2019 (9) TMI 1441 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - Financial Debt or not - Privity of Contract - HELD THAT - It is well settled position of Law that a person who commits a breach of contract neither incurs any pecuniary liability nor the other party to the contract who complaints of the breach will have any sum due and payable to him from the other party by virtue of such breach. Further no material has been placed on record by the Applicant to show that the Share pledge Agreement was against any disbursal of Loan to the Corporate Debtor. In other words there is no privity of Contract between the Applicant and the Corporate Debtor in respect of any funds flowing from the Applicant to the Corporate Debtor in connection with the issuance of NCD s by IBTPL. All the explanatory items will be applicable only if the elements of the basic exhaustive definition are present namely (i) disbursal of debt and (ii) consideration of the time value of money. Both these elements are absent in the instant case. Admittedly there has been no disbursal of any debt by the Applicant to the Corporate Debtor against consideration for time value of money - Thus the Applicant s case cannot fall within the definition of Financial Debt as stipulated under section 5(8) which provides that a Financial Debt means a debt along with interest if any which is disbursed against the consideration for the time value of money . With regards to the claim submitted by the Applicant herein the RP has considered the same in the light of the supporting documents submitted by the Applicant as well as the records of the Corporate Debtor available before him. Since the records of the Corporate Debtor did not reveal any amount due and payable to the Applicant the RP has rejected the claim of the Applicant. This Adjudicating Authority observes that the RP was not hasty in rejecting the claim of the Applicant herein and the decision was taken after careful verification from records of assets and liabilities maintained by the Corporate Debtor. Application dismissed.

Issues Involved:
1. Whether the Applicant should be declared a Financial Creditor of the Corporate Debtor.
2. Whether the Applicant should be included in the list of financial creditors of the Corporate Debtor.
3. Whether the claim of the Applicant qualifies as a Financial Debt under the Insolvency and Bankruptcy Code (IBC).
4. Whether the amount claimed by the Applicant requires reassessment due to the invocation of the pledge of shares.
5. Whether the Resolution Professional (RP) has the authority to reject the Applicant's claim.

Detailed Analysis:

1. Declaration as Financial Creditor:
The Applicant sought to be declared a Financial Creditor of the Corporate Debtor based on the Investment Agreement dated June 25, 2015. The Applicant argued that the Corporate Debtor was jointly and severally liable to redeem Non-Convertible Debentures (NCDs) issued by Ind-Bharat Thermotek Pvt Ltd (IBTPL), the holding company of the Corporate Debtor. The Applicant relied on Clause 16.2 of the Investment Agreement, which stated, "The Promoters, the Company and IBEUL shall be jointly and severally liable to ensure the performance of this Agreement." However, the Tribunal found that the obligation of the Corporate Debtor was only to ensure the performance of the Agreement, not to repay any debt.

2. Inclusion in the List of Financial Creditors:
The Applicant requested the RP to include it in the list of financial creditors. The Tribunal noted that the Corporate Debtor was not shown as a pledgor in the Share Pledge Agreement dated July 9, 2015. Additionally, Clause 25.4 of the Investment Agreement indicated that the liability towards the redemption of NCDs was undertaken by IBTPL and the Promoters, not the Corporate Debtor. Therefore, the Tribunal concluded that the Applicant could not be included in the list of financial creditors.

3. Qualification as Financial Debt:
The Tribunal examined whether the Applicant's claim qualified as a Financial Debt under Section 5(8) of the IBC, which defines Financial Debt as "a debt along with interest, if any, which is disbursed against the consideration for the time value of money." The Tribunal found that there was no disbursal of any debt by the Applicant to the Corporate Debtor against consideration for the time value of money. The funds from the Applicant were invested in IBTPL, not the Corporate Debtor. Therefore, the claim did not meet the criteria for Financial Debt.

4. Reassessment of Claim Amount:
The Applicant argued that the RP erroneously rejected its claim on the grounds that it was not a financial debt and required reassessment due to the invocation of the pledge of shares. The Tribunal noted that the NCDs were secured against the pledge of shares of IBTPL and the Corporate Debtor. However, the RP could not quantify the debt due post the enforcement of the security. The Tribunal agreed with the RP's position that the claim amount required reassessment.

5. Authority of the Resolution Professional:
The Applicant contended that the RP was not empowered to reject its claim under the IBC. The Tribunal referred to the Supreme Court's ruling in Swiss Ribbons Vs. Union of India, which held that a Resolution Professional has only administrative powers without any quasi-judicial powers. The Tribunal observed that the RP had carefully verified the claim against the records of assets and liabilities maintained by the Corporate Debtor. Since the records did not reveal any amount due and payable to the Applicant, the RP's decision to reject the claim was justified.

Conclusion:
The Tribunal dismissed the Application bearing IA No. 582/2019, concluding that the Applicant did not qualify as a Financial Creditor under the IBC. Consequently, the Applications bearing IA No. 709/2019 and IA No. 714/2019 were also closed. The Tribunal upheld the RP's decision to reject the Applicant's claim after careful verification from the records of the Corporate Debtor.

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