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2022 (6) TMI 619 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - HELD THAT - It is the contention of the Corporate Debtor s that there is no written contract regarding any loan being sanctioned to the Corporate Debtor by the Financial Creditors. In this regard, reliance placed on the stand taken by the NCLAT in NARENDRA KUMAR AGARWAL, SUMAN AGARWAL VERSUS MONOTRONE LEASING PRIVATE LIMITED, BIMAL KANTI CHOWDHRY IRP 2021 (1) TMI 717 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI wherein it was held that the written contract cannot be treated as an essential element or prerequisite to prove the existence of Financial Debt. The Financial Creditor has failed to bring on record any other evidence in the form of a loan agreement, promissory note, contract or any document to substantiate its claim that there was a financial debt and a default of the same. The Financial Creditor has produced the Corporate Debtor s Annual reports for the Financial Years 2016-17 and 2017-18. However, the same do not reflect any debt due specifically to the Financial Creditor - the Financial Creditor has placed reliance on its bank statements and confirmation of accounts of the Corporate Debtor that reflect transactions between the parties. However, in absence of any written document indicating the purpose of the said transactions, it cannot be assumed to have been towards a loan as claimed by the Financial Creditor. While a written contract cannot be treated as a pre-requisite to proving the existence of financial debt, the Adjudicating Authority must be satisfied that the Corporate Debtor is not being dragged into Corporate Insolvency Resolution Process mala fide for any purpose other than the resolution of the Insolvency. In the present matter, there is no evidence to Allow or Admit present Application - Petition dismissed.
Issues:
1. Maintainability of the petition under section 7 of the Insolvency and Bankruptcy Code, 2016. 2. Dispute regarding the nature of the debt - financial debt or joint venture agreement. 3. Adequacy of evidence to substantiate the claim of financial debt. Analysis: Issue 1: Maintainability of the petition under section 7 of the Insolvency and Bankruptcy Code, 2016: The Company Petition was filed by the Financial Creditors seeking to initiate Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor for defaulting on a loan. The Financial Creditors claimed a total default amount of Rs. 5,02,80,500/-. The Corporate Debtor raised a preliminary objection on the maintainability of the petition, arguing that the transaction did not classify as a Financial Debt. The Financial Creditors provided details of the loan disbursal and subsequent demands for repayment, supported by documentary evidence. However, the Corporate Debtor contested the existence of a loan agreement or any communication substantiating the claim. The Tribunal emphasized the need for solid documentary evidence to prove the obligation to pay the debt and the debtor's default. Despite acknowledging that a written contract is not essential, the Tribunal found insufficient evidence to support the claim, leading to the rejection of the Company Petition. Issue 2: Dispute regarding the nature of the debt - financial debt or joint venture agreement: The Corporate Debtor contended that the amount disbursed by the Financial Creditors was for a joint development project, not a financial debt. The Corporate Debtor claimed that the Financial Creditors were supposed to contribute a larger sum for the joint venture, and a counterclaim was raised for the remaining amount. The Corporate Debtor argued that since the debt was disputed and related to a joint venture, the matter should be addressed in civil courts. The Financial Creditors, in their submissions, highlighted the lack of evidence supporting the Corporate Debtor's claim of a joint venture agreement. The Tribunal considered the absence of clear documentation regarding the purpose of the transactions and emphasized the importance of substantiating the nature of the debt. Issue 3: Adequacy of evidence to substantiate the claim of financial debt: The Tribunal scrutinized the evidence presented by both parties, including bank statements, confirmation of accounts, and financial statements. While acknowledging that a written contract is not mandatory to prove the existence of a financial debt, the Tribunal stressed the necessity of ensuring that the insolvency resolution process is not misused. Despite the Financial Creditors' efforts to provide supporting documents, the Tribunal found the evidence insufficient to establish the existence of a financial debt conclusively. Consequently, the Tribunal rejected the Company Petition due to the lack of substantial evidence supporting the claim of default on a financial debt. This detailed analysis of the judgment from the National Company Law Tribunal, Mumbai Bench, illustrates the critical issues addressed, the arguments presented by both parties, and the Tribunal's findings regarding the maintainability of the petition and the nature of the debt in question.
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