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2022 (7) TMI 1283 - AT - Insolvency and BankruptcyRejection of application for initiation of CIRP - Failure to invoke arbitration clause - Consequence of acknowledging the debt in the minutes of meetings of corporate debtor - Period of limitation - Financial Creditors - existence of debt and dispute or not - HELD THAT - Both the sub-contract which has been brought on the record clearly indicate that financial liability taken by the Appellant as well as the Corporate Debtor towards carrying out the project was divided and all those financial liabilities were towards the completion of the project. There was no disbursement of the loan for the time value of money which is essential requirement for a debt to be treated as financial debt under Section 5(8) of the IBC. The minutes of meeting dated 16.03.2018 on which Counsel for the Appellant has much relied admits the liability of the Corporate Debtor to make the payment. The mere fact that the Corporate Debtor has admitted liability to make payment in its minutes of meeting does not change the character of the transaction into a financial debt. In Clause 18 of the contract contains arbitration clause, for settling amicably by mutual consultation and thereafter approaching the arbitration as per Arbitration Conciliation Act, 1996. The Appellant ought to have taken recourse to Clause 18 of the Sub-Contract Agreement dated 07.03.2017 and these issues could not have been decided in IBC proceedings. The Adjudicating Authority has rightly held that it was not financial debt and rejected Section 7 Application. There is no error in delivering the judgment invoking Rule 151 of the NCLT Rules, 2016 due to absence of Technical Member who has already agreed with the judgment - Appeal dismissed.
Issues:
- Maintainability of the application under Section 7 of the IBC for initiating Corporate Insolvency Resolution Process (CIRP) - Characterization of the debt as financial debt - Applicability of Rule 151 of the NCLT Rules, 2016 for delivering the judgment Analysis: Issue 1: Maintainability of the application under Section 7 of the IBC The Appellant filed an application under Section 7 of the IBC for initiating CIRP against the Respondent, claiming a financial debt of Rs. 1,85,00,000. The Adjudicating Authority rejected the application, stating that it was not maintainable. The Counsel for the Appellant argued that the Adjudicating Authority erred in holding that there was no financial debt. The Appellant had invested in the project as per the sub-contract agreements and minutes of meetings, indicating the liability of the Corporate Debtor to make payments. However, the Respondent clarified that the contract was a sub-contract, as confirmed by the Calcutta High Court judgment. The Tribunal examined the agreements and concluded that the financial liabilities were for the project's completion, not for a loan disbursement, a crucial requirement for a debt to be considered a financial debt under the IBC. Therefore, the Adjudicating Authority's decision to reject the application was upheld. Issue 2: Characterization of the debt as financial debt The Sub-Contract Agreements revealed the financial arrangements between the parties for the project. The Tribunal noted that the liability shared by both parties was towards completing the project, not for a loan disbursement. Despite the Corporate Debtor admitting the payment liability in the meeting minutes, it did not transform the transaction into a financial debt. The arbitration clause in the contract indicated that disputes should be resolved amicably and through arbitration, not through IBC proceedings. The Tribunal agreed with the Adjudicating Authority's finding that the debt did not meet the criteria of financial debt under the IBC, leading to the rejection of the Section 7 application. Issue 3: Applicability of Rule 151 of the NCLT Rules, 2016 The Counsel for the Appellant contested the delivery of the judgment under Rule 151 of the NCLT Rules, 2016, due to the absence of the Technical Member. The order mentioned that the Technical Member would not be available for a few weeks, prompting the judgment's delivery with the consent of the other Member. The Tribunal found no error in invoking Rule 151 under the circumstances, as the absent Technical Member had already agreed with the judgment. Consequently, the Tribunal dismissed the appeal, upholding the decision of the Adjudicating Authority. In conclusion, the Tribunal affirmed the rejection of the application under Section 7 of the IBC, emphasizing that the debt did not qualify as a financial debt. The judgment was delivered in accordance with the rules, even in the absence of the Technical Member, and the appeal was dismissed.
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