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2020 (7) TMI 678 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - default in repayment of outstanding loan amount - scope of financial debt - conflict between the provisions of the IBC, 2016 and the Tea Act, 1953 - HELD THAT -The term finance account has been defined as the account relating to the temporary finance granted by the lender to the corporate debtor. It has also been mentioned that a resolution under section 293(1)(d) of the Companies Act, 1956 had been passed by the shareholders of the corporate debtor to enable the company and its directors to borrow loans not exceeding ₹ 1,200 crores and avail of temporary finance within the limit of borrowing of the corporate debtor-company. It is also mentioned that the financial creditors were approached by the corporate debtor. It is also mentioned that disbursement could be made in intervals/instalments. The broker is also nominated by the corporate debtor. Interest element also exists. Further, the financial creditors are not in the business of purchase and sale of tea. When we see these terms and conditions, we are totally amused as to on what basis the corporate debtor could claim that this is a transaction of sale and purchase of tea and not of financing. There are no substance in the plea of the corporate debtor that it is not a financial debt within the meaning of section 5(8) of the IBC, 2016 for the simple reason that it also carries interest, whereas, in our considered opinion, if the money is given even without interest, still it has time value of money as it results into an economic advantage to the borrower at free of cost over a period of time when the value of money decreases due to inflation. The transactions of loan/advance are specifically covered under section 5(8)(a) as these have been borrowed against interest. Even, considering the fact of repayment of loan to one of the financial creditors and other surrounding circumstances as well, such claim made by the corporate debtor appears to be of no help particularly when no other material/documentary evidence has been brought on record to show that the tenure of the loan has been extended. Thus, in the background of the facts and circumstances and applicable legal position, as discussed herein above, we are of the considered view that the transaction is of the nature of financial debt within the meaning of provisions of section 5(8) and 5(8)(a) of the IBC, 2016. As per section 5(8)(f) of the IBC, 2016, this transaction has got the trappings of commercial effect of borrowing, hence, for this reason also this is a financial debt. The petition is complete and defect-free - application admitted - moratorium declared.
Issues Involved:
1. Maintainability of the application due to conflict between IBC, 2016 and Tea Act, 1953. 2. Recording of the utilization of compensation for land acquisition. 3. Determination of the nature of the transaction as financial debt. 4. Authorization for filing the application. 5. Admission of the application under Section 7 of IBC, 2016. Issue-Wise Detailed Analysis: Maintainability of the Application: The tribunal addressed the maintainability issue under C.A. No. 3/KB/2019, where it was argued that there was a conflict between the provisions of the IBC, 2016 and the Tea Act, 1953. The tribunal found this issue infructuous in light of the Supreme Court's decision in Duncans Industries Ltd. v. A. J. Agrochem, which held that the provisions of the IBC, 2016 prevail over the Tea Act, 1953. Therefore, the application under Section 7/9 could be filed without the permission of the Central Government. Utilization of Compensation: C.A. No. 121/KB/2019 raised an issue regarding the recording of the utilization of compensation received for land acquisition in the tea estate owned by the corporate debtor. The tribunal found this issue to be premature and dismissed it accordingly. Nature of the Transaction as Financial Debt: The tribunal examined whether the transactions in question constituted financial debt under Section 5(8) of the IBC, 2016. The financial creditors provided loans to the corporate debtor with specific terms, including interest rates and repayment schedules. The corporate debtor argued that the transactions were advances for the purchase of tea and not financial debts. However, the tribunal found that the agreements clearly indicated the transactions were loans with an interest component, thus qualifying as financial debts. The tribunal also noted that even if money is given without interest, it still has a time value of money, providing an economic advantage to the borrower. The tribunal rejected the corporate debtor's reliance on the NCLAT decision in Sanjay Kewalramani v. Sunil Parmanand Kewalramani, as it was overruled by a subsequent NCLAT decision in Shailesh Sangani v. Joel Cardoso, which clarified that the component of interest is not a sine qua non for a debt to qualify as financial debt. Authorization for Filing the Application: The corporate debtor argued that there was no proper authorization for filing the application jointly. The tribunal examined the board resolutions and found that each financial creditor had authorized the applicant to file the application on their behalf. The tribunal emphasized that technicalities should not impede the implementation of economic legislation aimed at promoting credit culture and entrepreneurship. Therefore, this contention of the corporate debtor was also rejected. Admission of the Application: The tribunal found that the application was complete and defect-free. It admitted the application under Section 7 of the IBC, 2016, initiating the corporate insolvency resolution process (CIRP) against the corporate debtor. The tribunal declared a moratorium in accordance with Sections 13 and 15 of the IBC, 2016, prohibiting suits, transferring of assets, and recovery actions against the corporate debtor. The tribunal appointed an Interim Resolution Professional (IRP) and directed the financial creditor to pay an advance fee to the IRP. The tribunal also set a date for the filing of the progress report and directed the registry to communicate the order to all concerned parties. Conclusion: The tribunal comprehensively addressed all issues raised, emphasizing the supremacy of the IBC, 2016 over other conflicting laws, confirming the nature of the transactions as financial debts, validating the authorization for filing the application, and admitting the application to initiate the CIRP against the corporate debtor. The tribunal's order ensures the implementation of the insolvency resolution process in a time-bound manner, promoting the objectives of the IBC, 2016.
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