2019 (4) TMI 1864 - AT - Insolvency and Bankruptcy

Maintainability of application - CIRP process - Corporate Debtor failed to make repayment of its dues - whether the appellant comes within the meaning of Financial Creditor as defined under Section 5(7) r/w (8) of the I B Code ? - HELD THAT - In the present case, it is admitted that the appellant Mr. Ravinder Pal Singh Lamba has invested the money for running the business of M/s. Satkar Air Cargo Services Pvt. Ltd. ( Corporate Debtor ), as accepted in the pleadings of the respondent. The record also shows that it is a long term borrowing . Therefore, it is clear that the amount was disbursed by the appellant against the consideration for time value of money and the Corporate Debtor is shown as long-term borrowings for running the company. For the reason aforesaid, we hold that the appellant comes within the meaning of Financial Creditor , as the amount disbursed comes within the meaning of Financial Debt . In the present case, it is not in dispute that the Corporate Debtor has defaulted in making payment and record shows that the appellant has disbursed the amount and therefore has right to claim - Having held that the appellant comes within the definition of Corporate Debtor , we are of the view that the application filed by the appellant under Section 7 was required to be admitted by the Adjudicating Authority, but the Adjudicating Authority having failed to consider the matter in proper perspective, we set aside the impugned order dated 21st August, 2018 and remit the case to the Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi to admit the application under Section 7 after notice to the Corporate Debtor , who in the meantime, may settle the claim. Appeal allowed.

Summary

Issues Involved:
1. Whether the appellant qualifies as a 'Financial Creditor' under Section 5(7) read with Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (I&B Code).
2. Whether the amount disbursed by the appellant constitutes a 'Financial Debt' under Section 5(8) of the I&B Code.
3. Whether the application under Section 7 of the I&B Code should have been admitted by the Adjudicating Authority.

Issue-wise Detailed Analysis:

1. Whether the appellant qualifies as a 'Financial Creditor' under Section 5(7) read with Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (I&B Code):

The primary issue revolves around the definition of 'Financial Creditor' as per Section 5(7) of the I&B Code, which states: "financial creditor means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to." The appellant claimed to be a 'Financial Creditor' based on the disbursement of a long-term loan for the consideration of time value of money. The respondent contended that the amount provided was not a loan but an investment for running the business. The Tribunal examined the records, including the financial statements of M/s. Satkar Air Cargo Services Pvt. Ltd., which listed the appellant as an unsecured lender. The Tribunal concluded that the appellant fits the definition of a 'Financial Creditor' as the amount was disbursed against the consideration for time value of money.

2. Whether the amount disbursed by the appellant constitutes a 'Financial Debt' under Section 5(8) of the I&B Code:

Section 5(8) of the I&B Code defines 'Financial Debt' as "a debt along with interest, if any, which is disbursed against the consideration for the time value of money." The appellant argued that the amount of ?80,00,000 was a loan, while the respondent claimed it was an investment. The Tribunal noted the financial records of the corporate debtor, which showed the appellant's disbursement as 'long-term borrowings.' This classification indicated that the amount was indeed disbursed against the consideration for time value of money, thus constituting a 'Financial Debt.'

3. Whether the application under Section 7 of the I&B Code should have been admitted by the Adjudicating Authority:

The Tribunal referred to the Hon'ble Supreme Court's judgment in "Innoventive Industries Ltd. v. ICICI Bank," which clarified that the Adjudicating Authority must see the records or evidence produced by the 'Financial Creditor' to satisfy itself that a default had occurred. The Tribunal found that the corporate debtor had defaulted in making the payment and that the appellant had the right to claim the amount. Consequently, the Tribunal held that the application under Section 7 should have been admitted by the Adjudicating Authority. The impugned order dated 21st August 2018 was set aside, and the case was remitted to the Adjudicating Authority to admit the application after notifying the corporate debtor.

Conclusion:

The Tribunal concluded that the appellant qualifies as a 'Financial Creditor' and the amount disbursed constitutes a 'Financial Debt.' The application under Section 7 of the I&B Code should have been admitted by the Adjudicating Authority. The appeal was allowed, and the case was remitted to the Adjudicating Authority for further proceedings.