2023 (7) TMI 157 - AT - Insolvency and Bankruptcy

Initiation of CIRP - Financial Debt or not - Creditors were providing factoring services - Loan against Bill of exchange - amount which is subject matter of Section 7 Application is a Financial Debt within the meaning of Section 5(8)(e) of I B Code, or not - HELD THAT - The client as per Factoring Agreement is Arcons Infrastructures and Constructions Pvt. Ltd. The clause 12 in the definition of recourse clearly indicates that agreement between the parties was not any agreement which may be called as agreement of non recourse basis. Thus, the Financial Debt which is covered by Factoring Agreement is clearly covered within meaning of Section 5(8)(e) of the Code and the Financial Creditor was entitled to being recourse - there are no substance in the submission of Learned Counsel for the Appellant that Factoring Agreement was non-recourse agreement. The amount of Rs. 4,52,13,711/- was amount as due on 28.01.2019. The Adjudicating Authority found the said amount due and payable, there are no reason to take any different view - Financial Creditor will be entitled for payment of debt due along with interest at least till the insolvency commencement date i.e. 11.11.2022. The amount of Rs. 4,52,13,711.60/- under order of this Tribunal dated 07.12.2022 deposited, be paid to Respondent No. 1 - In addition to aforesaid payment of Rs. 4,52,13,711.60/-, the Appellant shall also make payment of simple interest at the rate of 14.50% p.a. till insolvency commencement date i.e. 11.11.2022 which payments shall be made to Respondent No. 1 within a period of 3 months from today. Appeal disposed off.

Summary

Issues Involved:
The issues involved in the judgment are the challenge to the order admitting Section 7 Application of Insolvency and Bankruptcy Code, 2016, the interpretation of the Factoring Agreement terms, and the determination of the outstanding debt and interest payable by the Corporate Debtor.

Challenge to Order Admitting Section 7 Application:
The suspended director of the Corporate Debtor challenged the order admitting the Section 7 Application filed by the Financial Creditor, M/s. India Factoring and Finance Solutions Pvt. Ltd. The Corporate Debtor contended that the Application was not maintainable as the liability under the Factoring Agreement was solely payable by IL&FS Transport and Network Limited (ITNL). The Adjudicating Authority admitted the Application on 11.11.2022, leading to the appeal.

Interpretation of Factoring Agreement Terms:
The Factoring Agreement between the Financial Creditor and the Corporate Debtor was scrutinized to determine the nature of the agreement. The Financial Creditor claimed that the agreement allowed for recourse against the Corporate Debtor in case of default, contrary to the Corporate Debtor's assertion of a non-recourse basis. The terms of the Factoring Agreement clearly outlined the right of recourse against the Corporate Debtor, establishing that the agreement was not on a non-recourse basis as claimed by the Appellant.

Determination of Outstanding Debt and Interest Payable:
The Appellant expressed willingness to deposit the outstanding amount claimed by the Financial Creditor. The Section 7 Application detailed the debt as Rs. 4,52,13,711.60/- as of 28.01.2019. The Tribunal directed the Appellant to pay this amount along with simple interest at 14.50% p.a. until the insolvency commencement date of 11.11.2022 within three months. Failure to comply would result in the Adjudicating Authority considering further Insolvency Resolution Process for the Corporate Debtor.