2021 (3) TMI 298 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - debt due and payable by the corporate debtor more than permissible limit or not - HELD THAT - In this case, the corporate debtor failed to pay the interest amount or the instalment payable towards principle debt periodically. Hence, the corporate debtor has defaulted in paying the debt - Considering the fact that loan of sum of ₹ 10 lakhs was disbursed in the year 2017, hence, by the time, this application was filed (in the year 2019), the default amount was more than rupees one lakh (i. e., minimum limit as stated under section 4 of the IB Code to file such application). Corporate debtor submitted that the cheque in dispute (later on dishonoured) was not given for repayment of loan but it was handed over as a security cheque to the loan granted - it has been established conclusively that the corporate debtor was liable to pay debt more than rupees one lakh and it has committed a default in paying the sum. Hence, it is not required to enter in to controversy whether the cheque was towards the payment of debt or it was so called security cheque only. Even on the basis of admitted facts, it is held that the corporate debtor had handed over the cheque for the sum lent by the financial creditor, is enough to draw presumption that the cheque was drawn by the corporate debtor in favour of the financial creditor towards consideration shown in the cheque. The cheque was dishonoured. Thus, the corporate debtor has committed the default in payment of the debt. The application is defect free and hence deserves to be admitted - application admitted - moratorium declared.

Summary

Issues:
Application under section 7 of the Insolvency and Bankruptcy Code, 2016 against corporate debtor for default in payment of financial debt.

Analysis:
The financial creditor filed an application under section 7 of the Insolvency and Bankruptcy Code, 2016, alleging default by the corporate debtor in paying a financial debt of ?11,37,800. The financial creditor, a non-banking financial company, had lent ?10 lakhs to the corporate debtor, which was dishonoured by the corporate debtor's banker. The corporate debtor contended that there was no default as the cheque was handed over as security, not for repayment. The corporate debtor argued that the loan was repayable over five years and no default occurred. However, the tribunal found that the corporate debtor failed to pay interest or instalments periodically, constituting a default as per the Code's definition.

The tribunal noted that the corporate debtor made a partial payment towards interest but subsequently defaulted on further payments. The tribunal referred to Section 3(12) of the Insolvency and Bankruptcy Code, 2016, defining default as non-payment of debt when due and payable. The tribunal held that the corporate debtor's actions constituted a default in paying the debt. The financial creditor had established that the debt was due and payable beyond the minimum limit required for such applications.

The tribunal rejected the argument that the cheque was a security measure, stating that the dishonoured cheque indicated default in payment. The tribunal concluded that the corporate debtor's issuance of the cheque was sufficient to presume it was for repayment. Based on the evidence, the tribunal found that the corporate debtor had defaulted in payment. The tribunal admitted the corporate debtor into the corporate insolvency resolution process and declared a moratorium under Section 14 of the Code, appointing an interim resolution professional. The tribunal directed the IRP to manage the company's operations and protect its assets during the resolution process. The financial creditor was instructed to provide an advance for the IRP's expenses, with further funds to be provided as needed. The tribunal ordered communication of the decision to all relevant parties and official bodies, finalizing the admission of the corporate debtor into the resolution process.