2020 (9) TMI 998 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Debt or not - existence of debt and dispute or not - HELD THAT - This Bench noted a very queer aspect in the demand notice in respect of the outstanding loan which was served on 21.08.2017 by the Petitioner to Mr. Sunil Kewalramani (son and POA holder of the Petitioner) among themselves. The Petitioner sends the Demand Notice which is replied by Mr. Sunil Kewalramani (son and POA holder of the Petitioner) on behalf of the Corporate Debtor Company. Here, the Bench notes that both of them are Directors on the board of the Corporate Debtor Company - this bench clearly finds unlawful collusion and misuse of the position by the Petitioner. This also brings out the fact that there is no difference between the Petitioners and the Corporate Debtor as the Petitioner is Promoter and in control of the day to day affairs of the Corporate Debtor Company. This Bench notes that even in the submissions, the Petitioner have not denied the fact that the demand notice have been issued, received and replied amongst him and his son only. This Bench also has come to a conclusion that the effective control of the Corporate Debtor Company has remained with the Petitioner only. This Bench also fairly concludes that the whole process of issuing, receiving and replying of the demand notice by the Petitioner and Mr. Sunil Kewalramani (son and POA holder of the Petitioner) has been without any knowledge of the other Directors and therefore clearly shows malicious intention of the Petitioners. Therefore, the Bench concludes that there is not been any Effective service of Demand notice . Whether the amount being mentioned by the Petitioner in claim of ₹ 47,16,667/- can qualify as a financial debt or not? - HELD THAT - In this case, the Bench takes note of the fact that there is no written terms and conditions for repayment of interest. Even the Petitioner in his submissions has mentioned that there was no interest chargeable on this account, nor there was any due date of payment. A perusal of the records also shows that no interest has been created in the Books of Accounts of the company. Therefore, there is no time value of money in terms of Section 5(8) of the Code. Neither there is time value of money nor there is due date of repayment - This Bench therefore has no hesitation in concluding that it does not fall under Section 5(8) of the Code and cannot be termed as financial debt. Petition dismissed.

Summary

Issues:
1. Petition seeking Corporate Insolvency Resolution Process (CIRP) against Corporate Debtor for default.
2. Similarity in facts and submissions with another petition filed by the same Petitioner.
3. Existence of financial debt acknowledged by Corporate Debtor.
4. Disputed repayment of loan amount by Corporate Debtor.
5. Allegations of malafide intentions and ulterior motives by Corporate Debtor.
6. Control of affairs and misuse of position by Petitioner.
7. Effective service of demand notice.
8. Qualification of claimed amount as financial debt.
9. Contribution of funds as Promoters and Shareholders.

Analysis:
1. The Petitioner filed a petition under Section 7 of the Insolvency & Bankruptcy Code alleging default by the Corporate Debtor. The Corporate Debtor acknowledged the debt in financial statements, but disputes repayment, leading to a legal dispute.

2. The Petitioner had filed a similar petition against another family-owned company, highlighting a pattern of disputes. The facts and submissions in both petitions were almost identical, indicating a recurring issue.

3. The Petitioner presented evidence of the financial debt, including ledger accounts and balance sheets. The Corporate Debtor did not contest the debt in the audited financial statements, strengthening the Petitioner's claim.

4. The Corporate Debtor raised concerns about the Petitioner's family's control over the company's affairs, alleging misuse of authority and improper fund transfers, creating a complex situation.

5. Both parties accused each other of malafide intentions and fraudulent activities, leading to a deadlock in resolving the debt issue.

6. The Tribunal noted collusion between the Petitioner and the Corporate Debtor, raising doubts about the effective service of the demand notice and the legitimacy of the debt claim.

7. The lack of written terms for repayment and absence of interest charges raised questions about the debt's classification as a financial debt, leading to a deeper analysis of the nature of the funds contributed.

8. The Tribunal concluded that the amount claimed by the Petitioner did not qualify as a financial debt but rather as a contribution by Promoters and Shareholders, impacting the legal status of the debt.

9. Despite the contentious issues and allegations, the Tribunal dismissed the petition and did not find merit in further punitive actions against the Petitioner under the Insolvency & Bankruptcy Code, ultimately resolving the legal dispute.