2017 (4) TMI 1111 - Tri - Insolvency and Bankruptcy

Petition filed u/s 9 of Insolvency and Bankruptcy Code 2016 against a corporate debtor company - default in making payment - interest claim - Held that - In the given situation this debtor company figures have gone into minus P in fact he accepted bill of exchanges and thereafter confirmed the forfaiting agreement in between the first creditor and the AIC. When we see the basic difference to financial debt and operational debt it is clear that financial debt is money borrowed to repay on future date along with interest here the money is lent for value addition to the money as agreed between the parties whereas operational debt is normally based on an agreement to pay to goods or services it does not mean that interest cannot be claimed in the times to come it is a normal practice that trade payables are payments deferred for a fixed time if the party fails to repay within the fixed time then interest will be claimed over operational debt as well the same happened over here as well. The corporate debtor himself said in the written submissions that there is email dated April 10, 2014 from the corporate debtor in respect to payment of interest since collaterals are Bills of exchange even otherwise also basing on collaterals entitled to interest at the rate of 18% u/s 80 of the Negotiable Instruments Act. The difference in these two transactions is one given to get interest over the money; second transaction happens in business operations in both the cases money is involved as days go by after transaction the time value of money will be there. For that reason it is nowhere said that the operational creditor is barred from claiming interest. In this case credit has been given free of interest for 180 days the debtor has not paid from the date of maturity almost three years over still no payment has come to the operational creditors. Let us test how far this argument is right one - it is admittedly true Uttam accepted two bills of exchange promising to pay the value of goods within 180 days thereafter Uttam has not made any payment by now more than three years and six months are over. For the reasons above and the material available on record showing compliance under section 9 of the code this petition is hereby admitted and Registry is hereby directed to refer it to the Insolvency and Bankruptcy Board to recommend the name of an IRP to appoint him in this case.

Issues Involved:
1. Maintainability of the petition under Section 9 of the Insolvency and Bankruptcy Code (IB Code) 2016.
2. Definition and interpretation of "dispute" under Section 5(6) of the IB Code.
3. Validity of the power of attorney used to initiate the proceedings.
4. Whether the operational creditors (Deutsche and Misr Bank) are legitimate creditors of the corporate debtor (Uttam).
5. Claim of interest on the operational debt and its classification.

Issue-wise Detailed Analysis:

1. Maintainability of the petition under Section 9 of the IB Code 2016:
The corporate debtor (Uttam) argued that the petition was not maintainable due to timely notice of dispute within 10 days after receipt of the notice under Section 8 and the lack of an affidavit under Section 9(3)(b). The tribunal noted that the corporate debtor’s objections did not align with the statutory requirements. The tribunal emphasized that the definition of "dispute" must be understood in the context of substantive sections of the IB Code, not merely as a denial of the claim.

2. Definition and interpretation of "dispute" under Section 5(6) of the IB Code:
The tribunal examined whether the term "dispute" should be interpreted broadly to include any denial of the claim or narrowly to mean only pending suits or arbitration proceedings. The tribunal concluded that "dispute" must be understood as a pending suit or arbitration proceeding before the receipt of the notice under Section 8. The tribunal relied on various judicial precedents to support this interpretation, emphasizing that mere denial of the claim does not constitute a "dispute" under the IB Code.

3. Validity of the power of attorney used to initiate the proceedings:
The tribunal addressed objections regarding the validity of the power of attorney, which was argued to be insufficient for initiating proceedings under the IB Code. The tribunal examined the powers granted under the power of attorney and concluded that the attorneys were authorized to initiate legal proceedings, including winding-up and insolvency proceedings. The tribunal referenced the Powers of Attorney Act and relevant case law to support its decision.

4. Whether the operational creditors (Deutsche and Misr Bank) are legitimate creditors of the corporate debtor (Uttam):
The corporate debtor contended that Deutsche and Misr Bank were not legitimate operational creditors and that the assignment of debt to Misr Bank was not confirmed by Uttam. The tribunal found that the debt was properly assigned to Deutsche and subsequently to Misr Bank. The tribunal held that the assignment did not require confirmation by the corporate debtor, and the operational creditors had the right to initiate the insolvency resolution process.

5. Claim of interest on the operational debt and its classification:
The corporate debtor argued that the claim for interest transformed the debt into a financial debt rather than an operational debt. The tribunal clarified the distinction between financial and operational debts, noting that interest could be claimed on operational debts if payment was delayed. The tribunal concluded that the claim for interest did not change the nature of the debt from operational to financial.

Conclusion:
The tribunal admitted the petition under Section 9 of the IB Code, directing the initiation of the insolvency resolution process and the appointment of an Interim Resolution Professional (IRP). The tribunal's decision was based on a thorough examination of the statutory provisions, definitions, and judicial precedents, ensuring that the objectives of the IB Code were upheld.

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