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2019 (9) TMI 1682 - Tri - Insolvency and BankruptcyMaintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - time value of money - HELD THAT - In the present case, it is not in dispute that first transaction has been of loan carrying interest at a specified rate payable by the borrower. Subsequently, Financial Creditor has given money to the Corporate Debtor which has been used and utilized by the Corporate Debtor for its business purposes, but Corporate Debtor has disputed that interest was payable thereon. Further, the Corporate Debtor has not adduced any material on record to show that the invoices for interest were raised just to prevent the Corporate Debtor from filing of petition under section 241/242 of the Companies Act, 2013 or to remain in control of the management and ownership of Financial Creditor. Be that as it may, the transactions remain of the nature of debt - the disbursement of money by the Financial Creditor to the Corporate Debtor can safely be concluded as a transaction of financial debt involving time value of money. There are merits in the claim of the Financial Creditor that IBC, 2016 is not a recovery mechanism and, therefore, the provisions of The Bengal Money Lenders Act, 1940 being part of that legislation which operates in different field i.e. recovery of dues, could not be applied to proceedings under IBC, 2016. In any case, such provisions being contrary to the provisions of IBC, 2016 are not applicable in view of specific provisions of section 238 of IBC, 2016. The Corporate Debtor be admitted under CIRP as per the provisions of Section 7 of IBC, 2016. The Financial Creditor has suggested the name of Interim Resolution Professional which we approve. The petition is complete in all other aspects and complies with the requirements of IBC, 2016 and Regulations, hence, petition is admitted. The petition filed by the Financial Creditor under section 7 of the Insolvency Bankruptcy Code, 2016 for initiating Corporate Insolvency Resolution Process against the Corporate Debtor, Manthan Broadband Services Private Limited, is hereby admitted - moratorium declared.
Issues Involved:
1. Nature of the Transactions (Loan vs. Advance) 2. Financial Debt and Time Value of Money 3. Applicability of Bengal Money-Lenders Act, 1940 4. Admissibility of the Petition under IBC, 2016 Issue-Wise Detailed Analysis: 1. Nature of the Transactions (Loan vs. Advance): The Financial Creditor claimed that the transactions were loans provided to the Corporate Debtor, while the Corporate Debtor argued that the sum of Rs. 10,20,00,000 was an advance against the purchase of property. The Tribunal noted that the first loan transaction of Rs. 5,30,00,000 was secured by a pledge of shares and carried an interest rate of 9.75%. The Corporate Debtor’s claim that the subsequent amount was an advance against property was not substantiated by an executed Memorandum of Understanding (MOU). The Tribunal found merit in the Financial Creditor’s argument that full sale consideration would not have been given without any MOU, leading to the conclusion that the Corporate Debtor’s claim was an afterthought. 2. Financial Debt and Time Value of Money: The Corporate Debtor contended that the transactions did not constitute "financial debt" as defined under Section 5(8) of the IBC, 2016, due to the absence of interest, thus lacking the "time value of money." The Tribunal clarified that financial debt does not mandatorily require interest, as the term "if any" in Section 5(8) indicates that interest is optional. The Tribunal elaborated on the concept of time value of money, which includes factors like inflation, opportunity cost, and risk. It concluded that even without explicit interest, the transaction involved time value of money as the Corporate Debtor utilized the funds for business purposes, and the Financial Creditor forewent potential earnings. Therefore, the transactions were considered financial debt. 3. Applicability of Bengal Money-Lenders Act, 1940: The Corporate Debtor argued that the Financial Creditor’s claim was unenforceable due to the lack of a Money Lending Licence under the Bengal Money-Lenders Act, 1940. The Tribunal rejected this argument, stating that IBC, 2016 is a self-contained code, and any contradictory laws would not apply. The Tribunal emphasized that the object of IBC is insolvency resolution, not recovery of money, and hence, provisions of the Bengal Money-Lenders Act were not applicable. 4. Admissibility of the Petition under IBC, 2016: The Tribunal considered the petition under Section 7 of the IBC, 2016, filed by the Financial Creditor for initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. It was established that the Financial Creditor had provided substantial evidence of default, and the petition was complete in all aspects. The Tribunal admitted the petition, declared a moratorium, and appointed an Interim Resolution Professional (IRP) to conduct the CIRP. Order: The Tribunal admitted the petition filed by the Financial Creditor under Section 7 of the IBC, 2016, initiating CIRP against the Corporate Debtor. It declared a moratorium as per Sections 13 and 15 of the IBC, 2016, prohibiting the institution of suits, transferring of assets, and recovery actions against the Corporate Debtor. The IRP was appointed to manage the CIRP, and the Financial Creditor was directed to pay Rs. 5,00,000 as advance fees to the IRP. The matter was listed for the filing of the progress report on 17.10.2019. Conclusion: The Tribunal concluded that the transactions between the Financial Creditor and the Corporate Debtor constituted financial debt involving time value of money. The petition under Section 7 of the IBC, 2016 was admitted, and the CIRP was initiated against the Corporate Debtor. The provisions of the Bengal Money-Lenders Act, 1940 were deemed inapplicable in this context.
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