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2024 (10) TMI 833 - AT - IBCMaintainability of Section 7 application - non-payment of debt - debt due and payable - whether in the given facts of the case the application under Section 7 of IBC filed by the Appellant was maintainable against the Corporate Debtor? - HELD THAT - This issue of financial contract being a sine qua non for establishing a financial debt has been well settled in a judgement of this Tribunal in Agarwal Polysacks Ltd. vs K. K. Agro Foods Storage 2023 (11) TMI 832 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI wherein after going into Regulation 8(2) of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and Rule 3(1)(d) and Rule 4(1) of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 which regulates filing of application by the Financial Creditors, it has been held that written financial contract is not a pre-condition or an exclusive requirement for proving existence of debt. It has been further amplified therein that the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 and CIRP Regulations makes it clear that financial debt can be proven from other relevant documents and it is not mandatory that written financial contract can be the only basis for proving the financial debt. Though the name of the Respondent No. 1 is not specifically mentioned as a creditor, there is sufficient material on record to prove that there was disbursal of funds by Respondent No.1 to the Corporate Debtor in their account. The transaction details as culled out from the Ledger Account of the Corporate Debtor, which are quite clearly multiple in nature, are a part of record as placed on affidavit by the Respondent No.1 as may be seen at pages 172-174 of Appeal Paper Book (APB). That this monies were received by the Corporate Debtor has also not been denied by the Corporate Debtor - That the Corporate Debtor repaid certain amount of the outstanding debt between September 2016 till May 2019 also evidences acknowledgement of debt. Since no claim been made that entire sum was repaid by the Corporate Debtor, it can safely be inferred that the debt remained unpaid. No reasons to disagree with the findings of the Adjudicating Authority that it has concluded the existence of debt on the basis of documents/records like the balance confirmation statement in the balance sheet of the Corporate Debtor to establish existence of debt - It is not for the Adjudicating Authority to decide on the quantum of debt but the only requirement for admission of Section 7 petition is to see that the minimum outstanding amount should be more than the threshold amount under the IBC which clearly stands fulfilled in this case. There is nothing to evidence that the same was signed, executed or acted upon by Respondent No.1. When there is nothing to show that the Respondent No. 1 was a party or signatory to the said MoU and also keeping in mind that the Respondent No. 1 and Centrio are clearly separate legal entities, the terms of such MoU purportedly signed between Centrio and Corporate Debtor cannot be held to be binding in any manner on Respondent No. 1. Hence, to answer the third question raised by the Appellant, the submission advanced of adjustment of loan by virtue of the terms contained in the MoU and consequential non-requirement for the Corporate Debtor to repay the Respondent No.1 does not inspire our confidence. It is trite law that under the IBC once a debt which becomes due or payable, in law and in fact, and if there is incidence of non-payment of the said debt in full or even part thereof, CIRP may be triggered by the financial creditor as long as the amount in default is above the threshold limit. It is also well accepted that debt means a liability in respect of a claim and claim means a right to payment even if it is disputed - as long as the financial debt is more than the threshold limit, quantum of debt cannot be used as a ground of defence to assail the admission of Section 7 application. On the question as to whether debt and default was adequately demonstrated before the Adjudicating Authority, basis the records made available before it, the Adjudicating Authority has rightly concluded that it was satisfied with the evidence and material produced before it by the Respondent No.1 to prove that a debt had arisen; that a default has occurred and the default is above the prescribed threshold. This is a case where all the pre-requisites for filing a Section 7 stands fulfilled and the Adjudicating Authority cannot be held to have committed an error in admitting the Corporate Debtor into CIRP for having defaulted in repaying a financial debt which was above the threshold limit. The decision of the Adjudicating Authority admitting the Section 7 application is affirmed - appeal dismissed.
Issues Involved:
1. Maintainability of Section 7 application in absence of a financial contract. 2. Discrepancy in the claimed debt amount and interest rate. 3. Allegation of Section 7 application being a counter-blast to another proceeding. 4. Refusal of the Financial Creditor to accept the amount deposited by the Corporate Debtor. Issue-wise Detailed Analysis: 1. Maintainability of Section 7 Application: The primary issue was whether the absence of a financial contract between the Corporate Debtor and Financial Creditor invalidated the Section 7 application. The Appellant argued that the Financial Creditor failed to prove the existence of a financial debt due to the absence of a formal financial contract. However, the Tribunal clarified that a written financial contract is not a mandatory precondition for establishing a financial debt. The Tribunal relied on the precedent set in Agarwal Polysacks Ltd. vs K. K. Agro Foods & Storage, which held that financial debt can be proven through other relevant documents. The Tribunal found sufficient evidence, including balance confirmations and ledger accounts, to establish the existence of a financial debt. 2. Discrepancy in Debt Amount and Interest Rate: The Appellant contended that the amount due as per the ledger was Rs. 34.99 lakhs, whereas the Financial Creditor claimed Rs. 1.51 crore, citing an inflated interest rate. The Financial Creditor argued that interest was calculated on an accrual basis until 31.03.2017 and on a receipt basis thereafter. The Tribunal noted that the accounts confirmed by the Corporate Debtor included interest at 12% for FY 2016-17. The Tribunal emphasized that the presence of interest substantiates the financial debt, aligning with the Supreme Court's interpretation of financial debt involving time value of money. The Tribunal upheld that the quantum of debt is not a matter for adjudication at the admission stage, provided the debt exceeds the statutory threshold. 3. Allegation of Counter-blast Filing: The Appellant alleged that the Section 7 application was filed as a counter-blast to a petition against Centrio, a sister concern of the Financial Creditor. The Appellant claimed that an MoU existed, adjusting the debts between the parties. The Tribunal found no evidence that the Financial Creditor was a party to the MoU, nor that it was binding on them. It reiterated that separate legal entities cannot be bound by agreements they are not party to, dismissing the Appellant's claim of debt adjustment through the MoU. 4. Refusal to Accept Deposited Amount: The Appellant argued that the Financial Creditor's refusal to accept the deposited amount indicated a lack of bona fide intent. The Tribunal clarified that the amount deposited did not cover the entire debt, including interest from the due date. It distinguished the present case from Jag Mohan Daga Vs Bimal Kanti Chowdhary, where the entire claimed amount was offered. The Tribunal noted that once debt and default are established, the Adjudicating Authority must admit the Section 7 application if the debt exceeds the threshold, regardless of partial payments. Conclusion: The Tribunal affirmed the decision of the Adjudicating Authority to admit the Section 7 application, finding that all prerequisites for filing were met. The appeal was dismissed, and the interim stay on the constitution of the Committee of Creditors was vacated, allowing the Corporate Insolvency Resolution Process to proceed.
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