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2022 (2) TMI 624 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Debt or not - Appellant submits that the Claim of the 1st Respondent/Financial Creditor is not Debt in any manner, as the transaction is not a Loan Transaction - Appellant takes a plea that at the time of issuing the letter terminating the alleged understanding, the Debt was barred by Limitation - HELD THAT - An Adjudicating Authority is subjectively satisfied as to the existence of Default and in the event of the Section 7 application being complete in all respects, then no other criteria can be looked into by the Adjudicating Authority for admitting an application under the I B Code. To put it precisely, the function of the Adjudicating Authority is to decide whether the application is complete, whether there is any Debt or Default . An Adjudicating Authority as a first step is to take necessary steps for resolution of the Corporate Debtor . An Adjudicating Authority is not a Court of Law. The proceedings under I B Code are summary in nature. A Financial Creditor is to establish the existence of the Debt and the Corporate Debtor s Default . A cumulative reading of Section 7 of the Code alongwith Rule 4(1) of the Insolvency Bankruptcy (Adjudicating Authority) Rule, 2016 exhibits that the form and manner of the application has to be the one specified - In the instant case on hand, the Corporate Debtor in its reply to CP No.1347/2019 had admitted that the Financial Creditor had paid a sum of ₹ 5,35,00,000/- on 27.10.2009 to it but the Corporate Debtor had taken a stand that no payment was ever made towards interest by it. Further, the claim of the 1st Respondent/Financial Creditor is repudiated by the Corporate Debtor by stating that the total consideration agreed to be paid for by the 1st Respondent/Financial Creditor towards the purchase of FSI and its entitlement to consume the same on the said portion was ₹ 10 crores only of which only a sum of ₹ 5,35,00,000/- was paid by the Financial Creditor to it. Even though pleas are advanced on behalf of the Appellant that for the alleged Default which occurred from the time the interest was not paid viz 2010 or 2011 and from 2009 till date the interest accrued every quarter was not paid by the Corporate Debtor and further that no action was taken, no claim was made from the company or no steps for recovery of interest was made by the 1st Respondent/Financial Creditor till 2018 when the 1st letter was issued to the Corporate Debtor demanding the amount with interest. In the instant case, the Debt of the Corporate Debtor is supported from the confirmation of accounts dated 01.04.2011, 01.04.2017 and 01.04.2018. Further, on 13.04.2018 the 1st Respondent/Financial Creditor had called upon the Corporate Debtor to repay the facility availed and that the Corporate Debtor had through a Reply dated 07.06.2018 had mentioned that the sum of ₹ 5,35,00,000/- was only provided as an advance for acquiring from the Corporate Debtor Floor Space Index of 15,500 sq mtrs etc. and not as loan. The 1st Respondent/Financial Creditor through its letter dated 28.03.2019 had reiterated that the sum in question was an advance as and by way of loan and that the same was repayable on demand alongwith interest @ 18% on quarterly rests. As such, the Section 7 application filed before the Adjudicating Authority in CP No. 1347/MB/CII/2019 (NCLT Mumbai Bench II) is well within the period of limitation. Keeping in mind the attendant facts and circumstances of the instant case in a conspectus fashion and also this Tribunal on going through the impugned order passed by the Adjudicating Authority comes to a resultant conclusion that the admission of Section 7 application by the Adjudicating Authority is free from any flaws - Appeal dismissed.
Issues Involved:
1. Whether the transaction in question constitutes a "Financial Debt" under the I&B Code, 2016. 2. Whether the claim is barred by the law of limitation. 3. Whether the acknowledgment of debt through balance sheets and confirmation letters extends the limitation period. 4. Whether the interest claimed by the Financial Creditor is valid and enforceable. Issue-wise Detailed Analysis: 1. Whether the transaction in question constitutes a "Financial Debt" under the I&B Code, 2016: The Financial Creditor advanced a sum of ?5,35,00,000 to the Corporate Debtor via two cheques. The Corporate Debtor contested that this amount was an advance for acquiring floor space index (FSI) and not a loan. However, the Adjudicating Authority found that the amount disbursed qualifies as a "Financial Debt" under Section 5(8) of the I&B Code, which includes any amount raised under any transaction having the commercial effect of a borrowing. The Tribunal held that the principal amount in question is a Financial Debt, although the quantum of interest was to be verified by the Resolution Professional. 2. Whether the claim is barred by the law of limitation: The Corporate Debtor argued that the claim was barred by limitation, asserting that the cause of action accrued in 2010 when the interest was allegedly due and payable. The Financial Creditor countered that the limitation period should start from the date of default, which was 13.04.2018, when the demand notice was sent. The Tribunal noted that the acknowledgment of debt through confirmation letters dated 01.04.2011, 01.04.2017, and 01.04.2018, and balance sheets from 31.03.2010 to 31.12.2019, extended the limitation period under Section 18 of the Limitation Act. Thus, the claim was held to be within the limitation period. 3. Whether the acknowledgment of debt through balance sheets and confirmation letters extends the limitation period: The Tribunal emphasized that an acknowledgment of liability in writing, such as in balance sheets and confirmation letters, extends the limitation period. The Financial Creditor provided evidence of acknowledgments through confirmation letters and balance sheets, which were accepted by the Tribunal. These acknowledgments were deemed sufficient to extend the limitation period, making the claim timely. 4. Whether the interest claimed by the Financial Creditor is valid and enforceable: The Corporate Debtor contended that there was no contract for charging interest, and no interest was ever debited in its accounts. The Tribunal referred to the definition of "Financial Debt" under Section 5(8) of the I&B Code, which includes debt disbursed against the consideration for the time value of money, with or without interest. Therefore, the Tribunal held that the principal amount qualifies as Financial Debt, but the quantum of interest was to be verified by the Resolution Professional based on the accounts of both parties. Conclusion: The Tribunal concluded that the transaction constitutes a Financial Debt under the I&B Code, the claim is not barred by limitation due to acknowledgments extending the period, and the interest claimed, though contested, does not invalidate the principal debt. Consequently, the appeal was dismissed, and the initiation of CIRP against the Corporate Debtor was upheld.
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