2024 (2) TMI 377 - AT - Insolvency and Bankruptcy

Initiation of CIRP u/s 7 of the IBC - financial debt or not - Period of limitation - Advance paid subject to execution of the share purchase agreement - NCLT rejected the application as the appellant does not falling within the category of financial creditor - whether the amount of Rs. 1.25 crores paid by the Appellant to Shri Shabir Nirban, ex-Director of the Respondent Company constitute a financial debt as defined in IBC and whether the section 7 application filed regarding the purported financial debt deserved to be admitted? - HELD THAT - It is noted from the definition of debt and default as enumerated in section 3(11) and 3(12) of the IBC that the financial debt had to be in the shape of liability and non-payment of such liability in the given time would cause default. In the present situation again, no date of default is made out and so we it is found that neither the said transaction is in the shape of a financial debt or in commercial effect of borrowing is evidenced and no default is also made out. As argued by the Learned Counsel for Respondent, and also admitted by the Learned Counsel for Appellant, the said transaction of Rs. 1.25 crores was ostensibly against the purchase of the property situated at Teen Batti, Walkeshwar Road, Mumbai, which was capable of redevelopment under the provision of the Development Control Regulation 33(7) and the value of property in view of this development potential was more than Rs. 15 crores. Therefore, a total consideration as claimed by the Appellant as about Rs.4.5 crores does not appear to constitute a tenable argument as a total amount of Rs. 4.5 crores would not be sufficient consideration for acquisition of the said property - it is considered necessary to go any further into the nature of the contract, whether written or otherwise between the two parties suffice to say that if transaction was made in December, 2014 against the purchase of a specific property, the Appellant should have asserted its right within the stipulated period of three years being the specific purchase of the contract to try to enforce such contract through IBC does not appear to be correct legal course of action. It is noted that in SANJAY D. KAKADE VERSUS HDFC VENTURES TRUSTEE COMPANY LTD AND ORS 2023 (11) TMI 1219 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI , this Tribunal has considered a written Share Subscription and Shareholders Agreement between the shareholders as proof of financial debt. Quite obviously there is a delay in signing of shareholder subscription agreement, which was in consideration in the said appeal - the ratio laid down in the matter of Sanjay D. Kakade vs. HDFC Ventures Trustee Company Ltd. and Others does not apply in the facts and circumstances of the present case. The Adjudicating Authority has not committed any error in dismissing the section 7 application - the appeal is devoid of merit and consequently it is dismissed.

Summary

Issues Involved:
1. Whether the amount of Rs. 1.25 crores paid by the Appellant constitutes a financial debt under the IBC.
2. Whether the Section 7 application filed by the Appellant was within the limitation period.
3. Whether the Adjudicating Authority erred in dismissing the Section 7 application.

Summary:

Issue 1: Financial Debt
The main issue for adjudication was whether the amount of Rs. 1.25 crores paid by the Appellant to Shri Shabir Nirban, ex-Director of the Respondent Company, constitutes a financial debt as defined in the Insolvency and Bankruptcy Code (IBC). The Appellant argued that the amount was an advance for the purchase of shares of the Respondent Company and was acknowledged in the balance sheets of both parties. The Respondent contended that there was no agreement, written or oral, regarding the debt, and the transaction did not qualify as a financial debt under the IBC.

The Tribunal examined the definitions of "debt," "default," and "financial debt" under the IBC. It found that the Appellant failed to provide any document evidencing a Share Purchase Agreement or any commercial effect of borrowing. The Tribunal concluded that the transaction did not constitute a financial debt as defined in Section 5(8) of the IBC.

Issue 2: Limitation Period
The Appellant claimed that the Section 7 application was filed within the limitation period, as the debt was acknowledged in the balance sheet for the financial year ending March 31, 2019. The Respondent argued that the claim was time-barred as the Appellant should have sought enforcement within three years from December 2014.

The Tribunal noted that the Appellant's reminder to execute the Share Purchase Agreement in January 2018, after a gap of over four years, could not be taken as conclusive proof of any oral agreement made in 2014. Therefore, the Tribunal found that the claim was barred by limitation.

Issue 3: Dismissal of Section 7 Application
The Appellant argued that the Adjudicating Authority dismissed the Section 7 application without proper reasoning. The Respondent maintained that the application did not establish the existence of any debt or default.

The Tribunal reviewed the transaction details and concluded that the Appellant failed to prove the existence of a financial debt or default. It also noted that the transaction was related to the purchase of property with significant redevelopment potential, making the Appellant's claim untenable.

Conclusion:
The Tribunal upheld the Adjudicating Authority's decision to dismiss the Section 7 application, stating that the appeal was devoid of merit. The appeal was dismissed with no order as to costs.