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IBC - Case Laws
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2025 (3) TMI 130
Seeking to challenge the order passed by the National Company Law Appellate Tribunal (NCLAT), Chennai - rejection of Section 7 application due to a delay in filing a rejoinder affidavit - HELD THAT:- Both NCLT and NCLAT committed an egregious error in taking a very technical or rather pedantic view of the matter.
Having permitted the Bank to file their rejoinder after condoning the delay, it was too much for the NCLT to say that the Bank shall not be permitted to rely on any assertions made in the rejoinder. It was expected of the NCLAT to correct such an error. Unfortunately, the Appellate Tribunal also fell into the same error.
Appeal allowed.
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2025 (3) TMI 129
Rejection of Section 7 Application filed by the appellant - demand of amount of Interest Free Maintenance Security (IFMS) from the corporate debtor, towards maintenance of common area services, installation, common passage, etc. - financial debt or not - HELD THAT:- The Hon’ble Supreme Court in ‘Global Credit Capital Limited & Anr.’ Vs. ‘Sach Marketing Pvt. Ltd. & Anr.’ [2024 (4) TMI 1067 - SUPREME COURT], has laid down that for finding out the character of the debt, nature of the transaction entered between the parties has to be captured and find out and it is only after determining the real nature of transaction, issue can be answered as to whether there is a financial debt or not.
The amount which is paid by the allottee towards IFMS security is the amount which is paid towards obtaining services and the amount is payable to the vendors/nominated maintenance agencies. The services thus are to be provided by vendor or maintenance agencies. For being a financial debt within meaning of Section 5(8), the amount needs to be disbursed against the consideration of time value of money and includes thus disbursement for time value of money is a condition precedent for falling any transaction within a definition of financial debt.
Conclusion - The finding of the Adjudicating Authority holding that amount in question i.e., IFMS does not amount to financial debt, suffers from no infirmity.
Appeal dismissed.
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2025 (3) TMI 128
Admission of Section 9 application - whether there is any infirmity in the impugned order passed by the Adjudicating Authority in allowing the Section 9 application on the ground that operational debt which was due and payable stood established by the Operational Creditor and that a default had been committed by the Corporate Debtor in respect of the said debt, the liability having been admitted without disputing the debt? - HELD THAT:- It cannot be construed in any manner that there was a categorical admission of debt and default by the Corporate Debtor. The first letter of 09.03.2020 clearly states that freight is payable subject to receipt of debit payment note as per shipping bill compliant with RBI guidelines and C.A. guidelines. Besides not confirming the demurrage, the said letter also states that they would like to arrange meeting to discuss and try to resolve the issue. It cannot be unmindful of the fact that the Operational Creditor had been asked to provide documents and debit note as per RBI and other guidelines for the vessel/freight charges.
That the issue of the debt was embroiled in dispute is also evident from the fact the Operational Creditor had themselves issued a Legal Notice 11.10.2022. Moreover, pursuant to the Legal Notice, replies were sent by the Corporate Debtor dated 17.10.2022 and 19.11.2022 wherein it has been asserted that the outstanding claimed by the Operational Creditor is not in their records. Further payment was stated to have been already done by Samruddha as freight negotiation and payment of the vessel were activities handled by Samruddha. This letter dated 19.11.2022 clearly mentioned that the matter of outstanding debt would be resolved with the help of Samruddha. It is pertinent to note that these letters addressed to the Operational Creditor by the Corporate Debtor were also endorsed to Samruddha and BST.
Once plausibility of a pre-existing dispute is noticed, what has to be looked into is whether the dispute needs further adjudication by a competent court. The Adjudicating Authority is not to enter into final adjudication with regard to existence of dispute between the parties regarding the operational debt in terms of the statutory construct of the IBC. In the present case too, the freight charges having not been admitted by the Corporate Debtor, it is not a case wherein debt and default has been unequivocally established which is essential for entertaining a Section 9 application.
Demurrage charges - HELD THAT:- It is found from the impugned order that the Adjudicating Authority noted that on 25.05.2017, the Corporate Debtor had raised an invoice for USD 22,942.74 towards Address Commission earned and that the Operational Creditor had also raised a Debit Note on 27.12.2017 for USD 242,772.19 towards demurrage dues. It was also noted by the Adjudicating Authority that the laytime calculations in support of their demurrage dues were confirmed by the broker of the Corporate Debtor vide email dated 11.10.2017. The Adjudicating Authority has further concluded after noticing the communication from the Corporate Debtor dated 09.03.2020 that the Corporate Debtor has admitted that there exist demurrage charges to be paid to the Operational Creditor, however, the same only needed to be confirmed after arranging a meeting with the Operational Creditor.
The Corporate Debtor had not admitted the liability to pay demurrages. It is therefore, clear that payment on account of demurrage was disputed by the Corporate Debtor. Under such circumstances, we are not inclined to agree that there was any admission of liability on the part of the Corporate Debtor on payment of demurrage and hence this defence taken by the Corporate Debtor cannot be disregarded as vexatious or feeble in nature. In the present factual matrix, the defence raised by the Corporate Debtor therefore cannot be held to be moonshine, spurious, hypothetical or illusory.
In a Section 9 petition, the Corporate Debtor enjoys the right to dispute the debt including the quantum of payment. From the correspondence placed on record it is clear that dispute was continuing between the parties regarding outstanding claim both in respect of freight and demurrage. Once the debt has been disputed, the question of default does not arise. For such disputed operational debt, Section 9 proceeding under IBC cannot be initiated at the instance of the Operational Creditor - When Operational Creditor seeks to initiate insolvency process against a Corporate Debtor, it can only be done in clear cases where no real dispute exists between the two which is not so borne out given the facts of the present case. The conditions laid down in Section 9 having not been fulfilled, the application deserved to be rejected.
Conclusion - The Corporate Debtor was not liable for the claimed debt due to the existence of a dispute and lack of admission of liability. The Adjudicating Authority has erroneously allowed the application filed under Section 9 of the IBC by the Respondent.
The impugned order is set aside. The Appeal is allowed.
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2025 (3) TMI 68
Approval of the resolution plan - approval of resolution plan after expiry of CIRP period - compliance with Section 30(2)(b) of the IBC, specifically regarding the allocation of payments to dissenting financial creditors or not.
