2020 (9) TMI 992 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Debt or not - Existence of debt and dispute or not - HELD THAT - Debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt which means debt includes the financial debt and operational debt and definition of financial debt shows that a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes either of clause (a) to (i) and if the amount paid comes under the definition of Section 5(8) of the IBC only in that case a person who gave the money comes under the definition of Financial Creditor. In the case in hand, there is no dispute that certain amount has been advanced by the Petitioner to the Corporate Debtor through RTGS payments on different dates but the question is that can the amount be treated as a financial debt or not? We find that the Petitioner in his application, everywhere referred the word 'loan amount' and not the debt and against that loan amount, he was getting the interest from the Corporate Debtor, therefore, we are unable to accept the contention of the Petitioner that he is the Financial Creditor under Section 5(7) and the amount which he has advanced as a loan comes under the definition of Section 5(8) - Further, the issuance of TDS certificates does not amount to an admission of liability and the TDS certificate is primarily to acknowledge the deduction of tax at source. There are no documents of loan agreement, which would show, what was the agreed rate of interest and as we have already referred the definition of financial debt and on the basis of the same we are of the considered view that the claim of the petitioner do not come under any of the clause (a) to (i) of Section 5(8) of IBC. The Petitioner has neither enclosed the resolution passed by the Board of Director of the Corporate Debtor Company nor enclosed the resolution passed by the Board of Director of his company by which the company was authorized to disburse the loan. We have already held that there is no written agreement - the Petitioner has failed to convince us that the amount which he has paid comes under the definition of Financial Debt and the applicant is the Financial Creditor therefore, the present application is not maintainable. Application dismissed.

Summary

Issues Involved:
1. Whether the amount advanced by the Petitioner to the Corporate Debtor qualifies as a "financial debt" under Section 5(8) of the Insolvency & Bankruptcy Code, 2016.
2. Whether the Petitioner qualifies as a "Financial Creditor" under Section 5(7) of the Insolvency & Bankruptcy Code, 2016.
3. Compliance with Sections 179 and 186 of the Companies Act, 2013 concerning board resolutions for loans.

Issue-wise Detailed Analysis:

1. Whether the amount advanced by the Petitioner to the Corporate Debtor qualifies as a "financial debt" under Section 5(8) of the Insolvency & Bankruptcy Code, 2016:
The Tribunal examined the definition of "financial debt" as per Section 5(8) of the Insolvency & Bankruptcy Code, 2016, which includes a debt along with interest disbursed against the consideration for the time value of money. The Tribunal noted that the Petitioner referred to the amount advanced as a "loan" and not as a "debt." Furthermore, there was no written agreement or document specifying the agreed rate of interest. Hence, the Tribunal concluded that the amount advanced does not fall under any clause (a) to (i) of Section 5(8) of the Insolvency & Bankruptcy Code, 2016.

2. Whether the Petitioner qualifies as a "Financial Creditor" under Section 5(7) of the Insolvency & Bankruptcy Code, 2016:
The Tribunal referred to the definition of "financial creditor" under Section 5(7) of the Insolvency & Bankruptcy Code, 2016, which means any person to whom a financial debt is owed. The Tribunal found that the Petitioner failed to provide sufficient evidence to prove that the amount advanced qualifies as a financial debt. The Tribunal also referred to the decision of the Hon'ble High Court in Utility Powertech Limited Vs. Amit Traders, which held that the issuance of TDS certificates does not constitute an admission of liability. Therefore, the Petitioner does not qualify as a Financial Creditor.

3. Compliance with Sections 179 and 186 of the Companies Act, 2013 concerning board resolutions for loans:
The Tribunal noted that the Petitioner did not enclose any board resolution passed by the Corporate Debtor company or by the Petitioner's company authorizing the disbursement of the loan. Sections 179 and 186 of the Companies Act, 2013 require board resolutions for granting loans or borrowing monies. The absence of such resolutions further weakened the Petitioner's case.

Conclusion:
The Tribunal concluded that the Petitioner failed to prove that the amount advanced qualifies as a financial debt and that the Petitioner is a Financial Creditor. Additionally, the lack of compliance with Sections 179 and 186 of the Companies Act, 2013 regarding board resolutions was noted. Consequently, the application for initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor was dismissed.