2019 (1) TMI 1717 - Tri - Insolvency and Bankruptcy

Dishonor of Cheque - failure to make repayment of debt - initiation of CIRP of Corporate Debtor - HELD THAT - This Bench is of the opinion that a financial transaction did taken place. The agreement on record is prima-facie one of granting financial assistance to be repaid along with interest. Further, a financial debt as defined under Section 5(8)(f) includes any amount raised under any other transaction, including any forward sale or purchase agreement having the commercial effect of borrowing. The facts of this case squarely fall within the definition of Section 5(8)(f) to qualify as a financial debt, notwithstanding that it was a loan attracting interest. The execution of the demand promissory note, tender of cheques which bounced, acceptance of receipt of financial assistance against offer of security, execution of a specific Finance Agreement all point out to financial assistance availed to be liquidated against future purchases or be returned on demand. In view of the same, the objections raised on behalf of the Corporate Debtor do not merit any consideration. The petitioner/financial creditor is entitled to the prayer made. This Petition is therefore Admitted. Application admitted - moratorium declared.

Summary

Issues:
Financial transaction dispute between a company engaged in manufacturing and a corporate debtor regarding loan repayment and security offered.

Analysis:
The Petitioner, engaged in the manufacture of cored wires and trade of raw material, had a business relationship with the Respondent, a Corporate Debtor dealing in Low Carbon Ferro Chrome production. The Corporate Debtor sought financial assistance from the Petitioner, leading to disbursement of a significant sum repayable with interest. Despite various attempts, the Corporate Debtor failed to repay the loan, leading to the initiation of the resolution process. The dispute primarily revolves around whether the transaction was a financial debt or a trade relationship.

In response to the petition, the Corporate Debtor vehemently opposed the claims, asserting that the transactions were part of a longstanding trade relationship for the supply of materials. They argued that the money received was against future supplies and not as a financial debt. The Corporate Debtor disputed the characterization of the loans and demurrage charges claimed, stating that the amount included liquidated damages, which they contended did not constitute a financial debt.

The Tribunal, after evaluating the arguments and facts presented, concluded that a financial transaction indeed took place between the parties. The terms of the agreement, the execution of demand promissory notes, bounced cheques, and acceptance of financial assistance against security all pointed towards a financial debt. The Tribunal found that the transaction fell within the definition of a financial debt as per the Insolvency and Bankruptcy Code, rejecting the objections raised by the Corporate Debtor. Consequently, the Petition was admitted, and a moratorium under Section 14 of the Code was imposed, staying various actions against the Corporate Debtor.

Furthermore, the Tribunal appointed Mr. Sandeep Kumar Bhatt as the Interim Resolution Professional (IRP) in the case, directing him to undertake necessary steps as mandated by the Code. The IRP was instructed to file a report within 30 days, and the next hearing was scheduled for further consideration on 12th February 2019. The order was to be communicated to both parties and the IRP for compliance and awareness.