2020 (9) TMI 375 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - existence of debt and dispute - HELD THAT - We are not ready to discard the loan Agreement pointed out by the Respondent and the MOU only because the Appellant now turns around to brand one of its Directors as not good Director with whom the other Director his brother subsequently claims to have developed disputes. Calling a document as forged is not enough to throw out the document unless there is prima facie evidence to show that the document is a false creation by the opposite party. The record shows that when the Appellant sent the recall Notice the Respondent immediately by way of another Notice which is at Page 138 referred to the documents executed between the parties and claimed that for want of the investment it had suffered damages. In the Reply before the Adjudicating Authority the forfeiture was also claimed. We are not entering into the dispute relating to these documents which are stated to be before the Arbitrator. What we hold from the record is that the Appellant Financial Creditor fails to make out case that there is debt which is admitted and enforceable and that it is in default. Appeal dismissed.

Summary

Issues:
1. Rejection of application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Dispute regarding loan amounts provided by the Financial Creditor to the Corporate Debtor.
3. Allegations of fabricated documents and disputes between Managing Directors.
4. Interpretation of loan agreements and Memorandum of Understanding (MOU).
5. Claim of forfeiture by the Respondent.
6. Reference to arbitration due to non-investment and losses suffered.
7. Evaluation of evidence and documents presented.
8. Failure to establish admitted and enforceable debt.

Analysis:
The judgment revolves around the appeal filed by the Financial Creditor against the rejection of its application under Section 7 of the Insolvency and Bankruptcy Code, 2016. The Financial Creditor claimed to have provided loan amounts to the Corporate Debtor based on an oral agreement, with outstanding dues of ?3,51,00,000. Disputes arose regarding the authenticity of documents, including a loan agreement and an MOU, with allegations of fabrication due to disputes between Managing Directors. The Respondent claimed a right to forfeit amounts under the MOU, leading to a reference to arbitration for non-investment and losses suffered.

The tribunal scrutinized the evidence and submissions, expressing skepticism towards the large amounts lent without proper documentation or security. Despite the Financial Creditor's objections and branding of documents as forged, the tribunal emphasized the need for prima facie evidence to reject them. The Respondent's claims of damages and forfeiture were considered, with the tribunal refraining from delving into disputes referred to arbitration. Ultimately, the tribunal found the Financial Creditor failed to establish an admitted and enforceable debt, leading to the dismissal of the appeal without costs.

The judgment clarified that its observations would not hinder the parties' rights to pursue claims before the arbitrator or any other forum. It acknowledged the summary nature of proceedings under the Insolvency and Bankruptcy Code, highlighting the limited scope within which such matters are addressed. The decision to dismiss the appeal underscored the tribunal's stance on the lack of substantiated debt claims by the Financial Creditor, allowing the parties to proceed with their claims in the appropriate forums without influence from the tribunal's observations.