2019 (1) TMI 1185 - Tri - Insolvency and Bankruptcy

Corporate insolvency resolution process - procedure in relation to the initiation of corporate insolvency resolution process - maintainability of the application - proof of outstanding financial debt - genuity of loan transaction - Held that - Mere grant of loan and admission of taking loan will ipso facto not treat the applicant as financial creditor within the meaning of section 5(8) of the Code. Precisely financial debt is a debt along with interest, if any, which is disbursed against consideration for time value of money. In the present case the applicant has relied upon the loan agreement dated May 11, 2007 in support of the pleading that the loan was disbursed against consideration for time value of money. Admittedly original of the disputed loan agreement dated May 11, 2018 has not been placed on record. Normally the original loan agreement is always kept by the lender. Despite serious dispute on the very existence of the loan agreement, applicant has failed to explain as to how ; under what circumstances and since when the loan document was given to the borrower. Except a word of mouth, no acknowledgment or papers in this regard have been placed. Neither original loan agreement has been produced nor proper explanation is on record. It is the duty of the applicant to plead and produce evidence, we are constrained to draw adverse inference, in the absence of original loan agreement and for want of adequate explanation in this regard. Additionally, the respondent has placed reports of two experts dated July 29, 2018 and August 4, 2018 respectively in support of the contention that the alleged loan agreement dated May 11, 2007 is a forged one. The applicant has failed to explain as to why the expert opinions are to be ignored. It is also pertinent to note that in the loan agreement it is specifically mentioned that on the date of loan agreement the respondent was a subsidiary of the applicant. However, the respondent has placed on record the annual return of the company for the year ending March 31, 2008 to show that the company was incorporated on March 29, 2007 and that as on May 11, 2007, i.e., on the date of the loan agreement the petitioner was not a shareholder of the respondent-company and the respondent was not a subsidiary of the applicant. This fact also creates doubt on the genuineness of the loan agreement. It is further seen that the stamp paper on which the loan agreement was prepared is dated March 20, 2007. However, the respondent-company was incorporated on March 29, 2007, i.e., about 9 days after the purchase of the stamp paper. This also creates a doubt, as the stamp paper was purchased for a transaction with a company which was not even in existence on that date. Thus in the absence of the original loan agreement and in the light of serious dispute and allegation of fraud ; it appears that the matter requires proper trial and investigation. Admission of the application under the Code has serious civil consequences. Heavy onus lies on the applicant to prove the claim of interest component, date of default and as to when the repayment is due. Simply, relying upon the copy of a seriously disputed document would not suffice in the present summary proceedings. For the reasons stated above this petition fails and the same stands dismissed as not maintainable.

Summary

Issues Involved:
1. Whether the debt claimed by the applicant is a "financial debt" under the Insolvency and Bankruptcy Code, 2016.
2. The authenticity of the loan agreement dated May 11, 2007.
3. Whether the application under Section 7 of the Insolvency and Bankruptcy Code is maintainable.

Detailed Analysis:

1. Whether the debt claimed by the applicant is a "financial debt" under the Insolvency and Bankruptcy Code, 2016:

The applicant, M/s. Carnoustie Management India P. Ltd. (CMIPL), claimed that the respondent, M/s. CBS International Projects P. Ltd. (CBS), owed a financial debt based on a loan agreement dated May 11, 2007. The applicant argued that the loan was disbursed against the consideration for time value of money, with an interest rate of 12% per annum. However, the respondent contested this claim, stating that the debt was not disbursed against interest or consideration for time value of money. The respondent pointed to various balance sheets and auditor reports that labeled the transactions as "interest-free." The tribunal noted that for a debt to be considered a "financial debt" under Section 5(8) of the Code, it must be disbursed against consideration for time value of money. The tribunal concluded that the applicant failed to prove that the debt was disbursed against consideration for time value of money, as required by the Code.

2. The authenticity of the loan agreement dated May 11, 2007:

The respondent challenged the authenticity of the loan agreement, alleging it was false and fabricated. The respondent highlighted inconsistencies, such as the purchase of the stamp paper before the incorporation of the respondent company and the reference to the respondent as a subsidiary in the loan agreement when it was not a subsidiary at that time. The respondent also provided expert opinions suggesting the loan agreement was forged and mentioned an FIR lodged against the applicant for forgery. The tribunal observed that the original loan agreement was not produced by the applicant, and the applicant failed to provide a satisfactory explanation for its absence. The tribunal found the respondent's allegations credible and concluded that the authenticity of the loan agreement was highly questionable.

3. Whether the application under Section 7 of the Insolvency and Bankruptcy Code is maintainable:

The tribunal emphasized that for an application under Section 7 of the Code to be maintainable, the applicant must be a "financial creditor," and the debt must be a "financial debt." Given the tribunal's findings that the debt was not disbursed against consideration for time value of money and the authenticity of the loan agreement was in serious doubt, the tribunal concluded that the applicant did not qualify as a "financial creditor." Consequently, the application under Section 7 of the Code was deemed not maintainable.

Conclusion:

The tribunal dismissed the petition as not maintainable, stating that the applicant failed to prove the debt was disbursed against consideration for time value of money and the authenticity of the loan agreement was seriously disputed. The tribunal clarified that its observations should not be construed as an opinion on the merits of the controversy and left the parties to settle the dispute before a competent forum.