since no interest is liable to be paid on the amount, it cannot be termed as the financial debt. It is now settled law that while considering application under section 7 of l B Code, the authority has to record finding only on two aspects - (i) whether there is a debt and (ii) whether there is a default of the debt. In this case, the Financial Creditor has proved both the facts. Application admitted.

Summary

Issues:
1. Conversion of application from section 9 to section 7 of I&B Code
2. Existence of financial debt and default
3. Requirement to suggest name of Interim Resolution Professional (IRP)

Analysis:
1. The application was initially filed under section 9 of the I&B Code by the Financial Creditor against the Corporate Debtor but was later converted to section 7 upon realizing the creditor's status. The Financial Creditor provided detailed accounts of loans advanced to the Corporate Debtor over the years, totaling a significant amount due by the Corporate Debtor. The Corporate Debtor contested the application's completeness, citing lack of proposed IRP and absence of attached financial statements as mandatory requirements. However, the Tribunal found the application maintainable under section 7.

2. The Financial Creditor substantiated the existence of financial debt through loan accounts and statements, highlighting the Corporate Debtor's acknowledgment of the debt in their financial records. The Corporate Debtor argued that the transaction did not qualify as a financial debt due to the absence of interest payments. However, the Tribunal referred to the broad definition of financial debt under section 5(8) of the I&B Code, emphasizing that any consideration for the time value of money constitutes a financial debt. Consequently, the Tribunal upheld the debt as a financial debt and admitted the CIRP against the Corporate Debtor.

3. The Corporate Debtor raised objections regarding the absence of a suggested IRP's name in the application, deeming it non-maintainable. While acknowledging the statutory requirement under section 7(3)(b) to propose an IRP, the Tribunal ruled that the absence of a suggested IRP's name did not warrant rejection of the application. The Tribunal clarified that the focus should be on verifying the presence of debt and default, which the Financial Creditor adequately demonstrated. The Tribunal appointed an IRP from the panel of Insolvency Professionals to proceed with the Corporate Insolvency Resolution Process (CIRP).

In conclusion, the Tribunal admitted the application under section 7 of the I&B Code, declared a moratorium, appointed an IRP, and directed further actions for the resolution process. The judgment emphasized the importance of proving debt and default for admission of CIRP, underscoring the broad interpretation of financial debt under the Code.