Compliance with Section 30(2)(b) of the IBC or not - HELD THAT:- From the materials on the record, it is clear that only pay out under the plan is to the unsecured financial creditor which is Rs.1.5 Crore against the 13.81% vote shares. The appellant sought to raise a grievance that homebuyers are being provided unit and they are not sharing any haircut in their entitlement. It is true that the SRA is spending certain amount in completing the construction for delivering the unit to the homebuyer. Unsecured financial creditor who are dissenting financial creditor in the present case are entitled to the amount not less than the amount as contemplated by Section 30(2)(b) - The claim of unsecured financial creditor who are dissenting financial creditor which is admitted of not related parties is Rs.10.94 Crore. Vote share of dissenting financial creditor is 13.44, hence the payout of Rs.1.5 Crore to the dissenting financial creditor in no manner violates Section 30(2)(b).
Law is well settled that jurisdiction of Adjudicating Authority and this Appellate Tribunal to interfere with approval of resolution plan is too limited. Adjudicating Authority can interfere with the approval of the resolution plan only in the case where there is a non-compliance of Section 30(2) of the IBC.
Approval of resolution plan after expiry of CIRP period - HELD THAT:- According to own case of appellant, 330 days period expiring on 03.05.2023. Resolution plan has been approved by the CoC on 31.01.2023, and the application was filed for approval of the plan before the aforesaid expiry of 330 days period. The fact that Adjudicating Authority approved the resolution plan on 14.05.2024 cannot be a ground to say that the order was passed after expiry of 330 days. When the resolution plan has been approved within 330 days and the application was also filed by the RP for approval, the date of the passing of the order by Adjudicating Authority cannot be relied for contending that the said date is beyond 330 days. The resolution plan having been approved by votes of 86.67% vote shares, at the instance of dissenting financial creditor whose payments under the plan is not less than the payment which they are entitled under Section 30(2)(b), no interference is called.
Conclusion - The plan complied with the statutory requirements under the IBC. Adjudicating Authority by the impugned order has not committed any error in approving the resolution plan submitted by SRA.
Appeal dismissed.
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2025 (3) TMI 67
Challenge to impugned order by which appellant was held guilty of perjury and have been imposed a fine - appellants have given wrong information to the ROC in Form No.18 required for converting a company into LLP - appellants had filed an affidavit wherein the appellants had deposed the units were handed over to the parties way back in December, 2016 but whereas their learned counsel stated the units will be handed over to the parties - HELD THAT:- Admittedly the impugned order dated 17.05.2021 has held the appellants guilty of act of perjury only on account of a declaration in Form 18 filed before the ROC (see Page 194 of the Appeal Paper Book). In the said declaration, against point No.15 viz whether any proceedings by or against the company is pending in any court or tribunal or any authority, the answer given by one Mr Ajay Vij, i.e. the appellant No.1 was NO. It is fairly conceded by the learned counsel for the appellant that declaration/Form 18 dated 03.11.2018 was incorrect since by that time i.e. on 25.04.2018 an application under Section 9 IBC stood filed against Corporate Debtor. Further CIRP commenced later on 14.3.2019.
A wrong declaration in Form 18 allegedly made inadvertently before the ROC cannot be said to be material in the context of conversion from a Company into LLP so as to fall within the definition of perjury u/s 199 IPC. Thus holding the Appellants guilty of an act of perjury deserves to be set aside on this ground alone; and consequential impugned order dated 04.08.2021 permitting the Liquidator to file complaint u/s 340 Cr.P.C also deserves to be set aside - Admittedly such declaration in Form 18 was never made/filed before the Ld. NCLT but before the ROC; therefore, it was not for the Ld. NCLT/Liquidator to move u/s 195 Cr.P.C for initiating action on such account.
Thus, no act of perjury has been committed by the Appellants. But even if it is presumed just for the arguments’ sake that an offence of perjury stands committed, then also the impugned order dated 04.08.2021 r/w impugned order dated 17.05.2021 permitting the Liquidator to file complaint u/s 340 Cr.P.C is not sustainable there being admittedly no finding recoded to the effect “that it is expedient in the interest of justice a complaint should be filed. In the absence of a finding to the above effect which is a sine qua non under S. 340(1)(a) Cr.P.C, the impugned order dated 04.08.2021 is not sustainable in law.
Ld. NCLT has no jurisdiction to convict a person for an offence under Section 68 under Chapter VII of Part II IBC in view of the express provision contained in S. 236(1) IBC.
Conclusion - There exists a Special Court per Section 236 of the Companies Act, 2013, hence the Ld. NCLT has no power to convict the appellants and impose a fine and as such the conviction and the fine imposed by Ld. Adjudicating Authority is hereby set aside.
Appeal allowed.
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2025 (3) TMI 14
Maintainability of petition u/s 10-A of the Insolvency and Bankruptcy Code, 2016 - jurisdiction of NCLT to entertain the Company Petition given the default period in question - HELD THAT:- Section 10-A of IBC, 2016 is only a moratorium temporarily suspending initiation of CIRP. It is true that Section 10-A prohibits an application for initiation of CIRP of a Corporate Debtor, for any default arising on or after 25.03.2020 for a period of six months. The proviso also indicates that no application can ever be filed for initiation of CIRP of a Corporate Debtor for the said default occurring during the said period, i.e., on or after 25.03.2020 for a period of six months or such further period not extending one year from such date.
In the instant case, though the default commenced after the period specified in Section 10-A, it is not in dispute that it continued even after the moratorium period. The intention of the legislature is to give relief by suspending initiation of CIRP. This Court, from the plain reading of Section 10-A is unable to agree with the learned Senior Counsel that even in a case where the default continued after the period of moratorium, no application can be filed.
Since proviso to Section 10-A mandate that no application shall ever be filed for initiation of CIRP of the Corporate Debtor for the default occurring during the moratorium period, the above judgment relied upon by the learned Senior counsel is in tune with the statutory provision. However, the proviso cannot be extended to cases where the default is continued beyond the moratorium period. Therefore, there is no jurisdictional error to entertain a writ bye-passing an effective alternative remedy.
Conclusion - The writ petition was not maintainable, as the NCLT had jurisdiction to entertain the petition due to the continued default beyond the moratorium period.
Petition dismissed.
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2025 (3) TMI 13
Obligation to pay for electricity consumed during the CIRP period - Termination of electricity supply to the corporate debtor during the Corporate Insolvency Resolution Process (CIRP) under Section 14(2) of the Insolvency and Bankruptcy Code (IBC) - HELD THAT:- Section 14(2A) was inserted by Act 1 of 2020 w.e.f. 28.12.2019. Sub-section (2A) contemplates that where the interim resolution professional or resolution professional considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern when the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period. The goods or services which are critical to protect and preserve the value of the corporate debtor is thus dependent on the decision taken by the IRP and the resolution professional. Sub-section (2) and (2A) uses two expressions i.e. ‘essential goods or supply’ (which may be specified).
