2019 (8) TMI 684 - Tri - Insolvency and Bankruptcy

Admissibility of petition - initiation of Corporate Insolvency Resolution Process - scope of 'Financial Creditor' - existence of debt/default or not - sub-section (7) of section 5 of IBC - whether the money was borrowed against consideration for time value of money and according to the petitioner the money was given on payment of the interest? - HELD THAT - The petitioner has filed copies of the order passed by the Judicial Magistrate in the criminal complaints under section 138 of the Negotiable Instruments Act (annexures A to H) to suggest that the proceedings against the respondent-corporate debtor were consigned in terms of section 299 of the Code of Criminal Procedure, 1973, the directors of the respondent-corporate debtor having been declared proclaimed offenders. In one of the case, however, the accused have put in appearance and the matter is pending. The important question was whether the interest was debited in the account of the respondent-corporate debtor maintained in the books of account of the petitioner before May 25, 2018 and details thereof. It is admitted that there is no entry debiting the interest in the account of the respondent being maintained by the petitioner before entry dated May 20, 2017 to the tune of ₹ 2,07,82,027. The loan is said to have disbursed in the year 2013 and it is admitted that there is no entry of debiting the interest in any of the financial years except when the dispute between the parties arose. The petition is rejected in limine with cost of ₹ 2,00,000 with a direction to deposit the amount of costs in the Prime Minister Relief Fund within a period of one month of receipt of certified copy of the order.

Summary

Issues:
Initiation of insolvency resolution process under section 7 of the Insolvency and Bankruptcy Code, 2016 against a corporate debtor by a financial creditor.

Detailed Analysis:
The petitioner, claiming to be a financial creditor, filed a petition under section 7 of the Insolvency and Bankruptcy Code, 2016, seeking to initiate insolvency resolution against the respondent-corporate debtor. The petitioner company was incorporated under the Companies Act, 1956, and passed a resolution authorizing the petition against the debtor. The respondent-corporate debtor had borrowed a substantial amount from the petitioner, which led to a series of financial transactions, including the issuance of post-dated cheques. However, the respondent failed to honor these cheques, leading to legal actions such as criminal complaints under section 138 of the Negotiable Instruments Act. Despite efforts to settle the matter, the respondent repeatedly defaulted on payments, leading to the petitioner filing for insolvency resolution.

The key contention in the case revolved around the definition of a financial creditor under the Insolvency and Bankruptcy Code. The petitioner needed to establish that it fell within the definition of a financial creditor as per the Code. The definition includes a person to whom a financial debt is owed, disbursed against the consideration for the time value of money. The petitioner argued that the money lent to the respondent was against the payment of interest, meeting the criteria of a financial debt. At this preliminary stage, the allegations made by the petitioner were to be accepted without considering any defense that the respondent might raise.

During the proceedings, the petitioner was directed to provide detailed information, including the status of criminal complaints, interest debited in the respondent's account, and details of previous legal actions. It was revealed that the petitioner had previously filed a petition against the same debtor for the same transaction, which had been rejected by the Tribunal. Despite this, the petitioner filed a fresh petition based on a subsequent agreement, attempting to revive the old claim. The Tribunal noted that this attempt to reinitiate the claim based on a new agreement was not acceptable, as it had already ruled on the matter previously.

Ultimately, the Tribunal rejected the petitioner's petition in limine, imposing exemplary costs and directing the petitioner to deposit the specified amount in the Prime Minister Relief Fund within a month. Failure to comply would result in appropriate actions by the Registrar of Companies, Punjab, and Chandigarh. The judgment highlighted the importance of transparency and adherence to legal procedures in insolvency cases, emphasizing the need for parties to disclose all relevant information and previous legal actions to avoid abuse of the legal system.