2018 (9) TMI 1530 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - applicants satisfy that they come within the definition of Financial Creditor - existence of financial debt - Held that - The procedure in relation to the Initiation of Corporate Insolvency Resolution Process by the Financial Creditor is delineated under Section 7 of the Code, wherein only Financial Creditor / Financial Creditors can file an application. As per Section 7(1) of the Code an application could be maintained by a Financial Creditor either by itself or jointly with other Financial Creditors. Section 7 of the Code thus mandates that only the applicant Financial Creditor has to prove the default. Even if there is a clear default, the application under Section 7 of the Code is not maintainable in case the applicant is not a financial creditor. Therefore, in order to maintain the present application filed under Section 7 of the Code for initiation of Corporate Insolvency Resolution Process in respect of respondent corporate debtor, the present applicants have to satisfy that they come within the definition of Financial Creditor . There is no document to show that the respondent company either accepted or undertook to repay the loan with interest. The applicant has failed to justify how without any provision of interest the debt can be termed as a financial debt. Once the claim made in the application does not pertain to disbursement against consideration for time value of money , the present claim will not come within the purview of Financial Debt and consequently the applicants cannot be termed as Financial Creditor in respect of the present claim in question. The onus to prove lies on the applicants to establish that interest is payable on the loan amount as claimed in the present application. The burden of proof becomes more onerous particularly when the claim is disputed. It is reiterated that neither any document has been placed on record pertaining to the loan nor there is any supporting evidence to establish applicable rate of interest to be paid on the said loan. Therefore, the applicants miserably failed to substantiate that the amount was disbursed against the consideration for time value of money with supporting documentary evidence nor could satisfactorily repudiate the contention of the respondent. Mere pleading of the applicants in the absence supporting documentary evidence will not suffice to prove that the disbursements were made for time value of money. Therefore, neither the present claim can be termed to be a financial debt nor does the applicants come within the meaning of financial creditors . Once the applicants do not come within the meaning of financial creditors , they become ineligible to file the application under Section 7 of the Code. Petition dismissed as not maintainable.

Summary

Issues Involved:
1. Territorial Jurisdiction
2. Definition and Qualification of Financial Creditor
3. Evidence of Financial Debt and Interest
4. Admissibility of Application under Section 7 of the Insolvency and Bankruptcy Code, 2016

Issue-wise Detailed Analysis:

1. Territorial Jurisdiction:
The Tribunal confirmed that it has territorial jurisdiction over the NCT of Delhi, where the registered office of the respondent corporate debtor, M/s. Jee Kay Polychem Private Limited, is located. This is in accordance with sub-section (1) of Section 60 of the Insolvency and Bankruptcy Code, 2016.

2. Definition and Qualification of Financial Creditor:
The applicants, Mr. Arvind Kumar Garg and Mrs. Anita Garg, filed the application under Section 7 of the Insolvency and Bankruptcy Code, 2016, claiming to be financial creditors. The Tribunal examined whether the applicants qualify as "financial creditors" as defined under Sections 5(7) and 5(8) of the Code. The Tribunal emphasized that a financial creditor is a person to whom a financial debt is owed, which includes a debt disbursed against the consideration for the time value of money.

3. Evidence of Financial Debt and Interest:
The Tribunal scrutinized the evidence provided by the applicants to substantiate their claim of financial debt. The applicants provided details of the loans disbursed and the amounts in default, supported by bank statements and balance sheets of the corporate debtor. However, the Tribunal noted that there was no documentation of any loan agreement or agreed interest rate. The respondent contended that no interest was ever agreed upon or paid, and the Tribunal found that the applicants failed to prove that the loan was disbursed against the consideration for the time value of money.

4. Admissibility of Application under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The Tribunal highlighted that for an application under Section 7 to be maintainable, the applicant must prove that they are a financial creditor and that there is a default in repayment of financial debt. The Tribunal referred to precedents, such as the case of Vishwa Nath Singh v. Visa Drugs & Pharmaceutical Pvt. Ltd., where it was held that without evidence of disbursement for the time value of money, the applicant does not qualify as a financial creditor. Similarly, in the case of Dr. B.V.S. Lakshmi v. Geometrix Laser Solutions Private Ltd., it was emphasized that the claimant must show that the debt was disbursed against the consideration for the time value of money.

In the present case, the Tribunal concluded that the applicants did not provide sufficient evidence to prove that the loan was disbursed against the consideration for the time value of money. Consequently, the applicants could not be considered financial creditors, and the application under Section 7 of the Code was dismissed as not maintainable.

Conclusion:
The Tribunal dismissed the application for initiating the Corporate Insolvency Resolution Process against M/s. Jee Kay Polychem Private Limited, as the applicants failed to establish that they were financial creditors and that the debt was disbursed against the consideration for the time value of money. The Tribunal clarified that the dismissal of the application should not prejudice the applicants' rights before any other forum.