The essential supply thus has need to be specified by the Board as per Regulation and Regulation 32 of the CIRP Regulations specified the ‘essential supplies’. Thus, essential supplies have to be treated in a manner and to the extent as provided in Regulation 32. It is thus clear that the electricity which is not a direct input to the output produced is essential supply within the meaning of Section 14(2) read with Regulation 32 of the CIRP Regulations and it is clearly covered by the protection extended by legislature under Section 14(2).
The Hon’ble Supreme Court again in Madanlal Fakir Chand Dudhediya vs. Shree Changdeo Sugar Mills Ltd. and Ors. [1962 (3) TMI 33 - SUPREME COURT] had held that first rule of construction is that the words used in the section must be given their plain grammatical meaning and the two sub- sections must be read as parts of an integral whole and an attempt should be made in construing them to reconcile them.
The fact that payment to essential supplies can be made as per the decision of the resolution professional even during currency of the CIRP when the costs is incurred by the resolution professional. The statutory scheme, however, as contained in Section 14(2) prohibits the supplier of essential goods from terminating/ discontinuing the supply during moratorium period. As per statutory scheme, the corporate debtor is entitled to receive the essential goods and services during moratorium and even the payment is not made of essential goods and services that shall form part of the CIRP costs.
The above Discussion Paper highlights the issue of operational difficulty with regard to supply of electricity under Section 14(2) read with Regulation 32. The illustration which is now sought to be amended, amending the regulation now contemplate that if the corporate debtor operates a manufacturing facility that may be treated as critical service by the insolvency professional for which current dues for such services must be paid.
In M/s Power Mech Projects Ltd. vs. Essar Power (Jharkhand) Ltd. & Anr. [2025 (2) TMI 217 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI - LB] the effect and consequences of Discussion Paper considered. It is already held that the Discussion Paper has no effect on statutory scheme operating in the field and Discussion Paper only can be basis for amending regulation. The Discussion Paper, thus highlights the issues and the amendment in statutory scheme, if any, may take place only when the regulation are amended and notified.
The resolution professional, as assured to the appellant, need to take steps to clear the electricity dues, however, non-payment of electricity dues cannot be a ground to discontinue the electricity which is a clear mandate by Section 14(2). The IBBI has already taken notice of the operational issues and having proposed Regulation 32 of the CIRP Regulations, need to expedite its process and amendment, if any, which may be carried out at an early date to mitigate the hardship of the supplier of essential services.
Conclusion - i) The order of the Adjudicating Authority directing Appellant not to discontinue the electricity connection necessary for running the manufacturing facilities of the corporate debtor is not interfered with. ii) The resolution professional shall endeavour to pay the electricity dues as assured by it through various letters to the Appellant by taking steps including raising interim finance, if any. iii) IBBI in furtherance of its Discussion Paper dated 04.02.2025 which proposes amendment in Regulation 32 may expedite its steps regarding amendment, if any, which amendment may redress several operational issues as noticed by the IBBI itself.
Appeal disposed off - Let Registry communicate the copy of this order to Insolvency and Bankruptcy Board of India (IBBI).
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2025 (3) TMI 12
Dismissal of Application filed by the Appellant under Section 9 of the Insolvency and Bankruptcy Code, 2016 against the Respondent, seeking resolution of an outstanding amount - existence of Pre-Existing Dispute between the Parties or not - HELD THAT:- On candidly asking the Appellant as to whether the Appellant has denied the conversation in the grounds of Appeal to have ever happened or in the manner it has happened, to which he could not answer in negative. Thus, once there is no dispute that there has been conversation between the Parties, even on WhatsApp which is a common mode of communication these days, it does not lie in the mouth of the Appellant to contradict the same on the basis of the Judgment in the case of M/s. Kashyap Infraprojects Pvt. Ltd. [2024 (11) TMI 1288 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI - LB].
The Learned Tribunal has categorically observed that there was conversation between the Parties that the rates of Soya Bean have gone down and further recorded the conversation between the Parties to the effect that Appellant wanted to wait for the market to improve and did not receive the goods. The same conversation has been noticed by the learned Tribunal in Para 23 of the Impugned Order. Therefore, the Tribunal has rightly come to the conclusion that there was a Pre-Existing Dispute between the Parties and the process under the Code is being used for recovery for which it is not the appropriate forum.
Conclusion - The dismissal of the application upheld, concluding that there was a pre-existing dispute between the parties and that the Code was not the appropriate forum for the claim.
There are no reason to interfere in the Impugned Order and hence the present Appeal is hereby dismissed
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2025 (2) TMI 1117
Maintainability of petition without exhausting alternative remedies under the Payment of Gratuity Act, 1972 - Gratuity and its Interplay with IB Code - whether Gratuity Fund come within the meaning of Assets of Corporate Debtor for distribution u/s 53 IBC or not - HELD THAT:- Since in many instances, liquidation results in the complete closure of the business of the ailing debtor, which results in the termination of the employment of the workers. In legal parlance, this discharge of workers amounts to their retrenchment i.e. the termination of service of workers by the employer for any reason other than punishment inflicted by way of disciplinary action. Naturally to protect the workers, funds such as pension fund, provident fund, and the gratuity fund are kept out of the liquidation distribution and to be used solely for the benefit of the workers.
This question was even dealt with by the National Company Law Appellate Tribunal (NCLAT) in Somesh Bagchi v. Nicco Corpn. Ltd. (Somesh Bagchi) [2018 (7) TMI 2362 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] as well SBI v. Moser Baer Karamchari Union (Moser Baer – NCLAT) [2019 (8) TMI 915 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] wherein the Appellate Tribunal had held that gratuity does not form a part of the liquidation estate.
In Moser Baer – NCLT, the Court further directed the liquidator that in cases there is any deficiency to the provident, pension or the gratuity funds; the liquidator shall ensure that the fund is available in these accounts, “even if their employer has not diverted the requisite amount” -
This order was impugned by the State Bank of India – a secured creditor of Moser Baer in SBI v. Moser Baer Karamchari Union, where the limited question that came before the NCLAT was whether the gratuity dues formed a part of the liquidation estate. Holding the answer in negative, the NCLAT decided not to interfere with the order of the NCLT.
In the present case, there is no such fund maintained by the company. Herein, the company never closed down nor did it go into liquidation.
The dues for the welfare of the workers is not permissible to be included in the liquidation estate and is to be utilized only for the payment of the dues of such workers in full - Admittedly the respondent joined in the post of Manager Technical Operations and is not a worker and any dispute raised by him is thus not an industrial dispute. But the claim herein is in respect of gratuity in respect of an ‘employee’ which is guided by the labour legislation, payment of gratuity act and applies to all employees.
