2018 (7) TMI 1634 - Tri - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - proof of outstanding debt - Held that - The conditions in the loan agreement that unsecured loans, obtained by the CD, would be non-interest bearing as well as the conditions that such loans cannot be repaid during the currency of the bank loan are all business decisions, taken by the parties thereto in the best interest of all concerned and as such, said cannot be questioned alleging that such conditions in the agreement aforesaid violated the law laid down in section 27 of the Contract Act. As already found that the decision to the effect that unsecured loans, obtained by the CD, would be non-interest bearing and that such loans cannot be repaid during the currency of the bank loan were also approved by the management in CD when the applicant herein along with his son and daughter-in-law was at helm of affairs of such a company. Such state of affairs hardly approves of the conduct of the applicant in approaching this Authority with an application u/s 7 of the Code, 2016 seeking initiation of CIRP against the CD. Applicant miserably fails to show that as on 03-07-2015, the CD owed an amount to the tune of ₹ 38,88,745/- or that there was a default in payment of such debt on such a date and many other subsequent dates. Petition dismissed.

Issues Involved:
1. Whether the Corporate Debtor (CD) defaulted on an unsecured loan amounting to ?38,88,754/-.
2. Validity of the terms and conditions under the loan restructuring agreement dated 30-07-2013.
3. Whether the Financial Creditor (FC) can claim interest on the unsecured loan.
4. Impact of the agreement dated 15-12-2014 on the liabilities of the CD.
5. Whether the application under Section 7 of the Insolvency & Bankruptcy Code, 2016 is maintainable.

Detailed Analysis:

1. Default on Unsecured Loan:
The FC alleged that the CD obtained an unsecured loan of ?37,00,000/- in five installments between 11.11.2011 and 18.10.2014 and failed to repay it along with the agreed interest, resulting in a due amount of ?38,88,754/- as of 03.07.2015. The CD contested this, claiming no liability to repay the FC, citing a restructuring agreement with the State Bank of India (SBI) and subsequent agreements affecting the repayment terms.

2. Loan Restructuring Agreement (30-07-2013):
The CD argued that under the loan restructuring agreement with SBI, two critical conditions were that unsecured loans would be non-interest bearing and could not be repaid during the currency of the bank loan. This agreement was signed by the FC, his son, and his daughter-in-law, who were then in the management of the CD. The bank loan was fully liquidated only on 16-02-2018, thus the unsecured loan did not become due for repayment until that date. The tribunal found that the FC was aware of these terms and therefore could not claim default as of 03-07-2015.

3. Claim for Interest on Unsecured Loan:
The FC's demand for interest on the principal amount was found to be in violation of the loan restructuring agreement's terms, which stipulated that the unsecured loans would be non-interest bearing. The tribunal noted that the FC's claim for interest created an inaccurate picture of the debt amount, further undermining the FC's application.

4. Agreement Dated 15-12-2014:
This agreement facilitated the transfer of management and shareholding from the Himatsingka Group (including the FC) to the BK Group. The agreement apportioned the CD's liabilities between the two groups, with the BK Group undertaking to discharge unsecured loans up to ?2.20 crores and the Himatsingka Group responsible for any amount beyond that. The tribunal found that the BK Group had largely discharged its obligations, while there was no evidence that the Himatsingka Group had fulfilled its part. The FC's application was seen as an attempt to defraud the CD and mislead genuine unsecured creditors.

5. Maintainability of the Application:
The tribunal emphasized that the FC failed to demonstrate that the debt was disbursed against consideration for the time value of money, a requirement for a financial debt under Section 5(8) of the Code. Additionally, the tribunal found that the FC's application was premature and lacked merit, as the debt was not due for repayment until the bank loan was liquidated in 2018. The tribunal also highlighted that the FC's conduct in filing the application was dishonest and aimed at defrauding the CD and its creditors.

Conclusion:
The tribunal dismissed the application under Section 7 of the Insolvency & Bankruptcy Code, 2016, finding that the FC failed to establish a default in repayment of the unsecured loan and that the application was an attempt to defraud the CD and its genuine creditors.

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