2022 (11) TMI 345 - Tri - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - HELD THAT - There is a clear transaction of Rs. 70 Lacs dated 18.12.2015, which has been admitted by both the parties to the case wherein the Applicant has made a payment of Rs. 70 Lacs to the Corporate Debtor. The Applicant has contended that the transaction is a loan and since there is no written document, the loan is a short-term loan repayable on demand. The Corporate Debtor on the contrary has submitted that the said transaction is an investment made by the Applicant for a long period of time and repayable after 10 years. It is observed that books of accounts as filed by the Applicant can only be treated as corroborative evidence and such corroborative evidence must be supported by other evidence to establish the existence of a valid debt and default thereof. It is an established rule of law that burden of proof lies on the party who asserts except when the law states otherwise. To prove the existence of a debt, the Applicant has relied on the 4 dishonoured cheques amounting to Rs. 20,00,000/- but at the same time the Applicant has failed to provide a link between the said cheques being given for discharge of liability to the tune of Rs. 70,00,000/-. In any circumstances attribute a liability cannot be attributed which is greater in amount than the numbers mentioned on the cheques which have been dishonoured - Further, merely bringing it to the knowledge that TDS was deducted does not constitute a financial debt or loan in the present case. TDS can be deducted for various reasons and mere payment of TDS towards interest payable does not amount to acknowledgement of debt. The same cannot be treated as an acknowledgement of debt, more so a default of the alleged loan. A mere plain reading of the provisions under Section 7 of the IBC show that to initiate CIRP under Section 7 of the Code, the Applicant must establish that there is a financial debt and the default has been committed in respect of that financial debt by the Corporate Debtor. All of these aforementioned documents annexed by the Applicant are unable to prove any default of any debt which was owed by the Corporate Debtor to the Applicant - The transaction of Rs. 70,00,000/- effected between the Corporate Debtor and the Applicant but in absence of any Financial Contract, it cannot be categorised as a loan. The Corporate Debtor has admittedly stated that the said is an investment made by the Applicant repayable after 10 years against which the Applicant will be entitled to avail remedy when the amount becomes due. Hence, the CIRP of the Corporate Debtor need not be commenced. The Order in the present matter is made in terms of Section 7 of IBC, 2016 based on the facts and pleadings submitted by the parties in the instant case and shall not prejudice any matter or proceedings between the parties, if any, before any other Court, Tribunal or any judicial or other authority - Petition dismissed.

Summary

Issues Involved:

1. Whether the transaction of Rs. 70 Lacs constitutes a financial debt under the Insolvency and Bankruptcy Code (IBC), 2016.
2. Whether the Corporate Debtor defaulted in repayment of the alleged financial debt.
3. Whether the application under Section 7 of the IBC is maintainable.

Issue-wise Detailed Analysis:

1. Whether the transaction of Rs. 70 Lacs constitutes a financial debt under the Insolvency and Bankruptcy Code (IBC), 2016:

The Applicant, M/s Padmavati Agrico (India) Private Limited, contended that the transaction was a loan disbursed on 18.12.2015 at an interest rate of 16.20% p.a., repayable on demand. The Corporate Debtor, M/s Green Teak (India) Pvt. Ltd., argued that the amount was an investment for a period of 10 years and not a loan. The Tribunal noted that while there was a disbursal of Rs. 70 Lacs, there was no written financial contract to substantiate the claim of a loan. The Tribunal emphasized that the burden of proof lies on the Applicant to establish the existence of a financial debt, which the Applicant failed to do.

2. Whether the Corporate Debtor defaulted in repayment of the alleged financial debt:

The Applicant claimed default based on dishonoured cheques and TDS deductions. However, the Tribunal found that the Applicant failed to link the dishonoured cheques directly to the alleged loan amount of Rs. 70 Lacs. Additionally, the Tribunal held that mere deduction of TDS towards interest does not constitute acknowledgment of debt or default. The Tribunal concluded that the Applicant did not provide sufficient evidence to prove that the Corporate Debtor defaulted on a financial debt.

3. Whether the application under Section 7 of the IBC is maintainable:

The Tribunal reiterated that to initiate a Corporate Insolvency Resolution Process (CIRP) under Section 7 of the IBC, the Applicant must prove the existence of a financial debt and default. Since the Applicant failed to establish the transaction as a loan and did not prove default, the Tribunal found the application under Section 7 of the IBC to be non-maintainable. The Tribunal dismissed the application, stating that the Applicant could pursue other legal remedies available under the law.

Conclusion:

The Tribunal dismissed the application for initiation of CIRP against the Corporate Debtor, concluding that the Applicant failed to prove the existence of a financial debt and default. The order does not prejudice any other legal proceedings between the parties and allows the Applicant to seek other legal remedies.