Conclusion - i) All ‘employees’ are covered under the payment of gratuity act and the said act is a labour legislation. This answers the point of jurisdiction/determination. ii) Admittedly the company never closed down, as the petitioner-company was taken over by the new management under the CIRP and the company remained active. Thus the jurisdiction of the concerned authority has never been ousted. iii) There being no specific fund maintained for such purpose by the company, the controlling authority rightly held that the entire dues of the workers would not come under the ‘liquidation assets’ and a worker was entitled to his total dues from the assets of the company. Such claim was above the claim of other creditors.iv) The controlling authority thus had jurisdiction to decide the issue of gratuity as the company never closed down. CIRP is a recovery mechanism for creditors unlike liquidation which is a way to end a company’s life.
Petition dismissed.
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2025 (2) TMI 1116
Jurisdiction of NCLT to decide issues after the approval of the resolution plan - NCLT nullified the outstanding dues payable to the Appellant for the period prior to initiation of Corporate Insolvency Resolution Process.
Whether the NCLT has jurisdiction to decide the issue after the approval of the resolution plan? - HELD THAT:- Once the resolution plan is approved its binding on the Corporate Debtor, its employees, members, creditors including the Central Government, any State Government or any local authority to whom a debt in respect of payment of dues arising under a law for a time being in force, such authorities to whom statutory dues are owned, guarantors and other stakeholders involved in the resolution plan as per provisions of Sub-section (1) of Section 31 of IBC, 2016.
Whether the SRA is liable to pay past electricity dues of pre-CIRP period of the Corporate Debtor, even after approval of the resolution plan and taking over of the Corporate Debtor, is an issue directly arising from approval of the resolution plan and its successful implementation. The NCLT has jurisdiction to entertain or dispose of any application or proceeding by or against the Corporate Debtor arising out of or in relation to the insolvency resolution. This position has been reiterated in recent judgment of this Tribunal in the case of Damodar Valley Coorporation Vs. Mackeil Ispat & Forging Ltd. & Anr., [2025 (2) TMI 425 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI - LB] - NCLT has jurisdiction to decide the issue relating to pre-CIRP outstanding electricity dues.
Whether the dispute regarding the demand for payment of arrears relating to the Corporate Debtor by the Successful Resolution Applicant, after the approval of the resolution plan, can be dealt only under the Electricity Act, 2003, and the Rules made therein, and cannot be adjudicated under the IBC, 2016? - HELD THAT:- This Tribunal in the case of Madhya Gujarat Vij Company Ltd. v. Kalptaru Alloys Pvt. Ltd., [2018 (9) TMI 1959 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] has held that in view of Section 238 of the IBC, 2016, the provisions of Gujarat Electricity Regulatory Commission (Electricity Supply Code and related matters) Regulations, 2015 cannot override the provisions of IBC, 2016 - The Hon’ble Supreme Court in the case of Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Private Limited & Ors. [2023 (7) TMI 831 - SUPREME COURT] has held that the provisions of IBC, 2016 override the provisions of the Electricity Act, 2003.
In view of the provisions of Section 238 of IBC, 2016 and the guidelines given in the judicial decisions discussed above, it is held that provisions of the IBC, 2016 over ride the provisions of Electricity Act, 2003, and the issue of payment of pre-CIRP electricity dues of corporate debtor by the SRA is an issue which can be decided by the NCLT u/s 60(5)(c) of IBC, 2016
Whether the Successful Resolution Applicant is liable to pay the arrears of electricity dues for the pre-CIRP period of the Corporate Debtor, even though no claim is filed by the electricity company in CIRP and no such provision is made in the resolution plan? - HELD THAT:- The Successful Resolution Applicant has taken over the Corporate Debtor and its commitment made in the resolution plan does not include any payment towards the electricity dues of the Corporate Debtor. As per scheme of IBC, 2016 the creditors relating to pre-CIRP period are required to file claim before the Resolution Professional (RP) regarding the debt payable by the Corporate Debtor. In the present case, no claim was filed by the Appellant electricity company and there was no commitment in the resolution plan to pay any amount towards pre-CIRP electricity dues.
In the present case the Appellant had not even filed its claim before the RP and it cannot be permitted to benefit from of its failure to file the claim and yet be paid pre-CIRP dues for restoring the electricity. The SRA had made payment under protest only under the compulsion to get the electricity restored and to make the Corporate Debtor to restart its business, which is one of the primary aim of the IBC, 2016. The Appellant is barred from seeking arrears of the amount that stands extinguished by operation of law as pre-condition to restoring the electricity connection.
Conclusion - i) NCLT has jurisdiction to adjudicate disputes arising from insolvency resolutions, as per Section 60(5) of the IBC. ii) The provisions of the IBC, 2016 override those of the Electricity Act, 2003, as per Section 238 of the IBC. iii) Once a resolution plan is approved, it is binding on all stakeholders, extinguishing pre-CIRP dues unless claims are filed during the CIRP.
Appeal dismissed.
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2025 (2) TMI 1115
Revival of the appeal - Appellant’s case is that the Appellant is first pari pasu charge holder with State Bank of India of the assets of the Corporate Debtor which is in liquidation and in the liquidation e-auction was held - HELD THAT:- A perusal of judgment of this Tribunal in STCI FINANCE LTD. VERSUS IMP POWERS LTD. & ORS. [2024 (8) TMI 1529 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] indicates that this Tribunal did not entered into the issues raised in the appeal and relying on affidavit which was filed by the Liquidator where entire amount admitted of the Appellant was proposed to be distributed, appeal was closed referring to the affidavit, which has been noticed in Paras 4 and 5 of the order. In Para 6 of the order, it is clearly mentioned that “we are of the view that there is no necessity of considering any issue which has arisen in this appeal” and further this Tribunal clarified that “We make it clear that we have not entered into any issue on merits”. Due to subsequent events, which have been noticed above, especially the issue regarding distribution to other creditors being open for consideration, we are of the view that appeal deserve to be revived.
Conclusion - The appeal should be revived to address the unresolved distribution issues, and all parties, including the Appellant, other creditors, and the Liquidator, should be given an opportunity to present their arguments.
Appeal disposed off.
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2025 (2) TMI 1062
Admissibility of Section 7 Application - interim order in this Appeal is continuing from 21.02.2024 and a period of one year has elapsed and Appellant has not agreed to all Terms of Settlement - HELD THAT:- The letter dated 18.01.2025, which is a Amendatory Settlement Letter, which was issued by ICICI Bank and the Clause-e, existing clause and amended clause, where both the clauses contemplate that on or before the due date, the entire Settlement Amount shall be released from the Fund Escrow Account to the Collection Account of the ICICI Bank. The settlement between the parties can be arrived only when both the parties agrees with all terms and conditions.
