2022 (6) TMI 1324 - Tri - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - disbursal against the consideration for the time value of money - financial debt or not - existence of debt and dispute or not - HELD THAT - As per sub-section (7) of Section 5 of the Code, only such creditor could be the 'financial creditor' of the corporate debtor to whom a 'financial debt' is owed by the corporate debtor; and, as per sub-section (8) of Section 5 of the Code, the key requirement of a financial debt is 'disbursal against the consideration for the time value of money', which includes the events or modes of disbursement as enumerated in sub-clauses (a) to (i) of Section 5(8) of the code. The corporate debtor has explained the nature of the transaction and the financial creditor failed to produce the adequate evidence/documents in the form of financial statements or otherwise to prove that it owns financial debt against the corporate debtor. In this summary enquiry, we cannot enter into the correctness of assertion of the applicant to establish the alleged loan amount as financial debt - the evidence as produced by the applicant are not satisfactory to prove the nature of claim as financial debt and cannot be safely relied on. Since the present application has been filed under Section 7 of the IBC, therefore, it can be said that the applicant claimed that a decree is a financial debt irrespective of its genesis i.e., the substratum on which the decree is adjudicated and became due but when we shall read the definition of claim, debt, financial debt and financial creditor then we find that the decree is not included as an financial Debt unless the claim on which decree is adjudicated is a financial debt, of course definition of Creditor include decree holder but definition of financial debt does not include any decree holder without ascertaining the true nature of the claim basis on which decree is adjudicated. This Authority is not a forum for recovery of amount and we are clearly of the view that the applicant is utilizing the process of IBC to facilitate recovery whereas the primary focus of IBC is to ensure revival and continuation of the corporate debtor, and to protect it from corporate death. This Tribunal keeping in mind the entire conspectus of the attendant facts and circumstances of the instant case in a holistic fashion comes to a resultant conclusion that the decree passed by the Hon'ble High Court of Delhi cannot come in the purview of the definition of the financial debt - Application dismissed.

Summary

Issues Involved:

1. Whether the amount advanced by the applicant qualifies as a "financial debt" under Section 5(8) of the Insolvency and Bankruptcy Code (IBC), 2016.
2. Whether a decree holder can be considered a financial creditor under Section 5(7) of the IBC.
3. Whether the application is barred by limitation.
4. Whether the applicant is misusing the IBC process for debt recovery.

Issue-wise Detailed Analysis:

1. Definition of Financial Debt:

The Tribunal examined whether the amounts advanced by the applicant through loan agreements dated 24.02.2010 and 31.03.2010 qualify as "financial debt" under Section 5(8) of the IBC. The Tribunal noted that for a debt to be considered a financial debt, it must be disbursed against the consideration for the time value of money. The Supreme Court in the Jaypee Infratech case emphasized that the essential elements of financial debt include disbursal against the time value of money. The Tribunal found that the initial loans did not include an interest component and were for very short periods, lacking the commercial effect of borrowing and time value of money. Thus, the alleged loans did not meet the criteria for financial debt.

2. Decree Holder as Financial Creditor:

The Tribunal addressed whether a decree holder can be considered a financial creditor under Section 5(7) of the IBC. The applicant relied on a decree from the Hon'ble High Court of Delhi, which adjudicated the amount owed. However, the Tribunal noted that the amount claimed under the decree is an adjudicated amount and not a debt disbursed against the consideration for the time value of money. The Tribunal emphasized that the definition of financial debt does not include amounts adjudicated by a decree unless the original claim qualifies as a financial debt. The Tribunal cited the Hon'ble High Court of Tripura's judgment, which held that decree holders are a separate class of creditors and not financial creditors.

3. Limitation:

The corporate debtor argued that the application was barred by limitation, as the decree was issued on 11.01.2018, and the application was filed on 13.12.2021. The applicant contended that the application was within the limitation period based on the Supreme Court's judgment in Dena Bank vs. C. Shivakumar Reddy, which allowed a fresh cause of action for initiating proceedings under Section 7 of the IBC within three years from the date of the decree. However, the Tribunal distinguished this case, noting that the Dena Bank case did not address whether the debt falls under the purview of financial debt.

4. Misuse of IBC Process:

The Tribunal observed that the applicant appeared to be using the IBC process to recover the adjudicated amount rather than for the revival and continuation of the corporate debtor. The Tribunal emphasized that the primary focus of the IBC is to ensure the revival and continuation of the corporate debtor, not to facilitate debt recovery. The Tribunal concluded that the applicant was misusing the IBC process for personal gain.

Conclusion:

The Tribunal held that the applicant failed to prove that the alleged amount advanced qualifies as a financial debt under Section 5(8) of the IBC. The Tribunal also concluded that a decree holder does not come within the definition of a financial creditor. Consequently, the application under Section 7 of the IBC was dismissed. The Tribunal emphasized that the IBC process should not be used as a tool for debt recovery but for the revival and continuation of the corporate debtor.