2020 (1) TMI 39 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor defaulted in making repayment - One of the objections raised by the respondent is that the applicant is not a 'financial creditor', nor the debt claimed in the application come within the purview of financial debt as defined under the Code and therefore the present application is not maintainable - HELD THAT - The expressions Financial Creditor and Financial debt have been defined in Section 5 (7) and 5 (8) of the Code and precisely Financial debt is a debt along with interest, if any, which is disbursed against the consideration for time value of money. In the present case applicant has placed statements including bank transactions to show that loan was disbursed to the respondent. Respondent in their reply, although disputed the entire claim of the applicant but admitted that the loan was a long-term borrowing. Respondent therefore has accepted that the debt amount received from the applicant was in the nature of a loan - Once it is accepted that the debt was received as a long-term borrowing, it is evident that the said loan amount was clearly disbursed against the consideration for time value of money with a clear commercial effect of borrowing. Moreover, the debt claimed in the present application includes both the component of outstanding principal and interest. It is seen that not only the present claim comes within the purview of 'Financial Debt' in terms of Section 5(8) of the Code but also the applicant can clearly be termed as 'Financial Creditor' of the respondent corporate debtor so as to prefer the present application under Section 7 of the Code. There is a declaration made by him that no disciplinary proceedings are pending against him in Insolvency and Bankruptcy Board of India or elsewhere. In addition, further necessary disclosures have been made by Mr. Sameer Rastogi as per the requirement of the IBBI Regulations. Accordingly, it is seen that the requirement of Section 7 (3) (b) of the Code has been satisfied - It is thus seen that the requirement of sub-section 5 (a) of Section 7 of the code stands satisfied as default has occurred, the present application filed under Section 7 is complete, and as no disciplinary proceeding against the proposed IRP is pending. It is seen that the applicant clearly comes within the definition of Financial Creditor. The material placed on record further confirms that the applicant financial creditor had disbursed loan to the respondent corporate debtor and the respondent has availed the loan and committed default in repayment of the outstanding financial debt despite demand notice. On a bare perusal of Form - I filed under Section 7 of the Code read with Rule 4 of the Rules shows that the form is complete and there is no infirmity in the same. It is also seen that there is no disciplinary proceeding pending against the proposed IRP - in terms of Section 7 (5) (a) of the Code, the present application is admitted. Application admitted - moratorium declared.

Summary

Issues Involved:
1. Jurisdiction of the Tribunal.
2. Definition and classification of "Financial Creditor" and "Financial Debt".
3. Validity and enforceability of an oral loan agreement.
4. Pendency of other legal proceedings affecting the insolvency process.
5. Compliance with procedural requirements for initiating Corporate Insolvency Resolution Process (CIRP).

Detailed Analysis:

1. Jurisdiction of the Tribunal:
The Tribunal confirmed its jurisdiction over the matter as the registered office of the respondent corporate debtor is situated in New Delhi, falling under the territorial jurisdiction of the National Company Law Tribunal, New Delhi, in accordance with sub-section (1) of Section 60 of the Insolvency and Bankruptcy Code, 2016 (the Code).

2. Definition and Classification of "Financial Creditor" and "Financial Debt":
The respondent contested that the applicant was not a "financial creditor" and the debt did not qualify as "financial debt" under the Code. The Tribunal examined Sections 5(7) and 5(8) of the Code, which define "Financial Creditor" and "Financial Debt". The Tribunal found that the loan disbursed by the applicant to the respondent was indeed a financial debt as it was disbursed against the consideration for time value of money, including both principal and interest. Hence, the applicant was recognized as a "Financial Creditor".

3. Validity and Enforceability of an Oral Loan Agreement:
The respondent argued that the loan was based on an oral agreement and was repayable within seven years, not on demand. The Tribunal noted that the disbursal of the loan was not disputed and that an oral agreement is legally enforceable. The Tribunal also referenced an email dated 30.09.2018 from the respondent acknowledging the debt and expressing intent to repay, which countered the claim that the loan was repayable after seven years.

4. Pendency of Other Legal Proceedings Affecting the Insolvency Process:
The respondent mentioned ongoing disputes before the National Company Law Tribunal, Jaipur, as a reason to contest the insolvency application. The Tribunal clarified that such disputes do not impede the initiation of CIRP under Section 7 of the Code. The Tribunal cited Section 238 of the Code, which gives it overriding effect over other laws, and referenced judgments from the Hon'ble NCLAT and Supreme Court supporting this position.

5. Compliance with Procedural Requirements for Initiating CIRP:
The Tribunal verified the application under Section 7 of the Code and found it complete, with all necessary documents and information provided, including the name of the Interim Resolution Professional (IRP) and a declaration of no pending disciplinary proceedings against him. The Tribunal confirmed that the financial debt exceeded the threshold limit of Rupees one lakh and that default had occurred. Consequently, the application satisfied the requirements of sub-section 5(a) of Section 7 of the Code.

Conclusion:
The Tribunal admitted the application for initiating CIRP against the respondent corporate debtor. Mr. Sameer Rastogi was appointed as the Interim Resolution Professional. A moratorium was declared under Section 14 of the Code, prohibiting certain actions against the corporate debtor. The Tribunal directed the applicant to deposit a sum of ?2 Lakhs with the IRP for expenses and mandated cooperation from the corporate debtor's management. The order was to be communicated to relevant parties and the Registrar of Companies for updating the corporate debtor's status.