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2022 (11) TMI 954 - AT - Insolvency and BankruptcyInitiation of CIRP - financial debt or not - Decree Holder - no written contract and no consideration for time value of money - It is contended that there was no agreed rate of interest, and therefore there is no time value of money and further that seeking execution of decree does not define the first Respondent as a Financial Creditor and a Decree Holder can be defined as a Creditor, but not a Financial Creditor - it is also contended that suit was filed in the year 2001 and is time barred. HELD THAT - The existence of Financial Debt and its default has been admitted and confirmed by the Corporate Debtor , and therefore the absence of any Written Agreement cannot be said to be an essential element to prove the Financial Debt , as the nature of transaction has been established that there was a debt and default thereof - In the facts of this case, we are of earnest view that a Decree in respect of a financial claim is an established proof of debt and default , and does not require any further Agreements in writing. Time Limitation - HELD THAT - The Hon ble Supreme Court in DENA BANK (NOW BANK OF BARODA) VERSUS C. SHIVAKUMAR REDDY AND ANR. 2021 (8) TMI 315 - SUPREME COURT while discussing at length Sections 14 18 of the Limitation Act, 1962 has also observed that the Judgement and/or decree for money in favour of the Financial Creditor, passed by DRT, or any other Tribunal or Court, or the issuance of a certificate of recovery in favour of the Financial Creditor, would gave rise to a fresh cause of action for the Financial Creditor, to initiate proceedings under Section 7 of the Code, if the dues of the Corporate Debtor under the Judgement/decree or any part thereof remained unpaid. Breach of Principles of Natural Justice - HELD THAT - The matter was adjourned several times on request of the Corporate Debtor, on the ground that the matter would be settled. The record shows that on 24.01 2019, Corporate Debtor was directed to file the Reply on or before 31.01.2019. On 31.01.2019 the matter was adjourned on request of both parties on the ground of settlement. On 14.02.2019, the matter was again adjourned and the Corporate Debtor did not file their Reply. On 06.03.2019, one more request was made that they would settle the matter. On 25.03.2019, once again, the Corporate Debtor was directed to file their Reply. On 08.04.2019, once again liberty was given for settlement. On 15.04.2019, the Corporate Debtor was directed to file their Reply within a week. On 01.05.2019, the Corporate Debtor failed to file their Reply and the right to file their Reply was forfeited. These dates show that ample opportunities were given to the Corporate Debtor both to file their Reply and also to settle the matter. The Corporate Debtor has not adhered to any of the above, and therefore the argument that there was a breach of Principles of Natural Justice, is unsustainable. It is clear that the debt in this case arising out of a decree, is a Financial Debt. Section 5(10) of the Code provides that Creditor means any person to whom a debt is owed and includes a Financial Creditor, Operational Creditor, Secured Creditor, Unsecured Creditor and a Decree Holder. As the definition of the word Creditor in the Code includes a Decree Holder if a Petition is filed for realisation of the decretal amount, it cannot be dismissed on the ground that the Section 7 Application should have been taken steps for filing execution case in the Civil Court. Section 3(11) of the Code defines debt as a liability in respect of a claim, and Section 3(6) of the Code defines term claim to mean a right to payment, whether or not such right has been reduced to judgement. Therefore, if the submission on behalf of the Corporate Debtor is accepted, it would mean that a claim is excluded from being a financial debt even if reduced to Judgement by way of a recovery certificate. There is no illegality or infirmity in the Impugned Order, passed by the Adjudicating Authority in admitting the Section 7 Application - Appeal dismissed.
Issues Involved:
1. Admissibility of the Section 7 Application under the Insolvency and Bankruptcy Code (IBC), 2016. 2. Nature of the debt and whether it constitutes a "Financial Debt" under Section 5(8) of the IBC. 3. Limitation period for filing the Section 7 Application. 4. Breach of principles of Natural Justice. 5. Interventions by other creditors and stakeholders. Detailed Analysis: 1. Admissibility of the Section 7 Application: The main challenge in this appeal was against the Impugned Order dated 03.06.2019 passed by the National Company Law Tribunal (NCLT), Mumbai Bench, which admitted the application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016. The application was filed by the first Respondent, M/s. USV Private Limited, claiming that the debt arose from a financial transaction where the Corporate Debtor borrowed money to repay a loan taken from a third party, Vipal Healthcare Pvt. Ltd. The NCLT observed that the debt was a financial debt within the meaning of Section 5(8) of the Code, and the petitioner was a financial creditor under Section 5(7) of the Code. 2. Nature of the Debt: The Appellant argued that the debt did not constitute a "Financial Debt" as there was no written contract or consideration for the "time value of money." However, the Tribunal found that there was a Tri-partite Arrangement between the Corporate Debtor, VHPL, and the first Respondent, which established the existence of the financial debt. The Tribunal also noted that the City Civil Court had passed a decree confirming the debt, which served as an established proof of "debt" and "default." 3. Limitation Period: The Appellant contended that the application was barred by limitation, arguing that the right to sue under the Code occurs from the date when the default occurs, which in this case was beyond the limitation period. However, the Tribunal referred to the Hon'ble Supreme Court's judgment in 'Dena Bank (Now Bank of Baroda) Vs. C. Shivakumar Reddy & Anr.' which observed that a judgment or decree for money gives rise to a fresh cause of action for the financial creditor to initiate proceedings under Section 7 of the Code. The Tribunal found that the application was filed within the limitation period, considering the debt was acknowledged in the balance sheets of FY 2014-15 and the application was filed on 29.10.2018. 4. Breach of Principles of Natural Justice: The Appellant argued that the Impugned Order was passed in breach of the principles of Natural Justice. However, the Tribunal noted that the Corporate Debtor was given several opportunities to file their reply and settle the matter, but failed to do so. The record showed multiple adjournments and directions to file a reply, which the Corporate Debtor did not adhere to. Therefore, the argument of breach of Natural Justice was found to be unsustainable. 5. Interventions by Other Creditors and Stakeholders: Several intervention applications were filed by other creditors and stakeholders, including State Bank of India, Accel Realtors Pvt. Ltd., and Lok Everest Co-operative Housing Society Ltd. The Tribunal disposed of these applications with liberty to the applicants to approach the Resolution Professional and submit their claims in accordance with the law. The Tribunal clarified that it had not expressed any view on the merits of the intervening applications regarding their claims, which is the domain of the Resolution Professional. Conclusion: The Tribunal concluded that there was no illegality or infirmity in the Impugned Order passed by the Adjudicating Authority in admitting the Section 7 Application. The appeal was dismissed, and the Tribunal emphasized the importance of adhering to the time-bound process under the IBC. The intervention applications were disposed of with directions to approach the Resolution Professional for claim submission.
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