2022 (5) TMI 1310 - Tri - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Debt or not - existence of debt and dispute or not - HELD THAT - The Financial Creditor did not place any document on record wherein the Financial Creditor sought to recall the amount that was invoked. No document has been filed to show that there has been any sort of communication between the Corporate Debtor and the Financial Creditor. Hence, there is a debt that is apparent on record and there was a default with respect to the State Bank of India, but once the guarantees were invoked, no notice was given to the Corporate Debtor. This appears to us to be a petition filed for the purposes other than for resolving the insolvency of the Corporate Debtor. Such purposes are to be frowned upon under the Code - Petition dismissed.

Issues Involved:
- Maintainability of the Company Petition under section 7 of the Insolvency and Bankruptcy Code, 2016.
- Validity of the debt claimed by the Financial Creditor against the Corporate Debtor.
- Interpretation of financial debt under section 5(8) of the Code.
- Allegations of collusion between the Financial Creditor and the Corporate Debtor.
- Resignation of a common Director from the Board of Management.
- Existence of personal guarantees and their enforcement.
- Compliance with legal formalities and jurisdiction of the Tribunal.

Analysis:

1. Maintainability of the Company Petition:
The Company Petition filed under section 7 of the Insolvency and Bankruptcy Code, 2016 sought to initiate Corporate Insolvency Resolution Process against the Corporate Debtor due to a default in payment. The Corporate Debtor contested the maintainability of the petition, arguing that the debt did not qualify as a financial debt under section 5(8) of the Code.

2. Validity of the Debt and Financial Debt Interpretation:
The Financial Creditor claimed a substantial amount owed by the Corporate Debtor based on fixed deposits pledged as collateral security. The Financial Creditor argued that the fixed deposits could be considered a guarantee under the Indian Contract Act, 1872, making the Corporate Debtor liable for repayment. The Tribunal analyzed the nature of the debt and the definition of financial debt under the Code, considering relevant legal provisions and precedents.

3. Allegations of Collusion and Director Resignation:
The Corporate Debtor raised allegations of collusion between the Financial Creditor and a common Director, questioning the validity of the claims and the resignation of the Director. The Tribunal scrutinized the circumstances surrounding the resignation, the communication between the parties, and the implications of the Director's involvement in both entities.

4. Enforcement of Personal Guarantees:
The issue of personal guarantees and their enforcement was a focal point of the dispute. The Tribunal examined the presence of personal guarantees, their validity, and the obligations arising from such guarantees. The absence of specific guarantees by the Director raised doubts regarding the claims made by the Financial Creditor.

5. Compliance and Jurisdiction:
The Tribunal evaluated the compliance with legal formalities, including notice serving and document submissions, to ensure procedural correctness. Additionally, the Tribunal confirmed its jurisdiction to adjudicate the matter based on the location and nature of the Corporate Debtor's registration.

6. Final Order and Dismissal:
After a detailed analysis of the arguments presented by both parties and the evidence submitted, the Tribunal dismissed the Company Petition, citing concerns of potential collusion and improper motives behind the filing. The parties were directed to seek remedies under alternative legal avenues, and the order was pronounced, concluding the proceedings.

By thoroughly examining the legal aspects, evidence, and contentions raised by the parties, the Tribunal arrived at a decision dismissing the Company Petition and highlighting the importance of upholding the integrity of insolvency proceedings under the Code.

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