2019 (8) TMI 717 - Tri - Insolvency and Bankruptcy

Maintainability of application - CIR process - corporate debtor - the amount paid to the corporate debtor towards brokerage cannot be financial debt - default in paying debt - section 7 of the Insolvency and Bankruptcy Code, 2016 - HELD THAT - In this case, the financial creditor stated amount of ₹ 1,00,00,000 was given as a loan to the corporate debtor. They did not produce on record loan agreement. They did not state what was the terms and conditions of repayment of loan. They did not state what was the rate of interest agreed. They produce on record working computation of default at annexure II. Their own chart shows that interest was charged at rate of 12 per cent. but it was charged only on amount of ₹ 95,00,000 that is after deducting sum of ₹ 5,00,000 which was received by them from the corporate debtor through RTGS. The financial creditor was not in position to give any loan to anybody as claimed by them. Unless conditions stated in sub-sections (2) and (3) of section 186 of the Companies Act, 2013 are fulfilled. There is nothing on record to show that the financial creditor gave loan after complying above conditions. Hence, the transaction as potrayed by the financial creditor against the corporate debtor cannot be recognized as the transaction of loan and it cannot be said to be financial debt . The corporate debtor gave three cheques to the financial creditor. But those cheques cannot be said to be given toward repayment of loan. The cheque amount is too high, i. e., ₹ 10,00,000, ₹ 40,00,000, ₹ 50,00,000, etc. Repayment of loan, generally cannot be by way of such huge instalment value. The cheques must have been drawn by the corporate debtor towards some other transaction but certainly not towards repayment of loan. There exist no financial debt payable by the corporate debtor to the financial creditor. The financial creditor may recover money, if any, due by any other suitable mode - there is no financial debt due and payable by the corporate debtor. There is no default in paying such debt. Application dismissed.

Issues:
1. Allegation of default in debt payment by corporate debtor.
2. Dispute over loan transaction versus brokerage payment.
3. Legal compliance regarding loan transactions under Companies Act, 2013.
4. Interpretation of "financial debt" under section 5(8)(a) of the Insolvency and Bankruptcy Code, 2016.
5. Validity of cheques issued by the corporate debtor for repayment.

Analysis:
1. The financial creditor filed for insolvency resolution against the corporate debtor for defaulting on a debt of ?1,66,07,452, allegedly loaned in 2012 and not repaid despite demand.
2. The corporate debtor denied taking a loan, claiming the amount received was brokerage for a failed land deal. They settled with the financial creditor for ?5,00,000, paid via RTGS.
3. The Tribunal noted the financial creditor's inability to provide loan terms and conditions, and highlighted non-compliance with Companies Act, 2013 regarding loan transactions.
4. Section 5(8)(a) defines "financial debt" under the Insolvency and Bankruptcy Code, focusing on money borrowed against interest payment, which was contested in this case.
5. The Tribunal found the cheques issued by the corporate debtor were not for loan repayment but likely related to another transaction, concluding no financial debt was due, and rejected the insolvency application.

This detailed analysis covers the key legal issues, arguments presented, and the Tribunal's decision, providing a comprehensive understanding of the judgment.

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