2019 (4) TMI 1845 - Tri - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - existence of debt and dispute or not - whether the amount paid by the petitioner is covered by Section 5(8) of the Insolvency Bankruptcy Code? - HELD THAT - It is a pure and simple advancement of loan denuded of any element of time value for money. Therefore, such a transaction would not acquire the status of a 'financial debt' as the transaction does not have consideration for the time value of money, which is a substantive ingredient to be satisfied for fulfilling requirements of the expression 'Financial Debt'. We are unable to persuade ourselves to accept that the petitioner is covered by the expression Financial Creditor in term. Therefore, the petitioner does not answer the description of Section 7 read with Section 5(7) 5(8) of IBC. The petition is accordingly dismissed.

Summary

Issues Involved:
1. Whether the petitioner qualifies as a 'financial creditor' under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Whether the loan provided by the petitioner constitutes a 'financial debt' under Section 5(8) of the Insolvency and Bankruptcy Code, 2016.

Issue-Wise Detailed Analysis:

1. Whether the petitioner qualifies as a 'financial creditor' under Section 7 of the Insolvency and Bankruptcy Code, 2016:

The petitioner, claiming to be a 'financial creditor,' filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (the Code) with a prayer for initiation of the Corporate Insolvency Resolution Process against the respondent company. The petitioner's claim was based on a loan of ?1.70 crore provided to the respondent company, which was not repaid. The respondent opposed the petition, arguing that the petitioner does not qualify as a 'financial creditor' as defined under the Code.

The Tribunal examined the definitions provided in Sections 5(7) and 5(8) of the Code. Section 5(7) defines a 'financial creditor' as any person to whom a financial debt is owed. Section 5(8) defines 'financial debt' as a debt along with interest, which is disbursed against the consideration for the time value of money. The Tribunal concluded that the petitioner does not meet the criteria for a 'financial creditor' because the loan provided lacked the element of consideration for the time value of money.

2. Whether the loan provided by the petitioner constitutes a 'financial debt' under Section 5(8) of the Insolvency and Bankruptcy Code, 2016:

The Tribunal analyzed whether the loan of ?1.70 crore provided by the petitioner to the respondent company qualifies as a 'financial debt' under Section 5(8) of the Code. The petitioner argued that the loan was to be repaid within three months or upon the consummation of a deal with Piramal Enterprises Limited. The respondent issued cheques for the repayment, which were dishonored. The petitioner served a legal demand notice under Section 138 of the Negotiable Instruments Act, and proceedings were pending.

The Tribunal found that the loan agreement did not specify any interest payable on the amount, nor did it indicate that the loan was disbursed against the consideration for the time value of money. The Tribunal emphasized that the key feature of a financial transaction under Section 5(8) is its consideration for the time value of money, which was absent in this case. Consequently, the Tribunal concluded that the loan does not constitute a 'financial debt' under the Code.

Conclusion:

The Tribunal dismissed the petition, holding that the petitioner does not qualify as a 'financial creditor' and the loan provided does not constitute a 'financial debt' under the Insolvency and Bankruptcy Code, 2016. The Tribunal clarified that the petitioner's remedy may lie elsewhere and that the observations made in the order should not prejudice the petitioner's rights before any other forum.