2021 (5) TMI 1047 - Tri - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Corporate Debtor defaulted in repaying the Arbitral Award and due license fee - Financial Creditors - existence of debt and dispute or not - HELD THAT - In the present case, the Applicant has submitted that the award was passed on 10.07.2019 and the same becoming enforceable on expiry of a period of 90 days thereafter and since the Corporate Debtor has failed to make the payment in terms of award, has committed default in terms of Section 7 of Insolvency and Bankruptcy Code, 2016. Further, it must be noted that the arbitral award was passed on the basis of rental agreement dated 17.08.2005 and subsequently on 03.07.2006 in pursuance of which a Plot No. B-481 situated at Industrial Area, Bhiwadi, Rajasthan admeasuring 8444 sq. mts consisting of building and vacant land was given to Corporate Debtor for its business purpose. The basic nature of transaction is not covered under financial debt. Rental lease agreement can be operational debt but not financial debt. In any case, the transactions which transpired between the parties does not partake the character of a Financial debt and as such the Applicant does not qualify to be a Financial Creditor in relation to the Corporate Debtor. The instant Application is liable to be dismissed and accordingly stands Dismissed.

Summary

Issues:
1. Whether the insolvency application filed by the Financial Creditor against the Corporate Debtor for defaulting in repaying an Arbitral Award is maintainable under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Whether the Financial Creditor qualifies as a Financial Creditor under the provisions of the Code and if the debt owed falls under the definition of Financial Debt.
3. Whether the Arbitral Award passed against the Corporate Debtor is final and enforceable, and if the Corporate Debtor's objections regarding the validity of the award are valid.

Issue 1:
The Financial Creditor, NAFED, filed an insolvency application against the Corporate Debtor, Synergy Petro Products Private Limited, for defaulting in repaying an Arbitral Award. The Arbitral Award amounted to &8377;55,37,797 and interest, and the Corporate Debtor failed to make the payment, leading to the insolvency application under Section 7 of the Insolvency and Bankruptcy Code, 2016. The Tribunal noted the default and the grounds for initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.

Issue 2:
The Corporate Debtor raised objections regarding the Financial Creditor's qualification and the nature of the debt owed. The Corporate Debtor disputed the existence of a Financial Debt as defined under the Code and challenged the calculation of the license fees and interest. Additionally, the Corporate Debtor claimed that they were unaware of the Arbitral Award and questioned its finality, stating that it could be challenged under Section 34 of the Arbitration and Conciliation Act, 1996. The Tribunal considered these objections in determining the maintainability of the insolvency application.

Issue 3:
After hearing submissions from both parties, the Tribunal analyzed the nature of the transaction between the Financial Creditor and the Corporate Debtor. The Tribunal observed that the transactions did not constitute a 'Financial debt' as required under the Code. The Tribunal highlighted that while the rental lease agreement could be categorized as operational debt, it did not qualify as financial debt. Consequently, the Tribunal concluded that the Applicant did not meet the criteria to be classified as a Financial Creditor in relation to the Corporate Debtor. Therefore, the Tribunal dismissed the insolvency application, stating that the Applicant did not qualify as a Financial Creditor, and the application was not maintainable under the Code.