2017 (8) TMI 1646 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - Inter-corporate loan falls under Section 5(8) (f) of the IBC or not - Section 7 of Insolvency and Bankruptcy Code 2016, read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 - HELD THAT - With regard to the contention/submission of the Respondent, the amount disbursed to Corporate Debtor is not part of the balance sheet of Financial Creditor, while perusing the records submitted by the Corporate Debtor itself, we have observed / found the Audited Reports for year ending 31-12-2009 of Quinn Logistics India Pvt. Ltd (Financial Creditor) under the heading current assets / loans and advances, an amount of ₹ 63,15,88,023/- was shown as loans and advances and also previous year ending 31-12-2008, an amount of ₹ 74,80,26,336/- was also shown as loans and advances. While further analyzing the schedules of balance sheet, the same was discussed in Schedule-8 and said amount was against the name of Mack Soft Tech Pvt. Ltd. i.e. the Corporate Debtor, therefore, even in this count also the Corporate Debtor have failed and in addition to the balance sheet, the Financial Creditor have also submitted the bank statement, establishing the proof of loans disbursement to Corporate Debtor. The Corporate Debtor was enjoying Inter Corporate Loan granted by the Financial Creditor as interest free loan for quite a number of years and they should be happy with the same. It is also unique to observe that the borrower after enjoying the interest free loan for so many years instead of repaying the debt - The Financial Creditor was a holding company of the Corporate Debtor in the beginning and during the course of period the loans were disbursed free of interest. Section 5(8) of IBC Code also states that the Financial debt means a debt along with interest if any. The Accounting Standard relied upon by Corporate Debtor is not related to the current facts circumstances of the case since the accounting standard states that when the obligation specified in the contract is discharged or cancelled or expires - Apparently, in the instant case there are no obligations specified, more over the petitioner itself accepted that there is no written agreement between the petitioner and Corporate Debtor. Further, the term Expires stated in the aforesaid accounting standard, there is no corresponding provision stating that the same is governed by Limitation Act, 1963. Therefore, even this contention of the respondent does not help them. The Bench is of the prima facie view that to avoid disputes like in this case it would be advisable/beneficial/for audit trials for all to enter into an agreement with detailed terms conditions including the schedule of the repayments, interest charged etc. However, in the present case, the Financial Creditor and Corporate Debtor had Holding/Subsidiary Company relationship and the Financial Creditor also submitted the bank statements towards disbursement of loan/money to Corporate Debtor and in balance sheet for the year ending 31.12.2009. The Corporate Debtor owes ₹ 62,90,45,905/- therefore, debt and default has been established by the Financial Creditor - Financial Creditor has to receive ₹ 62,90,45,905/- which is the debt default amount. Therefore, there is a default by the Corporate Debtor and thus the Financial Creditor is entitled to claim relief under section 7 of the IBC, 2016. Application admitted - moratorium declared.

Summary

Issues Involved:
1. Whether the Petitioner exists as a legal entity.
2. Whether the Petitioner qualifies as a Financial Creditor under Section 5(7) of the IBC Code.
3. Whether there is a Financial Debt under Section 5(8) of the IBC Code.
4. Whether the claim of the Petitioner is time-barred.
5. Whether the Petition is incomplete under Section 7(2) of the IBC Code.
6. Whether the Petitioner concealed material facts.
7. Whether the Corporate Debtor committed a default in repayment.

Issue-Wise Detailed Analysis:

1. Whether the Petitioner exists as a legal entity:
The Respondent argued that the Petitioner’s name was struck off by the Registrar of Companies, ceasing its legal existence. However, the Petitioner countered that the striking off was not notified in the official Gazette as per Section 248(5) of the Companies Act, 2013. The Tribunal found that the Petitioner’s name was not officially struck off, supported by an interim order from the Hon’ble High Court of Hyderabad preventing such action. Thus, the Petitioner remains a legal entity.

2. Whether the Petitioner qualifies as a Financial Creditor under Section 5(7) of the IBC Code:
The Respondent contended that the Petitioner, being a holding company, did not qualify as a Financial Creditor since the payments made were not against the consideration for the time value of money. The Tribunal, however, noted that the inter-corporate loan extended by the Petitioner was acknowledged in the balance sheets of the Corporate Debtor, thus affirming the Petitioner’s status as a Financial Creditor.

3. Whether there is a Financial Debt under Section 5(8) of the IBC Code:
The Respondent argued that there was no Financial Debt as defined under Section 5(8) of the IBC Code, emphasizing the lack of a written agreement and the classification of the amount as “intercompany balances” rather than a loan. The Tribunal found that the balance sheets of the Corporate Debtor consistently acknowledged the debt, and the absence of a written agreement did not negate the existence of a Financial Debt.

4. Whether the claim of the Petitioner is time-barred:
The Respondent asserted that the claim was time-barred, as the debt was last acknowledged in the balance sheet for the year ending 31.03.2013. The Tribunal, however, determined that the limitation period was extended by subsequent acknowledgments in the balance sheets up to 31.03.2016, thus making the claim within the permissible period.

5. Whether the Petition is incomplete under Section 7(2) of the IBC Code:
The Respondent claimed the Petition was incomplete, lacking specific details about the amount of default and the date due. The Tribunal found the Petition complete, noting that the balance sheets and other documents provided sufficient evidence of the debt and default.

6. Whether the Petitioner concealed material facts:
The Respondent accused the Petitioner of concealing balance sheets and other material documents. The Tribunal found no merit in this claim, noting that the balance sheets of the Corporate Debtor themselves acknowledged the debt, and the Petitioner had provided necessary documents to substantiate its claim.

7. Whether the Corporate Debtor committed a default in repayment:
The Tribunal found that the Corporate Debtor had defaulted in repaying the acknowledged debt of ?62,90,45,905/-. Despite the absence of a written agreement, the consistent acknowledgment of the debt in the balance sheets and the failure to repay upon demand established the default.

Conclusion:
The Tribunal admitted the Petition under Section 7 of the IBC, initiating the Corporate Insolvency Resolution Process against the Corporate Debtor. A moratorium was declared, and an Interim Resolution Professional was appointed. The Tribunal directed the Corporate Debtor to assist the Interim Resolution Professional and comply with all provisions of the IBC. The case was posted for further proceedings on 15-09-2017.