2019 (12) TMI 893 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor defaulted in making repayment - Financial Debt - whether any coupon rate is prescribed or not comes within the 'financial debt'? - HELD THAT - This Tribunal is of the view that both at the time of initial agreement dated 28.03.2011 as well as under the Amendment Agreements, the 'Investor Debentures' being a part of 'Investor Securities' falls within the definition of 'Financial Debt' as 'debentures' by its very nature, taking into consideration the provisions of Section 3(30) of the Companies Act, 2013, of which this Tribunal can take recourse to in the absence of any definition contained in IBC, 2016 of 'debentures' in view of Section 3(37) of IBC, 2016, is defined to include debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not, the 'debt' which was due and payable, when the event of default happened in the instant case as per the agreements prior to settlement agreement in the year 2015 and hence the contention that the Petitioner cannot be considered as a 'Financial Creditor' or the amount claimed as a 'Financial Debt' is not acceptable. The Settlement Agreement is only a sequel to the earlier agreements under which investments were made, and in any case the Settlement Agreement treats the total amount as a 'debt' payable with interest cannot be denied by the Corporate Debtor in the capacity as a promoter/developer as both of them/all of them are jointly and severally liable for the amounts due to the Financial Creditor having signed the agreements jointly and in the circumstances the contention that no privity of contract exists as between the parties raised by the Corporate Debtor cannot also be accepted. Thus when repayment was demanded and since there has been no repayment till date, whether it be of 'debenture' or 'loan' being attendant with payment of interest or not, as agreed between the parties and the amount being disbursed against the consideration for the time value of money thereby falling within the definition of 'Financial Debt' and there is default in repayment of the 'financial debt' and that a default has been committed in terms of Section 3(12) of the Code of a 'financial debt' as defined under Section 5(8) of the Code and that the Applicant has rightly invoked the provisions of the Code. Application admitted - moratorium declared.

Summary

Issues Involved:
1. Existence of Financial Debt
2. Relationship between Financial Creditor and Corporate Debtor
3. Validity and enforceability of Settlement Agreement
4. Default and initiation of Corporate Insolvency Resolution Process (CIRP)

Issue-wise Detailed Analysis:

1. Existence of Financial Debt:
The Applicant, acting as a Financial Creditor, claimed that the Respondent (Corporate Debtor) owed a financial debt under the Insolvency and Bankruptcy Code, 2016 (IBC). The debt originated from a Share Subscription cum Shareholders Agreement dated 28.05.2011, where the Financial Creditor agreed to invest ?134,95,61,430 for a project. Subsequent amendments to this agreement were made on 03.09.2011 and 07.02.2012. Disputes arose in 2015, leading to a demand for repayment of ?200,00,00,000 with an IRR of 20%. The Tribunal found that the 'Investor Debentures' and the terms of the agreement, including the IRR clause, constituted a 'financial debt' under Section 5(8) of IBC, 2016, as it was disbursed against the consideration for the time value of money.

2. Relationship between Financial Creditor and Corporate Debtor:
The Respondent argued that the relationship was that of vendor and vendee, not a financial creditor and debtor. They contended that the agreements were for share purchase, not a loan, and thus it was a civil dispute. However, the Tribunal noted that the agreements and the settlement terms indicated a financial arrangement, with the term 'refund' implying a debt obligation. The Tribunal rejected the vendor-vendee argument, stating that the relationship was indeed that of a financial creditor and debtor.

3. Validity and Enforceability of Settlement Agreement:
A Settlement Agreement dated 07.04.2017 was reached, under which the Corporate Debtor was to pay specified amounts by certain dates, with penalties for delays. The Financial Creditor received ?65,00,00,000 on 11.04.2017 but claimed default on the remaining amounts. The Tribunal upheld the Settlement Agreement as an enforceable arbitral award under Section 74 of the Arbitration and Conciliation Act, 1996, noting that no objections or appeals were filed against it. The agreement's terms, including interest rates and repayment schedules, were binding.

4. Default and Initiation of CIRP:
The Tribunal found that the Corporate Debtor defaulted on the payments as per the Settlement Agreement, with the total amount in default being ?234,69,62,791 as of 31.10.2018. The default met the criteria under Section 3(12) of IBC, 2016. Consequently, the Tribunal admitted the application under Section 7 of the Code, initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. Mr. Sandeep Chandana was appointed as the Interim Resolution Professional (IRP), and a moratorium was imposed under Section 14, suspending the Board of Directors and staying all legal proceedings against the Corporate Debtor.

Conclusion:
The Tribunal concluded that the financial debt existed, the relationship was that of financial creditor and debtor, the Settlement Agreement was valid and enforceable, and the Corporate Debtor had defaulted, justifying the initiation of CIRP. The application was admitted, and the IRP was appointed to oversee the resolution process.