2018 (1) TMI 125 - Tri - Insolvency and Bankruptcy

Corporate insolvency procedures - financial debt having a commercial effect of borrowing - Held that - The present transaction which relate to a Cash Call fall within the definition of commercial effect of borrowing. Further by raising dispute with respect to quantum of amount due under such transaction or omission to perform the terms of the contract or such allegation to exceed beyond the terms of the contract does not necessarily absolved the corporate debtor from its liability arisen under such contract until a Competent Court of Law determines the issue and adjudicate the dispute. In our humble opinion the RP and COC have not been vested such jurisdiction under the Code to adjudicate a dispute/claim of an interested/affected party while preparing for a resolution plan. Therefore the present applicant is qualified as per the terms of PSC & JOA is to be treated as a financial creditor to the extent of amount of expenditure incurred by it on behalf of the Corporate Debtor Company. Since there appear some dispute with regard to quantum of expenses incurred by and the amount due under the Cash Call and JIBs as the Corporate Debtor Company has also sought indemnification of some loss occurred to it which is a subject matter of a Competent Court of Law. Therefore we restrain ourselves to express our view on merits of such issue involved but must feel that the present applicant deserves to be treated as a financial creditor and its claim of expense incurred by it fall within the ambit and scope of a financial debt having a commercial effect of borrowing. Hence it is entitled to be included in COC as a financial creditor. However the ratio of its voting share can be decided by the COC by taking into consideration the actual amount so far incurred by the GSPC on behalf of the JODPL but excluding the interest component and other miscellaneous expenses. The COC may adopt above guidelines as suggested by us and to take appropriate decision for preparation of a resolution plan for the sake of revival of the Corporate Debtor Company which is paramount interest and the main theme of the I & B Code.

Issues Involved:
1. Classification of Debt as Financial Debt
2. Inclusion in Committee of Creditors (COC)
3. Dispute over Cash Calls/Joint Interest Bills (JIBs)
4. Jurisdiction of RP and COC to Adjudicate Disputes

Detailed Analysis:

1. Classification of Debt as Financial Debt:
The primary issue was whether the amounts advanced by the applicant (GSPLC) to the corporate debtor (JODPL) under the Joint Operating Agreement (JOA) and Production Sharing Contract (PSC) qualify as "financial debt" under Section 5(8) of the Insolvency and Bankruptcy Code (I&B Code). The applicant argued that these amounts, advanced due to JODPL's default in making payments towards exploration and development costs, should be considered financial debt as they were advanced for the "time value of money" and carried interest at LIBOR plus 2%. The tribunal agreed, stating that the transaction had the commercial effect of borrowing, thus falling within the ambit of financial debt under Sections 5(8)(f) and (h) of the I&B Code. This was supported by the provisions of the JOA, which mandated repayment with interest for defaulted amounts.

2. Inclusion in Committee of Creditors (COC):
The applicant sought inclusion in the COC as a financial creditor, arguing that exclusion would cause irreparable loss and injury. The tribunal noted that the IRP had initially advised the applicant to file claims as an operational creditor but later categorized the applicant as an "other stakeholder," excluding it from the COC. The tribunal found this action contrary to the provisions of the I&B Code and the admitted liabilities of JODPL. The tribunal directed that the applicant be included in the COC as a financial creditor, emphasizing that the applicant satisfied the criteria for financial creditors under the Code.

3. Dispute over Cash Calls/Joint Interest Bills (JIBs):
JODPL disputed the validity of the Cash Calls/JIBs raised by the applicant post-July 2013, citing extraordinary cost and time overruns. The tribunal acknowledged the existence of disputes regarding the quantum of amounts due but emphasized that such disputes did not absolve JODPL from its liability under the JOA. The tribunal highlighted that the Corporate Debtor had acknowledged its liability for the purposes of the Limitation Act, 1963, even if it disputed the amounts. The tribunal restrained itself from adjudicating the quantum of the dispute, noting that such matters should be resolved by a competent court of law.

4. Jurisdiction of RP and COC to Adjudicate Disputes:
The tribunal clarified that the RP and COC do not have the jurisdiction to adjudicate disputes regarding the claims of creditors while preparing a resolution plan. The tribunal emphasized that the role of the RP and COC is to facilitate the resolution process and not to resolve disputes over claims. The tribunal directed that the applicant's claim should be treated as a financial debt, and the applicant should be included in the COC. The tribunal also provided guidelines for determining the voting share of the applicant in the COC, excluding interest and miscellaneous expenses.

Conclusion:
The tribunal allowed the application, directing that the applicant be treated as a financial creditor and included in the COC. The tribunal emphasized the need for the COC to consider the actual amounts incurred by the applicant on behalf of JODPL, excluding interest and miscellaneous expenses, to determine the applicant's voting share. The decision underscores the principle that disputes over claims should be resolved by competent courts, not by the RP or COC, and reinforces the criteria for classifying financial debt under the I&B Code.

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