2021 (5) TMI 314 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - High Seas Sale - HELD THAT - It is crystal clear that projecting this High Seas Sale Agreement as the source document by the Applicant their claim as Financial Debt and the Applicant claiming themselves to be the Financial Creditor is misconceived and we are not inclined to treat this transaction as Financial Debt. The Corporate Debtor have obtained a Letter of Credit for the payment of the said amount opened in Corporation Bank which is said to have been honoured. Since there appears to have been a dispute between the parties they referred the matter to the sole Arbitrator and an award had been passed in favour of the Applicant which is appealed before the Hon'ble High Court of Bombay and the appeal was dismissed and some email communication is seen to have been exchanged between the parties with a view to settle the claim - As may be seen from the nature and characteristics of the transaction governed by the said High Seas Sale Agreement such transaction cannot be re-christened as Financial Debt. As evidenced by the source document namely High Seas Sale Agreement, written submissions and pleadings, the Applicant cannot be treated as Financial Creditor and there is no Financial Debt, this application is liable to be dismissed. Application dismissed.

Summary

Issues Involved:
1. Whether the debt claimed by the Financial Creditor qualifies as a "financial debt" under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Validity and enforceability of the High Seas Sale Agreement and subsequent loan agreements.
3. Whether the arbitration award constitutes a valid record of default under the Insolvency and Bankruptcy Code.
4. Examination of the Corporate Debtor's claims of having settled the debt.

Detailed Analysis:

1. Qualification of Debt as "Financial Debt":
The Financial Creditor filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor for defaulting on a payment of ?5,25,00,000. The Financial Creditor argued that the debt arose from a High Seas Sale Agreement and subsequent loan agreements, claiming the total amount due, including interest, was ?11,09,69,769. However, the Tribunal observed that the High Seas Sale Agreement, which involved the import of crude palm oil, did not constitute a "financial debt" as per Section 2(8) of the Code. The Tribunal noted, "projecting this High Seas Sale Agreement as the source document by the Applicant their claim as Financial Debt and the Applicant claiming themselves to be the Financial Creditor is misconceived."

2. Validity and Enforceability of Agreements:
The Financial Creditor provided details of several agreements, including a High Seas Sale Agreement dated 23.04.2012, a Loan Agreement dated 09.04.2012, and a Loan Renewal and Working Capital Loan Agreement dated 21.03.2013. The Corporate Debtor contended that these agreements did not establish a financial debt. The Tribunal examined these documents and concluded that the nature of the High Seas Sale Agreement did not support the Financial Creditor's claim. The Tribunal stated, "we cannot treat the Applicant as Financial Creditor and there is no Financial Debt."

3. Arbitration Award as Record of Default:
The Financial Creditor initiated arbitration proceedings, resulting in an award on 18.03.2015, which was upheld by the Hon'ble High Court of Bombay on 17.02.2017. The Financial Creditor argued that the arbitration award constituted a valid record of default. The Tribunal acknowledged the arbitration award but emphasized that the underlying transaction (High Seas Sale Agreement) did not qualify as a financial debt. The Tribunal noted, "an Arbitral Award is a valid record of an event of 'default,'" but in this case, the nature of the transaction did not support the claim.

4. Corporate Debtor's Claims of Settled Debt:
The Corporate Debtor argued that the debt was settled through payments made under the High Seas Sale Agreement and other transactions. They provided evidence, including a letter from Karur Vysya Bank confirming fund transfers. The Tribunal scrutinized these claims and found inconsistencies in the Financial Creditor's submissions. The Tribunal observed, "the alleged Ledger Book entries... are totally bogus and highly manipulated." The Tribunal concluded that the debt claimed by the Financial Creditor was not substantiated by credible evidence.

Conclusion:
The Tribunal dismissed the application filed by the Financial Creditor, concluding that the debt did not qualify as a financial debt under the Insolvency and Bankruptcy Code, 2016. The Tribunal stated, "we are of the considered view that as evidenced by the source document namely High Seas Sale Agreement, written submissions and pleadings, we cannot treat the Applicant as Financial Creditor and there is no Financial Debt." The application IBA/1087/2019 was dismissed without costs.