2022 (12) TMI 352 - AT - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial creditors - existence of debt and dispute or not - HELD THAT - On looking into the Letter of Intent which has been relied by the Counsel for the Appellant, Clause 1 to 7, it is clear that the agreement which was sought to be entered between the parties was for premises for the use of the Appellant and the LoI contemplated execution of the lease deed on the rent basis. The amount of Rs.1.2 Crore was advance by the Appellant in pursuance of the LoI which is clear from Clause 7 of the LoI. There can be no quarrel to the preposition laid down by the Hon ble Supreme Court in Orator Marketing Pvt. Ltd. 2021 (8) TMI 314 - SUPREME COURT . The use of the word if any clearly makes that it is not essential for all financial debt to be with interest. However, the essential condition which is required to be fulfilled for a debt to be a financial debt is disbursement for time value of money which has to be fulfilled for all transactions referred to in clauses (a) to (f) in sub-section (8) of Section 5 of the Code. The amount advance of Rs.1.2 Crore cannot be held to be financial debt and no error has been committed by the Adjudicating Authority in rejecting the Section 7 Application - the Appellant in view of the facts cannot invoke the provisions of the IBC but it is always open for the Appellant to take recourse of the law and remedy as available in law for his debt, if any. Appeal dismissed.

Summary

Issues:
- Appeal against rejection of Section 7 Application by Adjudicating Authority
- Determination of whether the advanced amount constitutes a financial debt

Analysis:
1. The appeal was filed against the rejection of a Section 7 Application by the Adjudicating Authority, which held that the debt claimed by the Appellant was not a financial debt.
2. The case involved a contractual arrangement between the parties for providing premises, as outlined in the Letter of Intent (LOI) issued on July 31, 2015.
3. The Appellant paid Rs. 1.2 Crore to the Respondent following the LOI, but no lease was executed. Subsequently, the Appellant filed an Application under Section 9 of the IBC, which was rejected.
4. The Appellant then filed a Section 7 Application, which was also rejected by the Adjudicating Authority, leading to the current Appeal.
5. The Appellant argued that the advanced amount was a commercial borrowing and constituted a financial debt under Section 5(8)(f) of the Code, citing relevant judgments of the Supreme Court.
6. The Respondent contended that the amount was not a financial debt, as per the terms of the LOI, and highlighted that no refund request was made by the Appellant.
7. The Tribunal analyzed the provisions of Section 5(8)(f) of the Code, which defines financial debt, and examined the nature of the transaction based on the LOI.
8. Referring to the Supreme Court judgments cited by the parties, the Tribunal emphasized the requirement of disbursement for the time value of money to qualify as a financial debt.
9. The Tribunal concluded that the advanced amount of Rs. 1.2 Crore did not meet the criteria to be classified as a financial debt, upholding the decision of the Adjudicating Authority.
10. The Tribunal clarified that while the Appellant may not invoke the IBC provisions, they have the right to pursue other legal remedies available for debt recovery.
11. Ultimately, the Tribunal dismissed the Appeal, affirming the rejection of the Section 7 Application, and advised the Appellant to seek recourse through appropriate legal channels for debt recovery.