9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (1) TMI 1813 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to pay the outstanding debt with interest - financial debt or not - existence of debt and dispute or not - HELD THAT - The Definition as prescribed u/s 5(8) of the Code is that a Financial Debt has a component of Interest and in other words has a component of Time Value of Money . In my view the present position of the transaction is thus coming within the definition of Financial Debt as defined u/s 5(8) of the Code. An entry recorded in the books of accounts is to be narrated in the light of the surrounding circumstances and the action taken either by the depositor or by the receiver. In this case an important fact cannot be ignored that on receiving the amount in question the Debtor Company had treated the impugned amount as a loan and thereupon undisputedly deducted Tax at Source on payment/ accrual of Interest. Form 26AS is submitted as an evidence depicting clearly the payment was towards Interest. Under the provisions of the Income Tax Act either on payment or on accrual of interest it is the responsibility of the person to deduct TDS at the time of payment or on passing the credit entry as interest in its books of accounts. Keeping this provision of Income Tax Act in mind the Debtor Company had deducted the TDS and issued a certificate on Form 26-AS already furnished by the Petitioner as a part of the evidence. Because of this reason a conclusion can be drawn that the Respondent Company has unequivocally recorded the transaction in question as a Financial Liability. In the present case the cause of action had arisen when the Debtor company had refused to return the loan. However in the Civil proceedings the cause of action is in operation when the litigating parties file a suit of divorce. Both the legal proceedings are independent having no nexus with each other therefore can be independently adjudicated by two different judicial forum. This Bench is of the view that the transaction is within the definition of Financial Debt hence the Petition u/s 7 deserves to be Admitted - Application admitted - moratorium declared.
Issues Involved:
1. Whether the amount claimed by the Petitioner qualifies as a 'Financial Debt' under Section 5(8) of the Insolvency and Bankruptcy Code, 2016. 2. Whether the transaction between the Petitioner and the Corporate Debtor was a loan or a family arrangement. 3. Whether the Corporate Debtor is insolvent and unable to pay its debts. 4. Appointment of Interim Resolution Professional (IRP) and initiation of Corporate Insolvency Resolution Process (CIRP). Issue-wise Detailed Analysis: 1. Whether the amount claimed by the Petitioner qualifies as a 'Financial Debt' under Section 5(8) of the Insolvency and Bankruptcy Code, 2016: The Tribunal examined the definition of 'Financial Debt' under Section 5(8) of the Insolvency and Bankruptcy Code, 2016, which includes a component of 'Interest' and the 'Time Value of Money'. The Petitioner provided financial assistance of ?55,00,000/- to the Corporate Debtor, out of which ?5,00,000/- was repaid. The Corporate Debtor agreed to pay interest at 12% per annum on the remaining ?50,00,000/-. The Tribunal noted that the Corporate Debtor paid interest for three quarters, deducted TDS, and recorded the transaction as 'Short Term Borrowings' in its books of accounts. Based on these facts, the Tribunal concluded that the transaction qualifies as a 'Financial Debt'. 2. Whether the transaction between the Petitioner and the Corporate Debtor was a loan or a family arrangement: The Corporate Debtor argued that the amount was not a loan but an internal family arrangement, retained as an escrow amount for the alimony of the Petitioner's wife, who is the sister of the Corporate Debtor's directors. The Tribunal, however, found that the Corporate Debtor treated the amount as a financial liability in its books and deducted TDS on the interest paid, indicating a loan transaction. The Tribunal dismissed the argument that the transaction was a family arrangement, emphasizing the legal and financial documentation supporting the loan nature of the transaction. 3. Whether the Corporate Debtor is insolvent and unable to pay its debts: The Petitioner sent a legal notice to the Corporate Debtor on 11.10.2017, demanding repayment of the outstanding amount with interest, but received no response or payment. The Tribunal considered the Corporate Debtor's failure to repay the debt and its recorded financial liability, concluding that the Corporate Debtor is commercially insolvent and unable to meet its liabilities. 4. Appointment of Interim Resolution Professional (IRP) and initiation of Corporate Insolvency Resolution Process (CIRP): The Tribunal admitted the Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, and appointed Mr. Ajay Kumar as the Interim Resolution Professional (IRP). The Tribunal imposed a moratorium on the institution of suits, transfer of assets, and recovery actions against the Corporate Debtor, effective from 14.01.2019 until the completion of the CIRP or further orders. The Tribunal directed the public announcement of the CIRP and scheduled the next hearing for 20.02.2019. Conclusion: The Tribunal found that the transaction qualifies as a 'Financial Debt' under the Insolvency and Bankruptcy Code, 2016, and the Corporate Debtor is insolvent. The Petition was admitted, and the CIRP was initiated with the appointment of an IRP and imposition of a moratorium.
|