No direction can be issued to modify or change the Terms of Settlement as proposed by the ICICI Bank. The Appeal was disposed of on 22.11.2024, permitting Financial Creditor to file 12A application within the time allowed, which time was extended from time to time. From the facts brought on record, it is clear that as on date, both the parties have not agreed and signed any Settlement Agreement, so that an application under Section 12A can be filed for withdrawal of the CIRP. It is already noticed the submission of the learned Counsel for the Canara Bank, who has claimed that it has also dues on the Corporate Debtor, who also contends that no further indulgence be granted to the Appellant.
Conclusion - The Appellant was not entitled to further extensions for settlement and application rejected.
Application dismissed.
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2025 (2) TMI 1061
Condonation of 104 days delay in refiling the appeal - sufficient cause for the delay in refiling the appeal provided or not - HELD THAT:- In the present case, the impugned order was passed on 30.04.2024. The Appeal was e-filed on 13.06.2024 which was well within period of 45 days including condonation of delay. However, when the defects were notified by the NCLAT registry on 04.07.2024, the Appeal was finally refiled on 23.10.2024 after rectification of defects, with a delay of 104 days. From the explanation we find no reasons except for medical condition with the father of one of the Advocates which occurred sometime on end September. There is total silence from July to end September, 2024. Explanation provided doesn’t inspire much confidence.
There are no sufficient justification to condone the refiling delay of 104 days in time bound IBC proceedings.
Conclusion - Such delay of 104 days in refiling is not reasonable and justifiably explained. The application is therefore dismissed.
Application dismissed.
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2025 (2) TMI 1021
Invocation of judicial review under Article 226 of the Constitution to interdict personal insolvency proceedings initiated against respondent no.1 under Section 95 of the Insolvency and Bankruptcy Code, 2016 - HELD THAT:- This Court in Jiwrajka [2024 (1) TMI 33 - SUPREME COURT], while deciding the constitutional validity of Sections 95 to 100, has delved into the same and has held as follows. Pursuant to an application for initiating personal insolvency proceedings under Section 94 or Section 95, the Adjudicating Authority appoints a resolution professional under Section 97. The resolution professional performs distinct functions under Part II (dealing with corporate insolvencies) and Part III (dealing with personal insolvencies) of the IBC.
As has been held by this Court in Jiwrajka [2024 (1) TMI 33 - SUPREME COURT], the Adjudicating Authority does not adjudicate any point at this stage and need not decide jurisdictional questions regarding existence of the debt before appointing the resolution professional. This is because Section 99 requires the resolution professional to, at the first instance, gather information and evidence regarding repayment of the debt, and ascertain whether the application satisfies the requirements of Section 94 or Section 95 of the IBC. The existence of the debt will first be examined by the resolution professional in his report, and will then be judicially examined by the Adjudicating Authority when it decides whether to admit or reject the application under Section 100.
It is well-settled that when statutory tribunals are constituted to adjudicate and determine certain questions of law and fact, the High Courts do not substitute themselves as the decision-making authority while exercising judicial review - In the present case, the proceedings had not even reached the stage where the Adjudicatory Authority was required to make such determination. Rather, the High Court exercised jurisdiction even prior to the submission of the resolution professional’s report, thereby precluding the Adjudicating Authority from performing its adjudicatory function under the IBC.
While there is no exclusion of power of judicial review of High Courts, and the limits and restraint that the constitutional court exercises and must exercise are well articulated - the High Court was not justified in allowing respondent no. 1’s writ petition. The High Court should have permitted the statutory process through the resolution professional and the Adjudicating Authority to take its course.
Conclusion - The High Court's exercise of writ jurisdiction was incorrect as it interfered with the statutory process and made determinations that fell within the Adjudicating Authority's domain.
Appeal allowed.
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2025 (2) TMI 1020
Violation of principles of natural justice - non-speaking order - no privity of contract between the Appellant and Respondent No.1 - Impugned Order passed based on invocation of personal guarantee by 3rd party - guarantee was not invoked by proper party - valid appointment of Respondent No. 2 - valid Board Resolution to show that the Respondent No. 1 was authorised to file its Application u/s 95 of the Code or not - liability of Appellant as Guarantor for outstanding dues.
Whether there was no privity of contract between the Appellant and Respondent No.1? - Whether the Adjudicating Authority could have passed the Impugned Order based on invocation of personal guarantee by 3rd party? - HELD THAT:- Section 95 of the Code provides right to the creditors to file application to initiate Personal Insolvency Resolution Process (‘PIRP’). The security trustee is merely holding security in favour of the Financial Creditor or consortium of creditors and therefore either the trust or creditors may file application under Section 95 of the Code. The wording of Section 95(1) of the Code clearly stipulates that creditor may apply “either by himself or generally with other creditors”. Therefore, the creditor i.e., Respondent No. 1 is within his right to initiate Section 95 application and does not prevent him based on alleged lack of privity of contract with the Appellant. It is settled law that a party can enforce the contract made for its benefit.
The Assignment Agreement and the transfer of rights and obligations under the Facility Agreement were binding on the Corporate Debtor and accordingly, the Appellant could not seek to escape his obligations thereunder.
Whether the guarantee was not invoked by proper party as Demand Notice dated 21.04.2021 was issued by PHL Fininvest Private Limited whereas the Guarantee was executed into between the Appellant and Piramal Trusteeship Services Private Limited? - HELD THAT:- The clauses of the Personal Guarantee dated 20.07.2017 are loud and vocal and establish the independent rights of creditors in addition to Trust. By no way of imagination it can be argued by the Appellant (as guarantor) that creditor (including its assignee) can not pursue his rights against the Appellant. The pleading of the Appellant does not stand to any logic and need to be dismissed. There are no merit in the pleadings of the Appellant on their issue and stand rejected.
Whether the Impugned Order is a non-speaking order and contravene the principal of natural justice? - HELD THAT:- The proceedings under the Code are summary and time-bound, and thus, the Adjudicating Authority is not required to conduct proceedings akin to civil proceedings. The Adjudicating Authority's role is limited in considering whether a debt is due and payable and whether a default has occurred. In the present case, the amount of default is not in dispute, nor has the Appellant disputed signing the personal guarantee with the Financial Creditor by admitting to being a signatory to the personal guarantee, the privity of contract is established.
Hon’ble Supreme Court of India in case of Dilip B. Jiwarjka vs. Union of India & Ors. [2024 (1) TMI 33 - SUPREME COURT] cautioned that the principles of natural justice cannot be mechanically applied in a straightjacket formula and stipulated that based on the facts and circumstances, principles of natural justice on some occasions may extend to the right to a full-fledged evidentiary hearing while in certain cases may be circumscribed to a bare minimum opportunity to furnish an explanation by the affected party.
