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2019 (3) TMI 1188 - Tri - Insolvency and BankruptcyCorporate insolvency process - existence of financial debt - occurrence of default - whether Petition filed on Form No.1 in the capacity of a Financial Creditor is bad in law? - whether the arrangement between the Petitioner and Respondent as recorded in the letter dated 20.08.2009, did not involve any disbursement against the consideration for the time value of money ? - HELD THAT - In addition to the conventional borrowings where a lender has advanced a sum of money to a borrower against the payment of interest and disbursed the money against the consideration for the time value of money, this definition has also included all those transactions which are not having the element of physical transfer of money from the hand of the lender to the account of the borrower. Thus, the disbursement as well as element of interest are not the two conditions sine-quo-non so as to fall within the ambits of the definition of Financial Debt . Those transactions where an amount is raised having commercial effect of a borrowing are also coming within this definition. Other transactions such as derivative transaction or counter indemnity obligation or value of a transaction, may be calculated on the basis of market value and to be taken into account for the purpose of claim of Financial Debt . In the light of the above discussion and on due perusal of the documents annexed, the Debt is to be qualified as Financial Debt as defined under section 5(8) of Insolvency & Bankruptcy Code, 2016. As a result, the Financial Creditor has filed this Application for initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. Since this is a Petition of Financial Creditor , therefore, the Insolvency Process shall commence as prescribed under Section 7 of IBC, 2016. The occurrence of default is established. The Financial Debtor had failed to pay the amounts due. Debt in question is a Financial Debt and that the occurrence of default is recognized, hence considering the state of affairs mentioned supra the Petition under consideration deserves to be Admitted .
Issues Involved:
1. Transfer of Petition from Bombay High Court to NCLT. 2. Nature of the Debt and Default. 3. Validity and enforceability of the Letter of Undertaking (LoU). 4. Objections raised by the Respondent regarding the nature of the debt. 5. Limitation period for filing the Petition. 6. Admission of the Petition and commencement of Corporate Insolvency Resolution Process (CIRP). Detailed Analysis: 1. Transfer of Petition from Bombay High Court to NCLT: The Petitioner, IL&FS Financial Services Limited, initially filed a Petition under the old Companies Act, 1956, invoking sections 433(e), (f), and 434, which was later transferred to NCLT, Mumbai, due to a notification by the Ministry of Corporate Affairs. The Petition was refiled under section 7 of the Insolvency and Bankruptcy Code, 2016. 2. Nature of the Debt and Default: The Petitioner claimed a financial debt of ?97,79,40,000 and default of ?266,39,08,560. The debt arose from a Share Purchase Agreement (SPA) and a Letter of Undertaking (LoU) dated 20.08.2009, where the Respondent, La-Fin Financial Services, was obligated to buy back shares from the Petitioner within a specified period, ensuring an internal rate of return of 15%. 3. Validity and Enforceability of the Letter of Undertaking (LoU): The LoU dated 20.08.2009 was a critical document, where La-Fin committed to buying back shares at an agreed price within a specified period. The Hon'ble Bombay High Court, in its judgment dated 14.03.2012, held that the LoU was lawful and enforceable, confirming that the obligations under the LoU could be lawfully honored without violating MIMPS Regulations. 4. Objections Raised by the Respondent Regarding the Nature of the Debt: The Respondent argued that the claim did not fall within the definition of "Financial Debt" under Section 5(8) of the Insolvency and Bankruptcy Code, 2016. They contended that the LoU was merely a letter of comfort and did not involve any disbursement against the consideration for the time value of money. They also argued that the Petition was barred by limitation and that the matter was sub judice due to a pending suit (Suit No. 449/2013) in the Bombay High Court. 5. Limitation Period for Filing the Petition: The Respondent claimed that the cause of action arose on 16.08.2012, and the statutory notice for winding-up was issued on 03.11.2015, beyond the three-year limitation period. However, the Tribunal examined the facts and circumstances, concluding that the debt was a "Financial Debt" and the occurrence of default was established. 6. Admission of the Petition and Commencement of Corporate Insolvency Resolution Process (CIRP): The Tribunal, after hearing arguments and examining the documents, held that the debt qualified as a "Financial Debt" under Section 5(8) of the Insolvency and Bankruptcy Code, 2016. The Tribunal admitted the Petition, appointed an Interim Resolution Professional (IRP), and declared a "Moratorium" as prescribed under Section 14 of the Code, prohibiting the institution of any suit or parallel proceedings before any Court of Law and ensuring the supply of essential goods or services to the Corporate Debtor during the Moratorium Period. Conclusion: The Petition was admitted, and the Corporate Insolvency Resolution Process was declared and commenced from the date of the Order. The IRP was directed to perform duties as defined under Section 18 of the Code and submit the Resolution Plan for approval as prescribed under Section 31 of the Code.
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