2019 (10) TMI 1293 - Tri - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Existence of debt and default - HELD THAT - It is apparent that financial assistance of P.s. 90 Jakhs was given to the Corporate Debtor on terms and conditions inviting interest @ 2% per month. The Corporate Debtor has failed to remit the interest as well as the principal amount. The cheques given in discharge of the Principal loan liability were dishonoured on presentation, as were the cheques given for interest - The submissions made by the Corporate Debtor is that the said amount is only a security and does not amount to a financial claim is misplaced as the entire intent is apparent from the terms and conditions of the MOU. The fact that the repayment of the loan was secured by offer of cheques and proposed allotments of plots cannot demolish the case of the Financial Creditor that a financial debt has occurred and the Corporate Debtor has defaulted in repayment of the same. Petition admitted - moratorium declared.

Summary

Issues:
- Petition filed by Financial Creditor for initiation of Corporate Insolvency Resolution Process.
- Dispute regarding nature of transaction and classification as a financial debt.
- Failure of Corporate Debtor to repay principal amount and interest leading to default.
- Determination of whether the amount given constitutes a financial claim or a security deposit.

Analysis:
1. The Financial Creditor filed a petition seeking initiation of Corporate Insolvency Resolution Process against the Corporate Debtor, alleging non-repayment of a loan amount along with interest. The Financial Creditor provided financial assistance of ?90 lakhs to the Corporate Debtor, evidenced by MOUs and post-dated cheques as security for repayment. The Corporate Debtor failed to repay the amount, leading to the petition.

2. The Corporate Debtor contested the petition, arguing that the amount in question was a refundable security deposit related to a real estate transaction and not a financial debt. The Corporate Debtor claimed that the transaction did not fall under the Insolvency and Bankruptcy Code. However, the Tribunal inferred that the transaction involved the grant of financial assistance with interest, despite being termed as a security deposit against a construction contract.

3. It was established that the Financial Creditor provided financial assistance of ?90 lakhs to the Corporate Debtor, with an agreed interest rate of 2% per month. The Corporate Debtor failed to repay the principal amount and interest, leading to dishonored cheques. The Tribunal ruled that the nature of the transaction, despite being labeled as a security deposit, constituted a financial claim due to the intent of the parties and the terms of the MOUs.

4. The Tribunal rejected the Corporate Debtor's argument that the amount was solely a security deposit, emphasizing that the intent of the transaction was clear from the terms and conditions of the MOUs. The repayment of the loan was secured by cheques and proposed plot allotments, supporting the Financial Creditor's claim of a financial debt. Consequently, the petition was admitted, and a moratorium under Section 14 of the Code was imposed, appointing an IRP to oversee the Corporate Insolvency Resolution Process.

5. The Tribunal's decision highlighted the importance of analyzing the substance of transactions over their form, emphasizing the parties' intentions and the economic reality of the dealings. The ruling underscored the significance of honoring financial obligations and the consequences of default in repayment, ultimately upholding the Financial Creditor's claim and initiating the insolvency resolution process against the Corporate Debtor.