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2021 (4) TMI 775 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Service Providers - extortionate credit transaction - Lease Agreement - existence of debt and dispute or not - Lease Agreement is a Finance or Capital Lease - Service of Demand Notice - HELD THAT - The Second Respondent/Financial Creditor without prejudice to its rights under law had called by the First Respondent/Corporate Debtor and Another to pay a sum of ₹ 94,81,209/- only within 14 days from the receipt of the Demand Notice by any one of them or both of them, failing which the First Respondent/Corporate Debtor and Another were informed that the Second Respondent/financial Creditor would be constrained to proceed against them as per Law, including, but not limited to initiate Insolvency Proceedings under the Insolvency Bankruptcy Code against the First Respondent/Corporate Debtor. It is to be pointed out that in the Rejoinder of the Appellant (filed to the Reply of the Second Respondent/Financial Creditor/Applicant) in paragraph 5 (1), it is mentioned that there is neither a Financial Service provided by the Second Respondent as per section 2(16) of the I B Code, nor a Financial Product as per section 2(15) of the I B Code, 2016, but an ordinary lease of furniture and fixtures to the First Respondent Company that are fully owned by the Second Respondent, therefore, the Second Respondent is not a Financial Service Provider under section 2(17) of the I B Code, 2016. Section 3(14) (a to d) of the Code defines Financial Institution .(including a financial institution as defined in section 45 -I of the Reserve Bank of India Act, 1934 (2 of 1934). Section 50 of the I B Code, 2016 provides a carve out to a Financial Service Provider for its credit facility to be regarded as extortionate . Likewise, section 167 of the I B Code, 2016 provides that any debt extended by a person regulated for the provision of Financial Services shall not be considered as an extortionate credit transaction - As matter of fact, the definition of Corporate Person in section 2(7) of the I B Code, 2016 excludes any Financial Service Provider . This Tribunal without any haziness holds that the Lease in the instant case, is a Financial Lease and comes to an irresistible conclusion that there is Financial Debt as per section 5(8) of the Code, 2016 and the default being committed by the First Respondent/Corporate Debtor in terms of the ingredients of section 3(12) of the Code, 2016. Further, that the debt in question as per section 3(11) of the Code, 2016 cannot be termed as an Operational Debt as per section 5(21) of the Code, 2016 - Application dismissed.
Issues Involved:
1. Whether the Lease Agreement qualifies as a Financial or Capital Lease under the Indian Accounting Standards. 2. Whether the Second Respondent qualifies as a Financial Creditor under Section 5(7) and 5(8) of the Insolvency and Bankruptcy Code (I&B Code). 3. Whether the Adjudicating Authority erred in admitting the application under Section 7 of the I&B Code. 4. Whether the procedural requirements under Section 8 of the I&B Code were met. Issue-wise Detailed Analysis: 1. Qualification of Lease Agreement as Financial or Capital Lease: The Appellant argued that the Lease Agreement dated 03.04.2017 did not indicate that the liability was in consideration for the time value of money and was not deemed as a Financial or Capital Lease. The Appellant contended that the Second Respondent failed to plead and prove that the Lease Agreement was a Financial Lease under the Indian Accounting Standards. The Tribunal, however, found that the Lease Agreement clearly envisaged that the Lessor (Second Respondent) provided Lease Finance Assistance to the Lessee (First Respondent) for business purposes. The Tribunal concluded that the Lease Agreement was indeed a Financial Lease, satisfying the requirements of Section 5(8) of the I&B Code. 2. Qualification of Second Respondent as a Financial Creditor: The Appellant contended that the Second Respondent was not a Financial Creditor as defined under Section 5(7) of the I&B Code, as the transaction was an ordinary leasing transaction and not a financial debt. The Tribunal referred to the Supreme Court judgment in 'Phoenix ARC Pvt Ltd Vs Ketulbhai Ramubhai Patel' and concluded that the disbursal of amounts to the manufacturer 'Interio Architecture' constituted a disbursal against the consideration for the time value of money. The Tribunal held that the Second Respondent qualified as a Financial Creditor under Section 5(7) and 5(8) of the I&B Code. 3. Adjudicating Authority's Decision to Admit the Application: The Appellant argued that the Adjudicating Authority failed to consider whether the Second Respondent qualified as a Financial Creditor and whether the Lease Agreement was a Financial Lease. The Tribunal found that the Adjudicating Authority was satisfied with the submissions regarding the existence of financial debt and occurrence of default. The Tribunal held that the Adjudicating Authority's decision to admit the application under Section 7 of the I&B Code was free from legal flaws. 4. Procedural Requirements under Section 8 of the I&B Code: The Appellant contended that the Second Respondent issued Demand Notices under Section 8 of the I&B Code, reaffirming that the Second Respondent was not a Financial Creditor. The Tribunal noted that the Second Respondent issued regular Legal Notices, not Demand Notices in the prescribed form under the I&B Code. The Tribunal found that the procedural requirements under Section 8 were not strictly applicable to the case, as the application was filed under Section 7 by a Financial Creditor. Conclusion: The Tribunal dismissed the appeal, affirming that the Lease Agreement was a Financial Lease, the Second Respondent was a Financial Creditor, and the Adjudicating Authority's decision to admit the application under Section 7 of the I&B Code was correct. The Tribunal concluded that the debt in question was a Financial Debt and not an Operational Debt, and the appeal was dismissed without costs.
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