2022 (7) TMI 1190 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - levy of the pendente lite interest claimed by the Financial Creditor - HELD THAT - The said pendente lite interest has not been claimed by the Financial Creditor in its application under Section 7 of the Insolvency and Bankruptcy Code 2016. It is trite law that insolvency proceedings are not recovery proceedings and the same should not be reduced into a mere recovery proceedings in as much as the entire substratum of the Insolvency and Bankruptcy Code 2016 would fail if the same is allowed to be misused by creditors to extort money from the Corporate Debtor with the threat of initiation of Corporate Insolvency Resolution Process - It is imperative to note that Corporate Insolvency Resolution Process of a corporate debtor is to be commenced by this Tribunal after observing all the necessary facts and considering the expedience of initiation of CIRP as has been laid down in Vidarbha Industries Power Limited v/s. Axis Bank Limited 2022 (7) TMI 581 - SUPREME COURT . On perusal of the contents of the Form 1 filed by the Financial Creditor and the supplementary affidavit filed on behalf of the Corporate Debtor it is clear that the Corporate Debtor has paid the entire sums claimed by the Financial Creditor. The fact that such payment has been accepted to the full satisfaction of the Financial Creditor is further apparent from the statements made by the Financial Creditor. Since the entire amounts as claimed by the Financial Creditor in its application under Section 7 of the Insolvency and Bankruptcy Code 2016 has been paid by the Corporate Debtor there exists no financial debt within the meaning of Section 5 (8) of the Insolvency and Bankruptcy Code 2016 - the instant petition is dismissed with no order as to costs as no financial debt within the meaning of Section 5 (8) of the Insolvency and Bankruptcy Code 2016 subsists.

Issues:
1. Initiation of Corporate Insolvency Resolution Process under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Dispute regarding default amount of debt.
3. Acceptance of payments by the Financial Creditor.
4. Dispute over repayment of principal amount by the Corporate Debtor.
5. Amicable settlement between the parties.
6. Pendente lite interest claimed by the Financial Creditor.
7. Misuse of insolvency proceedings.
8. Compliance with necessary formalities.

Issue 1: Initiation of Corporate Insolvency Resolution Process under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The Financial Creditor filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency Resolution Process against the Corporate Debtor for defaulting on an Inter Corporate Deposit, resulting in a total default amount of Rs. 53,72,329.

Issue 2: Dispute regarding default amount of debt:
The Corporate Debtor acknowledged the loan amount but disputed the default, claiming a bona fide dispute regarding the alleged debt. An interlocutory application was filed proposing an amicable settlement to repay the entire sum claimed in installments.

Issue 3: Acceptance of payments by the Financial Creditor:
The Corporate Debtor made multiple installment payments totaling the entire default amount, which were accepted by the Financial Creditor. However, the Financial Creditor argued that the principal amount remained unpaid, adjusting payments towards accrued interest.

Issue 4: Dispute over repayment of principal amount by the Corporate Debtor:
While the Corporate Debtor contended that all sums claimed were paid, the Financial Creditor insisted that a considerable portion of the principal and interest remained due and payable, opposing any settlement between the parties.

Issue 5: Amicable settlement between the parties:
The Financial Creditor withdrew a complaint under the Negotiable Instruments Act after an alleged amicable settlement. The Corporate Debtor sought dismissal of the insolvency application based on full payment and acceptance of payments by the Financial Creditor.

Issue 6: Pendente lite interest claimed by the Financial Creditor:
The Financial Creditor did not claim pendente lite interest in the insolvency application, leading to the only remaining dispute between the parties.

Issue 7: Misuse of insolvency proceedings:
The Tribunal emphasized that insolvency proceedings should not be misused as recovery proceedings, highlighting the importance of observing necessary facts before initiating Corporate Insolvency Resolution Process.

Issue 8: Compliance with necessary formalities:
The Tribunal dismissed the insolvency petition as no financial debt subsisted after full payment by the Corporate Debtor, and all requisite formalities were to be complied with for issuing a certified copy of the order to concerned parties.

This detailed analysis of the judgment from the National Company Law Tribunal, Kolkata Bench, highlights the key issues, arguments, and decisions made regarding the initiation of Corporate Insolvency Resolution Process and the subsequent dispute resolution between the Financial Creditor and the Corporate Debtor.

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