The Impugned Order is found to be valid and was passed while keeping in mind the principles of natural justice and equity.
Whether the appointment of Respondent No. 2 was not in accordance with provision of the Code? - HELD THAT:- The Respondent No. 2 was appointed as the Resolution Professional by the Adjudicating Authority vide order dated 08.04.2022 which has not been challenged by the Appellant and thus attained finality - there are no merit in the contention of the Appellant on this issue.
Whether there was no valid Board Resolution to show that the Respondent No. 1 is authorised to file its Application u/s 95 of the Code? - HELD THAT:- The Board Resolution was valid and wide enough to cover the proceedings, and any objections raised by the Appellant were addressed by a fresh Board Resolution ratifying previous actions.
Whether when adequate securities are already available with the Respondent No. 1 by way of first and exclusive mortgage of various properties (both immoveable and moveable) charged in favour of the Piramal Finance Limited at the time of execution of the Facility Agreement dated 20.07.2017 by Corporate Debtor (HEIL) and therefore, the Appellant as Guarantor is not liable for outstanding dues? - HELD THAT:- In terms of Section 128 of the Indian Contract Act, 1872, the liability of the surety is co-extensive with that of the principal debtor. The Supreme Court in the case of Industrial Investment Bank of India Ltd. v. Biswanath Jhunjhunwala [2009 (8) TMI 1186 - SUPREME COURT] while examining the issue of the term 'co extensive liability' has held that the liability of a surety is not in alternative to the principal borrower or Corporate Debtor and further it is not necessary for a creditor to first proceed against the principal borrower or Corporate Debtor before initiating legal proceedings against the surety.
Section 5(22) of the Code defines personal guarantor as an individual who is the surety in a contract of guarantee to a corporate debtor who provides guarantee in his personal capacity against the loans availed by the corporate debtor with co-extensive liabilities alongwith the corporate debtor.
Conclusion - i) The Assignment Agreement and the transfer of rights and obligations under the Facility Agreement were binding, and the Appellant could not escape his obligations. ii) The creditors have the right to enforce the contract made for their benefit, and the Facility Agreement allowed for the assignment of rights without the consent of the Corporate Debtor. iii) The terms of the Personal Guarantee allowed both the 'Lender' and the 'Trustee' to initiate action against the Appellant. iv) The Adjudicating Authority had considered the Resolution Professional's report and provided reasonable opportunities for objections. The Impugned Order was deemed valid, adhering to the principles of natural justice. v) The appointment was within the discretion of the Adjudicating Authority and that the provisions of the Code are directory in nature. vi) The Board Resolution was valid and wide enough to cover the proceedings, and any objections raised by the Appellant were addressed by a fresh Board Resolution ratifying previous actions. vii) The liability of the surety is co-extensive with that of the principal debtor, and the creditor is not required to first proceed against the principal borrower.
There are no merits in the appeal - appeal dismissed.
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2025 (2) TMI 963
Approval of Resolution Plan - viability and feasibility of the plan - principle argument of the Promoter is that the plan is not implementable within 9 months and neither it is viable and feasible - HELD THAT:- Plan is not implementable within 9 months is not an issue which can be decided at the time of approval of the plan. The question that the plan cannot be implemented within 9 months is the question which can be raised after expiry of the period as contemplated in the plan.
In so far as viability and feasibility, it is the commercial wisdom of the CoC to take a decision on viability and feasibility of the plan. The CoC having approved the plan with 100% voting, the CoC deemed to have adverted to the viability and feasibility of the Resolution Plan. The scope of interference in an order approving Resolution Plan is too limited for the Adjudicating Authority and this Appellate Tribunal which is well settled proposition - there are no good ground to interfere in the order approving the Resolution Plan at the instance of the Promoter.
Appellant who is one of the homebuyers has to go with the majority decision of the homebuyers and cannot be allowed to question the approval of the plan which is law settled by the Hon’ble Supreme Court in Jaypee Kensington Boulevard Apartments Welfare Association and Ors. Vs. NBCC (India) Limited & Ors., [2021 (3) TMI 1143 - SUPREME COURT]. The Supreme Court having already held that single homebuyer cannot be allowed to question the approval of the Resolution Plan. He has to sail or sink with the majority decision and in the present case, plan has approved with 100% voting share. Thus on behalf of one lone homebuyer challenge to the Resolution Plan cannot be maintained.
Conclusion - The individual homebuyers cannot challenge the approval of a Resolution Plan when the CoC has endorsed it with a majority vote.
Appeal dismissed.
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2025 (2) TMI 962
Condonation of 18 days delay in filing of the Appeal - Sufficient cause for delay or not.
Whether, when the condonable period of 15 days, as prescribed under Section 61(2) of the proviso, is falling on a day, on which the Appellate Tribunal is closed, whether the condonable period shall stand extended upto the date when Court re-opens? - HELD THAT:- This Tribunal referring to the judgment of the Hon’ble Supreme Court in Assam Urban Water Supply and Sewerage Board vs. Subhash Projects and Marketing Ltd. [2012 (1) TMI 412 - SUPREME COURT] clearly held that the period of one month under which the delay in filing the application should be condoned is not the period of limitation.
It is held that 15 days condonable period, even if it is coming to an end on a day, when the Tribunal is closed, the benefit of Rule 3 or Section 4 of the Limitation Act cannot be extended.
Whether for computing the 30 days period for filing the Appeal under Section 61, the limitation of 30 days period expiring on a day on which Tribunal is closed for, the period shall be excluded upto the period on which Tribunal re-opens, for computation of 30 days period for filing of the Appeal? - HELD THAT:- Rule 3 of the NCLAT Rules specifically provides that in computing the time, the day from which the said period is to be reckoned shall be excluded, and if the last day expires on a day when the office of the Appellate Tribunal is closed, that day and any succeeding day on which the Appellate Tribunal remains closed shall also be excluded. On reading Rule 3 of the NCLAT Rules, it clearly provides that when the last date expires on a day when the office of the Appellate Tribunal is closed, that day and any succeeding day on which the Appellate Tribunal remains closed shall also be excluded.
In the facts of the present case, the order was passed on 31.07.2024 and by giving benefit of two days for certified copy, 30th day when limitation was expiring shall be 01.09.2024. 31st August, 2024 and 1st September, 2024 being Saturday and Sunday, the Appeal could have been filed on 02.09.2024, which was the day when the Appellate Tribunal was to re-open.
