2019 (6) TMI 1661 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial creditors - Financial Debt or not - existence of debt and dispute or not - HELD THAT - It is quite clear that a debt can be considered as a 'financial debt' if it is disbursed against the - consideration for the time value of money. It is also required to be noticed that under the provisions of Section 7 of IBC, 2016 the FC is entitled to initiate the CIRP against the CD when a default has occurred on the part of CD in relation to the repayment of financial debt owed to FC. The Respondent contends that as per section 7 of IBC read with section 3(13), no default could have been committed on the date of petition and therefore no cause of action arose on the date of filing of the petition. Further as per section 3(12) default means non- payment of debt/amount which has become due - In the present case the amount had not become due as it was Long Term borrowings and was to be returned only after 10 years. The tribunal is required to be satisfied that indeed a default has occurred in relation to a financial debt owed which has to be based on the documents produced by the petitioner, which is missing in the present case. Also, no resolution as passed by the corporate debtor or relevant entry in register of charges maintained by the ROC to support its claim of remittance by way of loan and tenure of the loan and interest payable by the respondent has been produced - Further the petitioner has also not placed on record the following relevant documents i.e, documents/ resolutions passed by the board for remitting the said amount, registers maintained at the company as are required under sec 186(9) of the Companies Act, 2013, balance sheet and other financial statements related to the transactions. There are no hesitation in dismissing this petition - petition dismissed.

Summary

Issues:
Application for corporate insolvency resolution process under Section 7 of the Insolvency and Bankruptcy Code 2016 based on alleged default in settling dues. Dispute regarding the nature of the financial transaction and the existence of a default.

Analysis:
1. The Applicant filed an application seeking to initiate the corporate insolvency resolution process against the Respondent for defaulting on dues. The Applicant disbursed a loan to the Respondent, which was repayable on demand with interest. Despite a recall notice and no response from the Respondent, the outstanding dues, including interest, amounted to ?1,88,33,978. The Applicant claimed the debt was financial in nature and constituted a default under the IBC, 2016.

2. The Respondent contended that the application was not maintainable as the Applicant was not a creditor and lacked the standing to file the petition. The Respondent argued that the funds were invested as a long-term partnership, not as a loan. The Respondent claimed the amount remitted was for business needs and was to be repaid after ten years. Disputes within the Applicant's company were alleged to be the reason behind the petition for recovery.

3. The Tribunal analyzed the definitions of 'financial debt' and 'financial creditor' under the IBC, 2016. A debt qualifies as a financial debt if disbursed against the time value of money. The Tribunal noted that a default must occur for the Financial Creditor to initiate the Corporate Insolvency Resolution Process against the Corporate Debtor. The Tribunal reviewed the submissions and documents from both parties.

4. The Tribunal found that the Petitioner failed to establish a default on the part of the Corporate Debtor. Necessary documents supporting the loan transaction, such as board resolutions, registers, and financial statements, were not provided. As a result, the petition was dismissed, and a fine of ?1,00,000 was imposed on the Financial Creditor for invoking the IBC provisions without establishing a default. The fine was to be paid to the Corporate Debtor within ten days.

In conclusion, the Tribunal dismissed the application for insolvency resolution due to the lack of evidence establishing a default on the part of the Corporate Debtor, imposing a fine on the Financial Creditor for invoking the IBC provisions without proper substantiation.