2021 (8) TMI 944 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial creditors - inter-Corporate Loan - absence of proper documents - suppression of material facts of filing of a Title Suit against the Financial Creditor before the City Civil Court - HELD THAT - First of all, it is not clear as to how a request for inter-corporate loan was made by the Corporate Debtor to the Financial Creditor. There is no document placed on record by the Financial Creditor indicating any demand or requests made on behalf of the Corporate Debtor. There is no agreement to indicate the rate of interest being claimed by the Financial Creditor @ 9% per annum. In the absence of any such document, it is very difficult to put the payment of ₹ 25,00,000/- sent through RTGS by the Financial Creditor to the Corporate Debtor, in the category of financial debt. What is more surprisingly is that the Financial Creditor did not write to the Corporate Debtor about the dishonouring of its cheque for ₹ 25,00,000/- even after the cheque was returned by the Bank till the date of filing of this application on 27th December, 2018 which speaks volumes about the whole issue between the parties. First of all, there was no reason to keep the cheque pending till it becomes stale and once it has been returned by the Bank, the natural conduct of a creditor is to at least send an email or letter informing the Corporate Debtor to make the payment due from it to the Financial Creditor, instead of straightway rushing to this Adjudicating Authority by way of an application under section 7 of the Code, which is the harshest step for any person to take particularly with a person who is stated to be a friend as stated in the application and the loan was also allegedly given as friendly loan. This is not a fit case for admission of the application or for initiation of CIRP in respect of the Corporate Debtor. The application has so many infirmities, due to which the application of the Financial Creditor is to be rejected. Application dismissed.

Summary

Issues Involved:
Petition under section 7 of the Insolvency and Bankruptcy Code, 2016 regarding initiation of Corporate Insolvency Resolution Process based on inter corporate loan default.

Analysis:
1. The Financial Creditor filed a petition seeking initiation of Corporate Insolvency Resolution Process against the Corporate Debtor due to default on an inter corporate loan. The loan amount, interest, and dishonored cheque were cited as evidence of default.

2. The Corporate Debtor contested the petition, claiming the application was incomplete and lacked proper authorization. They denied receiving the loan, interest obligation, and argued the dispute arose due to disagreements between directors of both entities.

3. The Corporate Debtor highlighted a pending suit in the City Civil Court, asserting that the issues required a trial and could not be summarily decided by the Adjudicating Authority. They obtained a temporary injunction against the Financial Creditor from claiming dues.

4. The Financial Creditor refuted the Corporate Debtor's claims, stating the latter failed to demonstrate repayment or a valid defense. The Financial Creditor argued that the Corporate Debtor's actions were an attempt to evade debt repayment obligations.

5. During the proceedings, the Financial Creditor presented evidence of the loan disbursement and dishonored cheque. The Corporate Debtor argued that the petition lacked a cause of action and the transaction was misrepresented as an investment in selling dry fruits.

6. The Adjudicating Authority scrutinized the documents and arguments presented. They noted discrepancies in the evidence, including the undated acknowledgment letter and delayed communication regarding the dishonored cheque.

7. The Authority found the petition lacked essential documentation, such as a clear agreement, and raised concerns about the conduct of both parties. They concluded that the application was deficient and dismissed it, ruling against initiation of Corporate Insolvency Resolution Process.

8. The judgment highlighted the importance of complete and valid documentation in insolvency proceedings, emphasizing the need for clear evidence to support claims of default. The decision was based on the insufficiency of evidence and procedural irregularities in the petition.

9. The judgment was delivered by the Adjudicating Authority, rejecting the Financial Creditor's application for initiation of Corporate Insolvency Resolution Process due to the lack of merit and procedural deficiencies in the case.