2019 (12) TMI 1120 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - whether in absence of any document applicant is able to establish that he is financial creditor and respondent is corporate debtor? - Section 7 of IBC,2016 - time limitation - HELD THAT - It is admitted position of law that to initiate the proceedings under section 7 of IBC, it is not necessary to sent the notice upon the Corporate Debtor and that is the main distinction between the provision contained in Sections 7 and 9 of the IB code - the contention of applicants that the date of default is the date of notice sent by the applicants to the Corporate Debtor, cannot be accepted. If the date of notice is not treated the date of default, then according to the averments made in Part IV of the application, the last payment made by the applicant on 07.05.2016, whereas this application has been filed on 21.06.2019. Tine Limitation - HELD THAT - As per the provision of Article 137 of Limitation Act, so far the recovery of money is concerned, the person is required to file the application within three years when the cause of action arises - Here the case in hand , the applicants has failed to show what is the date of cause of action or what is the date of actual default. Therefore, since the last amount claimed by the applicant was defaulted on 07.05.2016, therefore limitation runs from that day. Since this application has been filed on 21.06.2019, therefore, it is after the 3 years as provided under the law. So the present application is also barred by law of limitation. The applicant failed to produce any document to show that what was the agreed interest in-between the parties on the basis of which money was borrowed. Therefore, the case of the applicant, does not comes under Section 5(8)(a) of IB Code and also does not come either under (b) or (c) or (d) or (e) or (f) or (g) or (h) or (i) of Section 5 (8) of the I B Code - Therefore, the contention of the applicant that these payment shown in schedule Part IV of Form-1 comes under financial debt and The applicant comes under the definition of financial creditor in view of Section 5 (7) of the IB Code, cannot be accepted. The applicant failed to bring on record the default recorded with the information utility or such other record or evidence as maybe specified which is necessary to proceed for admitting the petition Under Section 7 of the l B Code - Application dismissed.

Summary

Issues Involved:
1. Establishment of Financial Creditor and Corporate Debtor Relationship
2. Contradictions in Applicant's Statements
3. Determination of Date of Default
4. Applicability of Limitation Act
5. Definition of Financial Debt under IBC

Detailed Analysis:

1. Establishment of Financial Creditor and Corporate Debtor Relationship:
The Tribunal examined whether the applicant, Avail Financial Services Limited, could establish its status as a financial creditor and the respondent, Sunworld City Pvt. Ltd., as a corporate debtor. The applicant claimed to have advanced a loan of INR 6.75 crore to the corporate debtor in various tranches from December 2015 to May 2016. However, no written agreement regarding the loan sanction was produced, nor was there any document to show the terms of the oral agreement, including the agreed interest rate. The Tribunal found the absence of such documentation problematic for establishing the financial creditor and corporate debtor relationship.

2. Contradictions in Applicant's Statements:
The Tribunal noted significant contradictions in the applicant's statements. Initially, the applicant claimed that the corporate debtor had made interest payments from 2014 to October 2016 and partial principal repayments from January to February 2016. However, in the amended application, the applicant stated that no interest was paid, but TDS was deducted and deposited with the tax authority. These inconsistencies led the Tribunal to conclude that the applicant was attempting to conceal facts.

3. Determination of Date of Default:
The applicant claimed that the date of default was the expiry of seven days from the sending of the demand notice on 10.05.2019. The Tribunal questioned whether the date of the demand notice could be considered the date of default. Referring to the Supreme Court's decision in Innoventive Industries Ltd. v. ICICI Bank Ltd., the Tribunal emphasized that for financial debt, the adjudicating authority must see the records of the information utility or other evidence to satisfy itself that a default has occurred. The Tribunal did not accept the applicant's contention that the date of the demand notice was the date of default.

4. Applicability of Limitation Act:
The Tribunal applied Article 137 of the Limitation Act, which requires the application to be filed within three years from the date when the cause of action arises. The last payment was made on 07.05.2016, and the application was filed on 21.06.2019, exceeding the three-year limitation period. The Tribunal concluded that the application was barred by the law of limitation.

5. Definition of Financial Debt under IBC:
The Tribunal examined whether the claimed amount constituted a "financial debt" under Section 5(8) of the Insolvency and Bankruptcy Code (IBC). The applicant failed to produce any document showing the agreed interest rate or that the amount was disbursed against the consideration for the time value of money. The Tribunal found that the applicant did not demonstrate that the claimed amount met the definition of financial debt as per Section 5(8) of the IBC. Consequently, the applicant did not qualify as a financial creditor under Section 5(7) of the IBC.

Conclusion:
The Tribunal concluded that the applicant failed to establish the financial creditor and corporate debtor relationship, provided contradictory statements, did not adequately determine the date of default, and filed the application beyond the limitation period. Additionally, the applicant did not prove that the claimed amount constituted a financial debt under the IBC. Therefore, the application to initiate proceedings under Section 7 of the IBC against Sunworld City Pvt. Ltd. was rejected and dismissed.