2021 (3) TMI 413 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Appellant claimed that there was default in payment of debt on the part of the Corporate Debtor - Loan taken by the Corporate debtor from the sister concern was assigned by the said sister concern to the present applicant - whether the transaction concerned can be treated as a transaction of Financial Debt as defined in Section 5(8) of IBC? - HELD THAT - It is apparent that there can be debts which do not necessarily fall in the definition of financial debt or operational. Money borrowed against payment of interest comes within the definition financial debt. However, if the money borrowed is not against payment of interest, under the definition of financial debt, the core requirement is to find whether there is consideration for the time value of money . The facts of the matter disclose and the Appeal also records that when the Corporate Debtor was unable to get any further loan from the market after having taken loan from M/s. Tata Capital Financial Services Ltd., M/s. Sameer Sales which was related party to the Corporate Debtor, extended interest free unsecured loan to the Corporate Debtor payable on or after 1st February, 2020 and that too upon demand by the lenders. It has been then argued that the Appellant after execution of the Assignment Agreement in its favour, not being related party and having taken the assignment for consideration, the loan extended would have to be treated as a Financial Debt. We are unable to accept such argument - The basic nature of the loan as witnessed from the Loan Agreement (Annexure A-2) will not change. If it was a simple debt extended to the sister concern, merely because the original lender has now assigned the debt to the Appellant will not change the nature of the transaction. There are no error in the findings recorded by the Adjudicating Authority where the Adjudicating Authority found that the transaction is not a transaction of financial debt and thus declined to admit the Application under Section 7 of IBC - appeal dismissed.

Summary

Issues:
- Appeal filed by M/s. Orator Marketing Pvt. Ltd. claiming to be Financial Creditor against Impugned Order dated 23rd October, 2020.
- Dispute regarding default in payment of debt of ?1,56,89,740/- by the Corporate Debtor.
- Applicability of Section 7 of Insolvency and Bankruptcy Code, 2016.
- Interpretation of the term "Financial Debt" as defined in Section 5(8) of IBC.
- Analysis of the Loan Agreement and consideration for the time value of money.
- Assignment of the outstanding loan to the Appellant and its impact on the nature of the debt.
- Comparison with relevant case laws to support the arguments presented.
- Evaluation of the Adjudicating Authority's decision to dismiss the Application under Section 7 of IBC.

Detailed Analysis:
1. The Appeal was filed by M/s. Orator Marketing Pvt. Ltd., claiming to be a Financial Creditor against the Corporate Debtor, M/s. Samtex Desinz Pvt. Ltd., for defaulting on a debt of ?1,56,89,740. The dispute arose from the Adjudicating Authority's rejection of the Application under Section 7 of IBC, which sought Corporate Insolvency Resolution Process against the Corporate Debtor.
2. The core issue revolved around whether the transaction between the parties could be classified as a "Financial Debt" as per the definition under Section 5(8) of IBC. The Appellant argued that the loan extended to the Corporate Debtor should be considered a financial debt due to the consideration for the time value of money.
3. The Loan Agreement between the parties revealed that the loan was interest-free and was extended by a related party to the Corporate Debtor for business development purposes. The Appellant contended that the loan agreement reflected in the Balance Sheet of the Corporate Debtor should qualify as a financial debt.
4. However, the Adjudicating Authority found that the transaction did not meet the criteria of a financial debt as per the IBC. It noted the absence of evidence supporting the consideration for the time value of money and the interest-free nature of the loan, leading to the dismissal of the Application under Section 7.
5. The Appellant's reliance on prior case laws, such as "Mack Soft Tech Pvt Ltd. Versus Quinn Logistics India Ltd." and "Pioneer Urban Land and Infrastructure Ltd. and Another vs. Union of India," did not sway the Tribunal's decision. The Tribunal distinguished the facts of the present case from those in the cited judgments, emphasizing the unique circumstances of each case.
6. The Tribunal concluded that the nature of the debt, as outlined in the Loan Agreement, remained unchanged despite the assignment of the outstanding loan to the Appellant. Therefore, the Tribunal upheld the Adjudicating Authority's decision to dismiss the Application under Section 7 of IBC.
7. Ultimately, the Appeal was dismissed, and no costs were awarded. The detailed analysis of the Loan Agreement and the interpretation of the term "Financial Debt" under the IBC formed the basis for the Tribunal's decision in this case.