2022 (5) TMI 989 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors or Operational Creditors - existence of debt and dispute or not - whether the decree holder M/s Prashant Electricals Ltd who holds a decree against the Corporate Debtor M/s VETPharma Ltd qualifies as a Financial Creditor or an Operational Creditor? - Section 8 and 9 of Insolvency and Bankruptcy Code read with Rule 6 of Insolvency Bankruptcy (Application to Adjudicating Authority) Rules, 2016 - HELD THAT - The Hon ble Supreme Court of India in the matter of SUBHANKAR BHOWMIK VERSUS UNION OF INDIA ANR. 2022 (5) TMI 893 - SC ORDER have held that decree holder as a class of Creditors are separate from Financial Creditors and Operational Creditors. The conclusion, therefore, is that IBC treats decree holders as a separate class of Creditors and it does not fall in the category of either a Financial Creditor or an Operational Creditor . The conclusion, therefore, is that IBC treats decree holders as a separate class of Creditors and it does not fall in the category of either a Financial Creditor or an Operational Creditor . In this instant Petition, the decree holder is neither a Financial Creditor nor an Operational Creditor. Therefore, as per Section 6 of IBC, the decree holder by law is not entitled to initiate CIRP against the Corporate Debtor - Petition dismissed.

Summary

Issues:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) based on default in payment.
2. Classification of decree holder as Financial Creditor or Operational Creditor.
3. Validity of initiating CIRP by a decree holder.

Analysis:
1. The Company Petition was filed by the Operational Creditor seeking to trigger the CIRP against the Corporate Debtor due to default in payment. The Operational Creditor alleged non-payment of Rs.12,93,143/- along with interest, supported by invoices and a decree issued by the Civil Court.

2. The main contention revolved around whether the decree holder qualifies as a Financial Creditor or an Operational Creditor. The Supreme Court clarified that decree holders are a separate class of creditors distinct from both Financial and Operational Creditors. The Court emphasized that the Insolvency and Bankruptcy Code (IBC) recognizes decree holders as a distinct category without overlapping with other creditor classes.

3. The Tribunal referred to Section 6 of the IBC, which outlines the entities eligible to initiate CIRP. It was established that a decree holder does not fall under the definition of either a Financial Creditor or an Operational Creditor. Therefore, the decree holder, by law, is not entitled to commence the Corporate Insolvency Resolution Process against the Corporate Debtor.

In conclusion, the Tribunal dismissed the Company Petition and the related application seeking an injunction against property sale, as the decree holder did not meet the criteria to initiate the CIRP under the IBC. The judgment highlighted the distinct classification of decree holders and emphasized the statutory recognition of their claims without categorizing them as Financial or Operational Creditors.