2024 (5) TMI 852 - AT - Insolvency and Bankruptcy

Dismissal of application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 - CIRP - no relationship of financial creditor and the corporate debtor - no transaction in the nature of financial debt between the parties - no privity of contract between the parties - HELD THAT - It is not in dispute that the Appellants had advanced the loan to PHPL and not to Respondent. There is no privity of contract between the parties. PHPL failed to return the money taken as loan from the Appellants - It was provided in clause 35 of the sale deed that the vendee shall pay to the confirming party and it is mentioned in so many words in the sale deed that the money has already been paid by the vendee to the confirming party but the allegation of the Appellants is that the said money has not been paid to them by the vendor. In such circumstances, it is not a case which would fall within the provisions of the Code to trigger CIRP, invoking Section 7 of the Code and therefore, the Tribunal has rightly dismissed the application, however, liberty has been granted to the Appellants to pursue his other remedy for the purpose of recovery. It would also be not out of place to mention that the regime of the Code is not for recovery but for the resolution of debt by maximisation of the asset and to bring the CD on its own feet. Therefore, not only Respondent was dragged in the litigation at the instance of the Appellants before the Tribunal but also in this appeal in which no case is made out at all. The present appeal is hereby dismissed.

Issues involved:
The judgment involves the dismissal of an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) by the National Company Law Tribunal due to the absence of a relationship of financial creditor and corporate debtor, lack of transaction in the nature of financial debt, and the need for the appellants to pursue other remedies.

Details of the Judgment:

1. The application filed by Financial Creditors under Section 7 of the IBC against the Corporate Debtor was dismissed by the Tribunal due to the absence of a financial relationship between the parties and the lack of a financial debt transaction. The Tribunal granted liberty to the appellants to seek other remedies if advised by law.

2. The appellants had advanced a loan to Proplarity Group, which later entered into a sale deed with the Corporate Debtor. The Tribunal noted that the confirming party (appellants) was mentioned in the sale deed, but it did not establish a privity of contract between the Financial Creditors and the Corporate Debtor.

3. Despite claims by the appellants that the money was not repaid, the Tribunal found that there was no legal obligation on the part of the Corporate Debtor to repay the loan disbursed to the vendor. The Tribunal highlighted the lack of evidence supporting the money given as a loan, leading to the dismissal of the application under Section 7 of the IBC.

4. The Respondent argued that there was no privity of contract between the parties, and the loan was advanced to another entity, not the Corporate Debtor. The Tribunal upheld this argument and emphasized the need for the existence of a debt owed by the Corporate Debtor to establish a financial relationship under the IBC.

5. The Tribunal concluded that the case did not fall within the provisions of the IBC to initiate Corporate Insolvency Resolution Process (CIRP) under Section 7. The dismissal of the application was justified, and the appellants were directed to pursue other remedies for recovery. The Tribunal also imposed costs on the appellants for unnecessarily involving the Respondent in the litigation.

6. The judgment highlighted the distinction between financial debt owed by the Corporate Debtor and the lack of privity of contract between the parties. It emphasized the need for a clear debt relationship to trigger the provisions of the IBC and the importance of pursuing resolution rather than mere recovery under the Code.

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