2021 (9) TMI 334 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial creditors failed to make repayment of its dues - Rate at which green tea supplied, was not mentioned - amount payable and the date of default established or not - existence of debt and dispute or not - HELD THAT - It is evident from the Agreement that the Rate per kg. of green tea leaves is not fixed on the date of agreement. It would be fixed in future. On the other hand, the Respondent is expected to supply 12.50 lacs kgs. of quality green tea leaves to the Applicant without knowing the rate. It is clearly established that the amount payable and its due date are not known neither to the Petitioner nor to the Respondent. Hence, the amount payable and the date of default is not established - It is further found from the documents and submissions made during the arguments that the Applicant has not provided the details to the Respondent relating to the quantum of green tea leaves received, rate at which it is sold, the amount of sales proceeds credited and the said bank account maintained. Derivative arrangement or provision is also not there. The Auditor has not shown this amount as Overdue/NPA in its report. Tea Industry is a going concern. The Applicant has reportedly given further advance of ₹ 98,50,000.00 on its own. Auditor has reported that the copy of the Original Agreement was not furnished to them while the balance sheet was being prepared by them. No further balance sheet has been prepared after 31.03.2018. Existence of debt and dispute or not - HELD THAT - One of the prime conditions for admission of Application filed under Section 7 of IBC is that there should exist a debt which has become due and payable by the CD, the CD has committed default in payment of the same on due date and the date of default must be established. In this case, the documents have not been produced by the Petitioner to show the quantum of green tea leaves received from CD, the rate at which green tea leaves purchased/sold and the amount payable to/receivable from the CD and thereby it is clear that the amount of default and the date of default are not established. Then the pleadings of the Applicant that the Respondent has defaulted in making payment of the amount due do not carry any substance - the Application filed under Section 7 of IBC needs to be rejected on this ground also. The appropriate Authority may take cognizance of prevailing of this type of Agreement and take suitable measures so these type of Agreements with such terms and conditions are not in operations and the needy Tea Estates Companies availing advance from others for supply of Green Tea Leaves are prohibited from the Debt Trap, Exploitation, Imminent Closure, Hostile Takeover and Liquidation, When Advances/loans are available from the established Financial Institutions/Banks with transparent, fair terms conditions, insurance coverage and reasonable/lower rate of interest to the Tea Estates/Tea Plantation/Agriculture Advance/MSME Tea Industries. This Application filed under Section 7 of IBC is rejected.

Summary

Issues Involved:
1. Whether the advance given by the petitioner constitutes a financial debt under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016.
2. Whether the application is maintainable given the nature of the agreement and the transactions involved.
3. Whether the petitioner has established the existence of a debt and default by the corporate debtor.
4. Whether the actions and involvement of Mr. Sunil Kumar Aggarwalla affect the validity and enforceability of the agreement and the application.

Issue-Wise Detailed Analysis:

1. Whether the advance given by the petitioner constitutes a financial debt under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016:

The application was filed by Damayanti Tea Industries under Section 7 of the IBC, 2016, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against M/s. Bochapathar Tea Estate Pvt. Ltd. The petitioner claimed that the advance given to the corporate debtor was a financial debt, as it was supposed to be repaid in terms of green tea leaves with interest. However, the Tribunal noted that the advance was given specifically for the procurement of green tea leaves and not for the utilization of production, which does not fall under the definition of "financial debt" as per the IBC. The Tribunal cited the NCLAT judgment in the case of Niyati Chemicals Vs. Minepro Minerals Pvt. Ltd., where it was held that "providing advance against business dealings" is not covered under "Financial Debt."

2. Whether the application is maintainable given the nature of the agreement and the transactions involved:

The Tribunal found that the agreement dated 01.02.2017 was essentially a business arrangement for the procurement of green tea leaves, with the petitioner providing an advance to the corporate debtor. The agreement did not fix the rate per kg of green tea leaves at the time of execution, which led to uncertainties regarding the amount payable and the due date. The Tribunal also noted that the petitioner had the authority to debit the account of the corporate debtor, indicating that the entire control of the transaction was with the petitioner. This nature of the agreement and the lack of clarity on the rate and amount payable rendered the application under Section 7 of IBC non-maintainable.

3. Whether the petitioner has established the existence of a debt and default by the corporate debtor:

The petitioner claimed that the total amount in default was ?2,67,05,726.00, and the corporate debtor had acknowledged the debt in its financial statements. However, the Tribunal observed that the petitioner failed to provide detailed evidence of the green tea leaves received, the rate at which they were sold, and the amount credited to the corporate debtor's account. The Tribunal emphasized that the existence of a debt and the date of default must be clearly established for an application under Section 7 of IBC to be admitted. In this case, the petitioner did not provide sufficient documentation to substantiate the claimed debt and default.

4. Whether the actions and involvement of Mr. Sunil Kumar Aggarwalla affect the validity and enforceability of the agreement and the application:

The corporate debtor argued that Mr. Sunil Kumar Aggarwalla, who was involved in both the petitioner and the corporate debtor, had a significant role in the transactions and management of the corporate debtor. The Tribunal noted that Mr. Aggarwalla had signed the agreement on behalf of the petitioner, taken over the management of the corporate debtor, and was appointed as the receiver of the corporate debtor's tea gardens. The Tribunal highlighted that the balance sheet of the corporate debtor for 2017-2018 was prepared only in 2019, and no further balance sheets were prepared after 31.03.2018. These factors raised concerns about the transparency and fairness of the transactions and the agreement, further affecting the validity of the application.

Conclusion:

The Tribunal rejected the application on the grounds that the advance given by the petitioner did not constitute a financial debt under the IBC, the application was not maintainable due to the nature of the agreement and transactions, and the petitioner failed to establish the existence of a debt and default. Additionally, the involvement of Mr. Sunil Kumar Aggarwalla and the lack of transparency in the transactions further undermined the validity of the application. The Tribunal also expressed concerns about the agreement being a "Debt Trap Agreement" and suggested that such agreements should be scrutinized to prevent exploitation and hostile takeovers.