2022 (6) TMI 986 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - whether there exists financial debt, which can constitute the basis for filing a petition under section 7 of the Code against the Corporate Debtor? - HELD THAT - The facts do really cast serious doubts on the genuineness of the transactions alleged to be financial debt by the Financial Creditors. The facts regarding existence of Financial Debt, disbursement and default do not reconcile with the documents placed on record. On top of this, as stated above the Assessment Order passed in respect of the Corporate Debtor and the Forensic Audit Report further strengthen the suspicion in respect of the authenticity and bona fides of the transactions in question. The Financial Creditor has argued that the Assessment Order is only applicable with regards to assessee and does not bind the Financial Creditors. It is further contended that the same only speaks of Prarthna. This objection is unwarranted. It is not held that the Income tax Assessment Order is binding on this Tribunal. In view of the entire gamut of facts, the interrelationship between the Financial Creditors (and Nikita and Active which merged into Narsingh), the forensic Audit Report and the analysis of the facts that we have done above, leave us unpersuaded to commence CIRP against the Corporate Debtor. We cannot therefore in exercise of our summary jurisdiction under the Code, conclude that a bona fide Financial Debt exists. For this reason, this petition under Section 7(1) of the Code is not maintainable and hence we reject the Petition - petition dismissed.

Summary

Issues involved:
1. Existence of Financial Debt
2. Validity and Genuineness of Loan Transactions
3. Eligibility of Joint Petition by Financial Creditors
4. Compliance with Legal Requirements for Loan Transactions
5. Impact of Income Tax Assessment and Forensic Audit Report

Detailed Analysis:

1. Existence of Financial Debt:
The primary issue for determination was whether there exists a financial debt that can constitute the basis for filing a petition under section 7 of the Insolvency and Bankruptcy Code (IBC) against the Corporate Debtor. The Financial Creditors contended that the financial debt is valid and undisputed, supported by loan agreements and bank statements. Conversely, the Corporate Debtor argued that the debt is sham and collusive, relying on an Income Tax Assessment order and a Forensic Audit Report.

2. Validity and Genuineness of Loan Transactions:
The Financial Creditors provided loan agreements dated 14.04.2014, 15.12.2014, and 13.10.2014, along with bank statements to support their claim. However, the Corporate Debtor contended that these transactions were not genuine, asserting they were merely book entries with no actual advance given. The Corporate Debtor supported this claim with an Income Tax Assessment order dated 31.12.2018, which indicated that the loans were sham transactions camouflaged as unsecured loans. The Tribunal noted that the transactions showed a pattern of immediate repayment, raising doubts about their genuineness.

3. Eligibility of Joint Petition by Financial Creditors:
The Corporate Debtor argued that the petition jointly filed by the two Financial Creditors could not be entertained. The Tribunal rejected this contention, stating that Section 7(1) of the IBC allows a financial creditor either by itself or jointly with other financial creditors to file an application for initiating Corporate Insolvency Resolution Process (CIRP) against a Corporate Debtor.

4. Compliance with Legal Requirements for Loan Transactions:
The Corporate Debtor alleged that the Financial Creditors were not registered as Non-Banking Financial Corporations (NBFCs) and did not have the requisite license under the Bengal Money Lenders Act, 1940. The Tribunal noted that the Financial Creditors did not provide any details of their operations, business, or relevant credentials, despite adverse observations in the Income Tax Assessment order. The Tribunal found that the Financial Creditors failed to explain the purpose of the loans and the immediate repayments, which cast serious doubts on the genuineness of the transactions.

5. Impact of Income Tax Assessment and Forensic Audit Report:
The Tribunal considered the Income Tax Assessment order, which described the transactions as non-genuine and aimed at tax evasion. The Forensic Audit Report also indicated irregularities and alleged that the transactions were sham. The Tribunal concluded that these findings, along with the interrelationship between the Financial Creditors and the suspicious nature of the transactions, did not persuade them to commence CIRP against the Corporate Debtor.

Conclusion:
The Tribunal held that the facts and documents did not convincingly establish the existence of a bona fide financial debt. Consequently, the petition under Section 7(1) of the IBC was not maintainable, and the Tribunal dismissed the petition. The Tribunal clarified that this order should not be seen as expressing any opinion on other remedies available to the Financial Creditors to address their grievances in accordance with the law.