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2021 (5) TMI 274 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors or not - Financial Debt or not - existence of debt and dispute or not - time limitation - HELD THAT - The nature of transaction pursuant to the Investment Agreement and all other collateral transactions are that of investment based upon an Approved Business Plan - It appears that as an Investor the applicant herein had explored the possibility of making investment by taking calculated business risk. Many of the Clauses contained in the Investment Agreement demonstrate the fact that the Applicant is an Investor and not a Financial Creditor within the meaning of the definition contained in the IBC. The allegation that the Corporate Debtor Company has not utilized the proceeds of investment in accordance with the approved business plan does not carry any merit in as much as the Board of the investee company consists of two nominee directors and an observer nominated by the investor in order to oversee the entire corporate documentation pertaining to various meetings and activities including meetings of the Board of Directors in order to safeguard the interest of the Investor Company. Therefore the Investor cannot be and need not be treated as a Financial Creditor . Whether the alleged debt is a financial debt and applicant as a financial creditor under the provisions of Section 5(8) of the IBC? - HELD THAT - Admittedly the entire amount due and payable under the application arises out of Investment-cum-Shareholders Agreement dated 07.09.2013 which was subsequently and mutually agreed between the parties and a Settlement Agreement dated 06.09.2016 was arrived at. Further the applicant admits that the entire amount as agreed between the parties has been repaid by the Corporate Debtor. This alleged amount mentioned in the application is only towards the outstanding interest between the parties arising out of the Settlement Agreement dated 06.09.2016. Hence an Investment Agreement which subsequently converted into a Settlement agreement with a payment schedule between the parties fails to fall within the definition of a financial debt and the Applicant herein is a not a Financial Creditor as per the provisions of the IBC. The Applicant has also hopelessly failed to satisfy regarding date of default . The alleged claim is not a financial debt - Application dismissed.
Issues Involved:
1. Whether the alleged debt qualifies as a 'financial debt' under Section 5(8) of the Insolvency and Bankruptcy Code (IBC), 2016. 2. Whether the applicant qualifies as a 'financial creditor' under the provisions of the IBC. 3. Whether there was a 'default' as defined under the IBC. 4. The impact of the Investment-cum-Shareholders Agreement and subsequent Settlement Agreement on the classification of the debt. Issue-wise Detailed Analysis: 1. Whether the alleged debt qualifies as a 'financial debt' under Section 5(8) of the Insolvency and Bankruptcy Code (IBC), 2016: The Tribunal examined the nature of the transaction between the Financial Creditor and the Corporate Debtor, which originated from an Investment-cum-Shareholders Agreement dated 07.09.2013. The Financial Creditor had infused funds amounting to ?29,50,00,000/- in the form of equity shares and Compulsorily Convertible Debentures (CCDs). The Tribunal noted that the subsequent Settlement Agreement dated 06.09.2016 aimed to repay the investment amount, including interest and other dues. However, the Tribunal emphasized that the transaction was fundamentally an investment based on an approved business plan, and the Financial Creditor had several measures to safeguard its interests. The Tribunal concluded that the nature of the transaction did not constitute a 'financial debt' as defined under Section 5(8) of the IBC. 2. Whether the applicant qualifies as a 'financial creditor' under the provisions of the IBC: The Tribunal scrutinized the agreements and found that the Financial Creditor had acted as an investor with specific rights and protections rather than a lender. The presence of nominee directors and an observer on the Board of the Corporate Debtor indicated that the Financial Creditor was actively involved in overseeing the business operations. The Tribunal held that the Financial Creditor could not be classified as a 'financial creditor' within the meaning of the IBC, as the relationship was based on investment rather than a financial lending transaction. 3. Whether there was a 'default' as defined under the IBC: The Tribunal referred to the definition of 'default' under Section 3(12) of the IBC, which implies non-payment of a debt when it becomes due and payable. The Tribunal observed that the Settlement Agreement provided a repayment schedule, and the Corporate Debtor had already repaid a significant portion of the amount. The remaining claim pertained to outstanding interest, which arose from the Settlement Agreement. The Tribunal noted that the applicant failed to establish a clear 'date of default' under the IBC, further weakening the claim. 4. The impact of the Investment-cum-Shareholders Agreement and subsequent Settlement Agreement on the classification of the debt: The Tribunal analyzed the clauses of the Investment-cum-Shareholders Agreement, highlighting the provisions related to the use of proceeds, annual business plans, and the composition of the Board. The Tribunal emphasized that these clauses were designed to protect the interests of the investor and ensure the proper utilization of the investment. The Tribunal concluded that the agreements reflected an investment relationship rather than a financial lending arrangement. The Tribunal also noted that any disputes arising from the Settlement Agreement could be resolved through arbitration, as indicated by the pending arbitration petition before the Hon'ble Gujarat High Court. Conclusion: Based on the detailed analysis, the Tribunal concluded that the alleged claim did not qualify as a 'financial debt' and the applicant was not a 'financial creditor' under the IBC. The application for initiating the Corporate Insolvency Resolution Process was dismissed, with no costs awarded.
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