Rule 3 of the NCLAT rules, which provides for exclusion of the period, which falls on day when the office of the Appellate Tribunal is closed. Hence, exclusion of the period is specifically provided in the Rules. The judgment of the Delhi High Court, which had only considered Section 4 of the Limitation Act had no occasion to consider the rule 3 of the NCLAT Rules, 2016. Hence, by virtue of Rule 3 the said judgment of the High Court cannot be held to be applicable in the facts of the present case - by virtue of Rule 3 of the NCLAT Rules, 2015, when last date for period of computation of limitation is falling on a day when office of the Tribunal is closed, the said period shall be excluded. Thus, in the present case, 30.08.2024, which was the 30th day for filing the Appeal and by giving two days for certified copy, 30th day will be 01.09.2024 and 31st August 2024 and 1st September, 2024 being Saturday and Sunday both the days have to be excluded for computing the period of 30 days of limitation. Hence, the last day for filing of the Appeal shall be 01.09.2024.
For computing 30 days period for filing the Appeal under Section 61, if the office of the Tribunal is closed on the 30th day, the period shall extend upto the date on which the Tribunal re-opens.
Whether the delay is within condonable period and sufficient cause has been made out to condone the delay? - HELD THAT:- The 30 days period when expiring on a day when the Court is closed, the said period also be excluded while computing the period of limitation. Reasons have been given by the Appellant in the application for explaining the delay of 15 days in filing the Appeal. The Appellant is an organization, which require approval at the organization level for filing an Appeal, which grounds have been pleaded in the application - there is sufficient ground given in the application, explaining the delay in filing the Appeal.
The delay condonation application filed within condonable period and there being sufficient cause being shown for condonation of the delay, the delay condonation application deserves to be allowed and the Applicant has made out sufficient cause for condonation of the delay. The delay in filing the Appeal is accordingly condoned.
Whether the delay in filing is within condonable period and sufficient cause has been made out to condone the delay? - HELD THAT:- Impugned order was passed on 31.07.2024 and the Appeal was e-filed on 17.09.2024. There is no material on record to indicate that certified copy was applied by the Appellant. The Appellant is, thus, not entitled for any exclusion on the ground of certified copy, which exclusion was available for the Applicant in Company Appeal (AT) (Ins.) No.1862 of 2024. The 30 days period shall come to an end on 30.08.2024, the Appeal filed on 17.09.2024 was beyond condonable period. 30th August, 2024 was not a holiday, the Appeal having been filed on 17.09.2024, i.e. beyond 15 days condonable period, IA No.6950 of 2024 deserves to be rejected. In result IA No.6950 of 2024 is dismissed.
Conclusion - The 15-day condonable period under Section 61(2) of the IBC cannot be extended by Rule 3 of the NCLAT Rules or Section 4 of the Limitation Act if it ends on a day when the Tribunal is closed.
The application for condonation of delay is allowed.
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2025 (2) TMI 961
Maintainability of Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) - no interest had ever been paid by the CD to the OC nor the interest component was ever recorded in the books of accounts - HELD THAT:- There is no dispute to the fact that out of total amount of Rs. 6,13,48,161.98/- Rs. 4,97,22,461.16 was towards the principal amount and Rs. 1,16,25,700.82/- was the interest. It is also not in dispute that Respondent No. 2 has claimed the interest only on the basis of invoice in which it has been mentioned that “in case of delay payment, interest will be charged @ 12% or as per the agreed terms” whereas no other document has been placed on record, much less, any purchase order or the agreement between the parties which can reflect the terms and conditions of the interest - The ledger account of the CD also reflects that principal amount claimed by the OC has been shown as nil which means that the principal amount has already been paid and has been accepted as such by the OC as the principal amount has been received without any murmur, therefore, the Tribunal is not correct to hold that the amount paid by the CD to the OC of Rs. 4,97,22,461.16 was adjusted towards interest at the first instance by making reference to the decisions in the case of Asset Reconstruction Company India Limited [2022 (8) TMI 70 - SUPREME COURT] and BHEL [2012 (10) TMI 1016 - SUPREME COURT].
Whether the amount of Rs. 1,16,25,700.82/- can be claimed even as an interest by the OC only on the basis of the boilerplate provision in the invoice in the absence of any agreement between the parties towards for the payment of interest or anything which may reflect it by way of email or purchase order etc.? - HELD THAT:- In the case of Prashat Agarwal (Supra) it was a condition in the invoice that “interest will be charged @ 18% plus GST P.A after due date of the bill” and the dispute was regarding the maintainability of the application filed under Section 9 in which the amount in question was less than Rs. 1 Cr. which is the minimum threshold prescribed under Section 4.
In the present case, condition prescribed in the invoice is that in case of delay in payment, interest will be charged at the rate of 12 @ as per the agreed terms. This clause in the invoice is totally vague because it does not specify the period within which the amount was to be paid unlike the case of Prashat Agarwal [2022 (7) TMI 835 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH] in which it was prescribed that interest will be charged after due date of bill. Secondly, it is mentioned in this clause that interest will be charged as per the agreed terms whereas no agreed terms have seen the light of the day to enable the OC to claim interest as a part of debt. In this regard, the observation has been made, in the case of Comet Performance [2025 (1) TMI 793 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI - LB] by a three members bench of this Court, relying upon Rishabh Infra Through Hari Mohan Gupta Vs. Sadbhav Engineering Ltd., [2024 (11) TMI 1411 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] in which it has been held that “invoices with interest clauses which were not part of the formal agreement are unenforceable”.
Conclusion - i) Interest claims based solely on invoice provisions without a formal agreement or acknowledgment are not enforceable under the IBC. ii) The IBC is intended for the resolution of debts, not for the recovery of interest claims that lack a contractual basis.
The impugned order is set aside - the present appeal is allowed.
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2025 (2) TMI 960
Condonation of delay of 19 days in filing the present appeal - sufficient cause for delay or not - HELD THAT:- As per Section 61 of the Code the period prescribed for filing the appeal before the Appellate Tribunal is 30 days. However, in terms of the proviso to Section 61(2) the Appellate Authority has the jurisdiction to allow the appeal to be filed even after the expiry of prescribed period of 30 days if it is satisfied that there was sufficient reason for not filing the appeal within prescribed period but such period cannot be extended more than 15 days.
As per the decision of the Hon’ble Supreme Court in the case of National Spot Exchange Limited Vs. Anil Kohli [2021 (9) TMI 1156 - SUPREME COURT], the Appellate Authority does not have the jurisdiction to condone the delay beyond the period of 15 days in any case.
