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2023 (9) TMI 1291 - AT - Insolvency and BankruptcyInitiation of CIRP - NCLT rejected the application u/s 7 - Corporate Debtor admitted default in payment of debt - existence of dispute about debt or liability or not - HELD THAT - There is no dispute regarding disbursal of Rs.3.20Crs. from the account of the Financial Creditor to the account of the Corporate Debtor. There is also no dispute that Application under Section 7 of IBC, 2016 was filed within limitation. The AA has erred in relying on the Joint Venture Agreement dated 04.03.2017, which was terminated by consent by both the parties on 29.04.2017 also noting therein that with this termination of MoU, none of the parties are bound by the terms and conditions of the MoU dated 04.03.2017. Even if it is assumed that payments have come under the Joint Venture, the subsequent two Agreements dated 29.04.2017 clearly establish that Joint Venture MoU was terminated, and fresh MoU for unsecured loan was executed and that it was mutually agreed by Corporate Debtor and Financial Creditor that they will not be bound by the Joint Venture MoU. The amounts paid by the Financial Creditor to the Corporate Debtor took the character of loan from Financial Creditor to Corporate Debtor. The Corporate Debtor had accepted before the AA that it is not in a position to repay debt because of financial distress. The AA ought to have admitted the Application of the Appellant under Section 7 of the IBC, 2016 as there is no dispute about the debt or liability of the Corporate Debtor and the Corporate Debtor has admitted that it is defaulting in repayment of debt due to its financial condition. Matter remanded back to the AA for consideration of the Application of Financial Creditor under Section 7 of the IBC, 2016 - appeal allowed.
Issues involved:
The appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 against the dismissal of the Application under Section 7 of IBC, 2016 by the Adjudicating Authority. Details of the Judgment: Issue 1: Application under Section 7 of IBC, 2016 The Financial Creditor filed an Application seeking initiation of Corporate Insolvency Resolution Process against the Corporate Debtor for a default amount. The Adjudicating Authority noted the absence of a specific 'date of default' in the application but determined the default date as per the Memorandum of Understanding (MoU) between the parties. Issue 2: Interpretation of Joint Venture Agreement The Adjudicating Authority considered the MoU between the Financial Creditor and the Corporate Debtor as a Joint Venture Agreement. It highlighted clauses from the MoU to support its view that the transaction did not qualify as a financial debt under the Insolvency and Bankruptcy Code, 2016. Issue 3: Termination of MoU and Loan Agreement The Appellant argued that the initial Joint Venture MoU was terminated by mutual consent, and a subsequent agreement acknowledged a loan amount to be repaid by the Corporate Debtor. The Board of Directors had authorized the Managing Director to avail unsecured loans, and the liability to repay the loan rested with the Corporate Debtor. Issue 4: Decision and Remand The Appellate Tribunal found that the amounts paid by the Financial Creditor to the Corporate Debtor constituted a loan. It concluded that the Corporate Debtor's admission of financial distress and inability to repay the debt warranted admission of the Application under Section 7 of IBC, 2016. The Appeal was allowed, setting aside the Adjudicating Authority's order and remanding the matter for further consideration. Conclusion: The Appellate Tribunal's decision focused on the termination of the Joint Venture Agreement, the characterization of the transaction as a loan, and the Corporate Debtor's admission of financial difficulties. The matter was remanded for reconsideration, emphasizing the Corporate Debtor's liability to repay the debt despite the initial interpretation of the transaction as a Joint Venture Agreement.
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