2020 (10) TMI 114 - Tri - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Corporate Debtor committed default in making payment of financial debt - Existence of debt and dispute or not - HELD THAT - The ledger account produced by the Petitioner clearly shows that the Petitioner used to purchase goods from the Corporate Debtor and payments were made by the Petitioner. It is not even the case of the Petitioner that the amount paid to the Corporate Debtor is separately accounted by him as a loan and the same is shown in his balance sheet as an unsecured loan. The payment of money by the Petitioner to the Corporate Debtor, without executing any loan document by the Corporate Debtor, more particularly when there is a customer-supplier relationship between the parties, will not fall under the purview of Section 5 (8) of the code, to bring this debt under the umbrella of financial debt as defined in the Code. To decide whether the debt is a financial debt or not, we have to see the intent of the parties. Further we have to look at the surrounding circumstances of the advancement of money and have to ascertain whether the money is advanced for financial return or for supply of goods and services. There are transactions where the Petitioner is the purchaser of goods from the Corporate Debtor. There are no documents to show the money is advanced purely as a financial transaction notwithstanding the fact that the Corporate Debtor is a supplier of goods to the petitioner. The petitioner is the dominus litis and the onus probandi lies on the petitioner to establish the crucial ingredient of time value of money, as required under section 5(8) of the Code and the judicial pronouncements discussed in the transaction under consideration. But the petitioner failed on this count. Hence, the amount claimed is not a financial debt. Petition dismissed.

Summary

Issues Involved:
1. Whether the amount claimed by the Petitioner constitutes a "financial debt" under Section 5(8) of the Insolvency and Bankruptcy Code, 2016.
2. Whether the Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 is maintainable.

Issue-wise Detailed Analysis:

1. Whether the amount claimed by the Petitioner constitutes a "financial debt" under Section 5(8) of the Insolvency and Bankruptcy Code, 2016:

The Petitioner, proprietor of Niyati Chemicals, filed a petition against the Corporate Debtor, Minepro Minerals Private Limited, alleging default in making payment of financial debt amounting to ?17,11,600/-. The Petitioner claimed to have advanced ?20,00,000/- and ?2,50,000/- as unsecured loans to the Corporate Debtor, with partial repayments made towards goods purchased, leaving a balance of ?17,11,600/-.

The Corporate Debtor contended that the payments were advances for future supply of goods, not loans. The Petitioner denied this, asserting the amounts were loans.

The Tribunal analyzed the definition of "financial debt" under Section 5(8) of the Code, which includes debt disbursed against consideration for the time value of money. The Tribunal referred to judgments, including Shailesh Sangani vs. Joel Cardoso and Anr., and Anchor Leasing Pvt. Ltd. vs. Euro Ceramics Ltd., to determine whether the transactions constituted financial debt. In these cases, the presence of interest or acknowledgment of debt was crucial.

The Tribunal noted that the ledger accounts showed transactions for goods and payments, without any loan documentation. The Petitioner failed to demonstrate that the amounts were treated as loans in their balance sheet or that there was any consideration for the time value of money. The Tribunal emphasized the intent of the parties and the surrounding circumstances, concluding that the transactions were for the supply of goods, not financial returns.

2. Whether the Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 is maintainable:

Given the conclusion that the amount claimed did not constitute a financial debt, the Tribunal held that the Petition under Section 7 of the Code was not maintainable. The Petitioner bore the burden of proving the crucial ingredient of time value of money, which they failed to do.

Conclusion:

The Tribunal dismissed the Petition, stating, "the amount claimed is not a financial debt." The Tribunal held that the transactions were for the supply of goods and services, not financial transactions, and thus did not fall under the purview of Section 5(8) of the Code. Consequently, the Petition under Section 7 was dismissed with no costs.