2022 (11) TMI 347 - AT - Insolvency and Bankruptcy

Maintainability of petition - proforma to file application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - Cheque issued by the Respondent was dishonoured - existence of debt and dispute or not - HELD THAT - The Appellant has filed the application under Section 7 of the Code to initiate the CIRP against the Respondent by admission of the application. However, Section 7(1) provides that the application under Section 7 can be filed before the Adjudicating Authority to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor when a default has occurred. Similarly, Section 7(2) provides that the application provide under Section 7(1) has to be filed in the form and manner as prescribed. Thus, in order to initiate the proceedings under section 7 of the Code the date when the default has occurred is essential. The application is provided to be filed on a printed performa which is provided in Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. If the application under Section 7 of the Code could be filed only when the default occurs and the date of default is conspicuous by its absence in the pleadings of the Appellant, dishonour of the cheque, as alleged by the Appellant, could not be taken as the date of default. There was no effort on the part of the Appellant to get the pleadings amended before the Adjudicating Authority. Therefore, in the absence of necessary ingredients, pleaded in the application filed under Section 7 of the Code, on the basis of which the application could have been maintained, there are no reason to interfere in the impugned order. Appeal dismissed.

Summary

Issues:
1. Dismissal of application under Section 7 of the Insolvency and Bankruptcy Code, 2016 by the Adjudicating Authority.
2. Determination of default and financial debt in loan repayment dispute.

Analysis:

Issue 1: Dismissal of application under Section 7 of the Insolvency and Bankruptcy Code
The appeal was directed against the order of the Adjudicating Authority dismissing the application under Section 7 of the Insolvency and Bankruptcy Code, 2016. The Appellant alleged that the Respondent failed to repay a loan amount of Rs. 86,36,250/-, leading to the application. The Appellant claimed to have advanced a loan of Rs. 75.00 lacs with interest, which was repayable on demand. However, the Respondent contested the existence of specific terms for repayment, denying any default on their part. The Adjudicating Authority found that the amount disbursed did not qualify as a financial debt, and there was no default as per the definition under the Code, resulting in the dismissal of the application.

Issue 2: Determination of default and financial debt
The Appellant argued that the loan amount, along with interest, constituted a financial debt, emphasizing the dishonored cheque as evidence of default. The Respondent contended that the absence of repayment terms and a specified default date excluded the case from falling under the Code's definition of default. The Court highlighted the importance of mentioning the default date in the application under Section 7, as per the prescribed form. Since the Appellant failed to specify the default date and did not seek amendments, the dishonored cheque could not be considered the default date. Consequently, the Court upheld the dismissal of the application due to the lack of essential ingredients required to maintain the appeal under Section 7 of the Code.

In conclusion, the Court found the appeal devoid of merit and dismissed it, emphasizing the necessity of fulfilling all requirements, including specifying the default date, when filing an application under Section 7 of the Insolvency and Bankruptcy Code, 2016.