In the present case, the impugned order was passed on 14.06.2024. The Appeal was required to be filed by the appellant within the prescribed period of 30 days which has to be computed from 15.06.2024 in terms of the Section 12(1) of the Limitation Act, 1963. The period of 30 days counted from 15.06.2024 expired on 14.07.2024 - The period of 15 days provided in the proviso to Section 61(2) counted from 14.07.2024 expired on 29.07.2024. The appeal has been e-filed on 02.08.2024 i.e after the period of 4 days of expiry even of the period of 15 days on 29.07.2024.
Counsel for the Appellant has submitted that the Court should exclude the period of two days spent by the Appellant in obtaining certified copy of the impugned order which was applied on 01.07.2024 and was received on 02.07.2024 - Even if the aforesaid period of two days are excluded in view of Section 12 of the Act, the appeal would still be barred by two days.
Similarly, the holidays on 17.06.2024, 29.06.2024 and 13.07.2024 which fell before 14.07.2024 (during the prescribed period) is no help to the Appellant because it is not the case where the Appellant has filed the appeal just on the reopening of the Court when the prescribed period of limitation was to expire rather the appellant has filed the appeal after the expiry of 45 days i.e. 15 days prescribed as the extended period in proviso to Section 61(2) for which the Appellant has to show sufficient cause for condonation of delay and is not part of the prescribed period of limitation.
Conclusion - There is hardly any merit in the present application which calls for any interference as the appeal has been clearly filed after the expiry of period of 45 days and therefore, this Court does not have the jurisdiction to condone the delay.
Application dismissed.
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2025 (2) TMI 905
Seeking dismissal of Section 7 application filed by the Appellant seeking initiation of Corporate Insolvency Resolution Proceedings (CIRP) of the Respondent-Corporate Debtor - credit facility provided by the Appellant to the Respondent was in the nature of a financial debt falling within the meaning of Section 5(8) of the IBC or not.
Whether the infusion of funds by the Appellant in the Corporate Debtor was in the nature of financial debt and, if so, whether the Appellant, being a financial creditor, was entitled to file the Section 7 application? - HELD THAT:- For a debt to be treated as financial debt there has to be an element of disbursal of money and the disbursal must be against the consideration for time value of money. The concept of time value of money has been further explained to also include a transaction which does not necessarily culminate into interest being paid in respect of money that has been borrowed.
The nature of underlying transaction is therefore a determinative factor in deciding whether infusion of funds can be classified as financial debt or not. To find out whether any element of commercial borrowing for time value of money is noticeable in the transactions which have taken place in the present facts of the case, it is required to study the various relevant clauses of the MoA since it is the MoA which constitutes the underlying edifice of the transactions.
Whether money disbursed by the Appellant to the Corporate Debtor to operationalize its business can be treated as a financial debt? - HELD THAT:- In the present facts of the case, there is sufficient material on record to prove that there was disbursal of funds by the Appellant to the Corporate Debtor in their account. The bank transaction details have been placed at page 248-284 of Appeal Paper Book (APB) to substantiate their contention that money was actually disbursed to the Corporate Debtor, which was in dire financial straits, towards working capital to make the Corporate Debtor operational - an abstract of commission on sales received by the Appellant from the Corporate Debtor for Rs 2.95 Cr. along with tax invoices have been placed from pages 366 to 375 of APB. It has also been indicated that an amount of Rs 11.54 lakhs was still due from the Corporate Debtor towards commission. This leaves no doubts that there was fund infusion into the Corporate Debtor by the Appellant.
Whether this disbursal was made by the Appellant against consideration for time value of money? - HELD THAT:- It is an undisputed fact that payment of interest against disbursal was not specifically mentioned in the clauses. Be that as it may, the IBC does not provide for any prescriptive requirement for the Financial Creditor to place on record formal written agreements/documents between the parties to establish that the disbursal made was in the form of loan with interest. It would be misconceived to hold that the fund infusion did not qualify to be a financial debt merely because loan component was not explicitly mentioned in the MoA. It is a well settled proposition of law that interest on loan is not the only binding criterion for determining time value of money. The question whether a credit facility without charging interest can be considered to be a financial debt in terms of Section 5(8) of the IBC is no longer res integra and has already been decided by the Hon’ble Supreme Court in Orator judgment [2021 (8) TMI 314 - SUPREME COURT] to hold that the definition of “financial debt” in Section 5(8) IBC does not expressly exclude an interest free loan. Viewed against this backdrop, the contention of the Respondent that the disbursal of the fund was bereft of loan component and hence not in the nature of a financial debt does not have legs to stand on.
Whether the disbursal made by the Appellant in the present context reflected consideration for time value of money? - HELD THAT:- Time value of money is not only a regular or timely return received for the duration for which the amount is disbursed as an amount in addition to the principal but also covers any other form of benefit or value accruing to the creditor as a return for providing money for a long duration. It is required to see if the Appellant had envisioned enhancement of economic prospect in return for the funds disbursed and if so then the sum advanced would qualify to entail time value of money and acquire the colour and character of commercial borrowing.
The disbursals clearly display commercial effect of borrowing. In our considered opinion the Adjudicating Authority committed an error in holding the transaction to be a business arrangement and non-suiting of the Appellant on the ground of not being a financial creditor. The Appellant has been wrongfully ousted by the Adjudicating Authority on the ground that the Appellant was not a financial creditor and the infusion of fund was not in the nature of financial debt. There are no hesitation to observe that this is a case of financial debt and the Appellant is clearly a financial creditor in terms of statutory provisions of IBC.
The Appellant has brought on record the Section 7 application filed by them. In Part-IV of the Section 7 application, the amount claimed to be in default as well as date of default has been clearly depicted therein. Part-IV also contains the pleadings and submissions made pertaining to debt and default. In Form-1 filed by the Appellant under Section 7 of IBC read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, the principal amount of loan advanced as ‘Financial Assistance’ by the Appellant is shown as Rs.39,84,72,111/- and the amount claimed in default to be Rs.42,47,32,067/- including interest - The Adjudicating Authority is obliged to determine whether default has occurred and whether the debt which was due and payable has remained unpaid. Clearly enough, the rival contentions of the two parties with respect to default in repayment of debt has not been considered and adjudicated upon by the Adjudicating Authority.
Conclusion - The infusion of funds by the Appellant constituted a financial debt under the IBC, and the Appellant was a financial creditor entitled to file a Section 7 application. The absence of an interest clause does not preclude a transaction from being a financial debt if it has the commercial effect of borrowing.
The matter remanded to the Adjudicating Authority to exercise its satisfaction as to whether financial debt has crossed the threshold limits and has become due and payable and basis these findings decide to accept or refuse admission of the Section 7 application of the Appellant - appeal allowed by way of remand.
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