2019 (5) TMI 1889 - Tri - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - oral agreement between the parties regarding the loaned amount - Financial debt or not - Financial Creditors or not - HELD THAT - In the present case, no document has been produced on the part of petitioner by way of any loan agreement or demand promissory note or such other document to establish that the money is payable on demand and there has been default and that the Corporate Debtor is also bound to pay interest on the loan amount made available by the Financial Creditor. It is also noteworthy to mention that it is stated that there is only an oral agreement between the parties regarding the loaned amount. Certain essential conditions are required to be satisfied by a financial Creditor seeking to invoke the provisions of CIRP as against the Corporate Debtor before this Tribunal taking into consideration Section 5(7), Section 5 read with Section 7 of IBC, 2016. The conditions are i. There must be disbursal of loan amount; ii. Such disbursal should be made for a consideration for time value of money; and iii. A default should have arisen either in the payment of interest or in the payment of principal amount or both on the part of the Corporate Debtor. The petitioner is thereby required to satisfy this Tribunal that all the 3 conditions are cumulatively satisfied by furnishing documents to the said effect only the first condition namely, disbursal of money to the Respondent/Corporate Debtor is evidenced by bank statement. However, there is no written agreement between the parties regarding the loan transactions. Perusal of clause 5 of part V of form 1 shows that the financial creditor is required to place a latest and complete copy of the financial contract reflecting all amendments and waivers to date of which a copy is required to be attached - In the instant case no such financial contract has also been produced in compliance with the provisions of IBC, 2016 or of the Rules as noted above along with the Application. Petition dismissed.

Summary

Issues:
Petition under Insolvency and Bankruptcy Code, 2016 seeking Corporate Insolvency Resolution Process (CIRP) against Corporate Debtor based on financial debt.

Analysis:
1. The petitioner, a financial creditor, filed a petition under the Insolvency and Bankruptcy Code, 2016, seeking initiation of the Corporate Insolvency Resolution Process against the Corporate Debtor. The petitioner claimed to be a company registered under the Companies Act, 1956, and provided details of the financial transactions between them.

2. The respondent Corporate Debtor, also a company, had specific details regarding its incorporation and share capital mentioned in the application. The Interim Resolution Professional proposed by the petitioner was identified as well.

3. The petitioner detailed the financial transactions, including disbursed amounts and repayments made by the Corporate Debtor, leading to a recall notice for repayment of the outstanding loan amount. The petitioner claimed the amount due, along with interest, as a financial debt under the IBC, 2016.

4. The Tribunal proceeded ex-parte against the respondent due to non-appearance. The Tribunal then analyzed the definition of 'Financial Debt' and 'Financial Creditor' under Section 5(8) and Section 5(7) of the IBC, 2016, respectively.

5. The Tribunal highlighted the lack of documentary evidence, such as a loan agreement or demand promissory note, to establish the default and interest payment obligations of the Corporate Debtor. It noted the absence of a written agreement for the loan transactions.

6. Essential conditions for invoking CIRP against the Corporate Debtor were discussed, emphasizing the need for disbursal of the loan amount, consideration for time value of money, and default in payment by the Corporate Debtor. The Tribunal found discrepancies in the documentation provided by the petitioner.

7. The Tribunal concluded that the petitioner failed to satisfy the necessary conditions for invoking CIRP against the Corporate Debtor. As a result, the petition was dismissed, and a fine was imposed on the Financial Creditor for invoking the provisions of IBC, 2016 without proper documentation. The fine was directed to be paid to the Prime Minister Relief Fund within a specified timeframe.

8. The Tribunal clarified that its observations should not prejudice the rights of the Applicant before any other forum despite the dismissal of the instant application. The order was to be served on the parties involved.