2017 (9) TMI 1130 - AT - Insolvency and Bankruptcy

Corporate insolvency procedure - Insolvency & Bankruptcy Code 2016 - eligible debt existence - Held that - It is admitted that the appellant is debenture holder. The Respondent- Corporate Debtor also pleaded that the appellant is Investor. From the relevant facts as we noticed above we find that the Respondent- Corporate Debtor has a liability and obligation in respect of amount which is due to the debenture holder from the Corporate Debtor including Financial Debt i.e the amount due on maturity of debentures. 32. The default means non-payment of debt as defined in sub-section (12) of Section 3 as below - (12) default means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor as the case may be The fact as pleaded and not disputed by Respondent - Corporate Debtor that the debenture holder (Appellant) and amount matured in the year 2011 2012 and 2013 has not been paid. Thus we find there is a default as defined under section 3(12) of the I & B Code. The Corporate Debtor had a liability and obligation in respect of claim of respondent which includes the Financial Debt including those come within clause (c) of sub-section (8) of Section 5. As per the agreement the same was liable to be paid from the date of maturity along with interest if any and the same having not paid the default of debt is apparent. This apart we find that the amount of debt and interest as shown by appellant was to be disbursed against consideration for time value of the money. Therefore it cannot be stated that debentures on maturity do not come within the purview of amount payable against the consideration for the time value of the money.Learned Adjudicating Authority having admitted the application under Section 7 the application being complete no interference is called for.

Issues Involved:
1. Completeness of the application under Section 7 of the Insolvency & Bankruptcy Code, 2016.
2. Time-barred nature of the debt.
3. Admission of default by the Corporate Debtor.
4. Status of the Respondent as a Financial Creditor.

Detailed Analysis:

1. Completeness of the Application under Section 7 of the I & B Code:
The appellant argued that the application filed by the Respondent under Section 7 was defective and incomplete as it did not include the necessary documents mandated by sub-section (3) of Section 7 of the I & B Code. The appellant emphasized that the application must be accompanied by a record of the default recorded with the information utility or other specified evidence of default. The tribunal clarified that the rules framed by the Central Government under Section 239 of the I & B Code prescribe the necessary documents, records, and evidence of default. Therefore, in the absence of specific regulations by the Board, the documents prescribed in Part V of Form-1 of the Adjudicating Authority Rules, 2016, would suffice to establish the default for the purposes of Section 7. The tribunal held that procedural provisions should not obstruct the substantive adjudication process, and thus, the application was deemed complete.

2. Time-Barred Nature of the Debt:
The appellant contended that the debt was time-barred as the debenture certificates matured between 2011 and 2013, and the application was filed in 2017. The tribunal rejected this argument, stating that the Limitation Act, 1963, does not apply to the I & B Code. The I & B Code is not a money recovery act but relates to the initiation of the Corporate Insolvency Resolution Process (CIRP). The tribunal noted that if there is a debt with continuous default, the claim cannot be considered time-barred. Therefore, the argument that the claim was barred by limitation was not accepted.

3. Admission of Default by the Corporate Debtor:
The appellant argued that the default claimed by the Respondent was not admitted by the Corporate Debtor. The tribunal referred to the definition of "default" under sub-section (12) of Section 3 of the I & B Code, which means non-payment of debt when it becomes due and payable. It was undisputed that the debentures matured in 2011, 2012, and 2013, and the amounts were not paid. Thus, there was a clear default as defined under the I & B Code. The tribunal found that the Corporate Debtor had a liability and obligation to pay the matured debentures, which constituted a financial debt.

4. Status of the Respondent as a Financial Creditor:
The appellant claimed that the Respondent was not a Financial Creditor but an investor, and the debenture certificates did not constitute financial debt. The tribunal examined the definitions of "Financial Creditor" and "Financial Debt" under sub-sections (7) and (8) of Section 5 of the I & B Code. It was found that debentures fall within the definition of financial debt under clause (c) of sub-section (8) of Section 5, as they are instruments issued against the consideration for the time value of money. The tribunal concluded that the Respondent, being a debenture holder, was indeed a Financial Creditor, and the amount due on the matured debentures constituted financial debt.

Conclusion:
The tribunal upheld the order of the Adjudicating Authority, admitting the application under Section 7 of the I & B Code, and ordered the initiation of the Corporate Insolvency Resolution Process. The appeal was dismissed, and no interference was warranted in the adjudicating authority's decision.

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