2024 (1) TMI 185 - AT - Insolvency and Bankruptcy

Dismissal of section 7 application - case of debt and default in the context of IBC which deserved admission of Section 7 application filed by the Appellants or not - HELD THAT - The Adjudicating Authority has recorded the finding that the Facility Agreement relied upon by the Appellants in support of their debt is un-dated and hence discounted the same to be credible evidence to prove the existence of debt. More importantly, if the email of 07.02.2022 from the Respondent to the Appellants sharing the FFA is perused as has been placed at page 231 of the Appeal Paper Book (APB), it is found that it is only a draft agreement seeking comments/observations of the Appellants. Furthermore, it is noticed that the FFA which has been placed on record at Annex A-5 of the APB does not have the signature of the Respondent but it is the Appellant No. 6 who has signed for the Corporate Debtor as may be seen at page 270 of the APB - there are no mistake on the part of the Adjudicating Authority in not relying on the FFA to prove the existence of debt. The other ground to prove existence of doubt which has been adverted to by the Appellants is that the financial debt is also disclosed in the provisional balance sheet dated 03.03.2022 as shared by the Respondent themselves vide their email dated 04.03.2022 - The Respondent failed to repay the said credit facilities and hence this is a clear case of debt and default. The Adjudicating Authority in the impugned order has noticed that the Appellants had sold their shareholding to OMAT by executing the SPA on 03.02.2022 after payment of a lumpsum amount settled between the two parties. The Adjudicating Authority after perusal of the SPA has further noted that Schedule 1A and 1B of the SPA shows that the new management of the Respondent had settled the deal with all the shareholders at a lumpsum amount of Rs.10.62 crore - the Adjudicating Authority has rightly concluded that it was not satisfied with the evidence produced before it by the financial creditor to prove that a debt had crystallized beyond doubt and that a default has occurred. The Adjudicating Authority has rightly dismissed the Section 7 application filed by the Appellant - the impugned order does not warrant any interference. There is no merit in the Appeal - Appeal dismissed.

Summary

Issues Involved:
1. Whether there was a debt and default in the context of IBC warranting the admission of the Section 7 application.
2. Whether the Financial Facility Agreements (FFAs) were valid and executed.
3. Whether the balance sheet dated 03.03.2022 reflected the financial debt.
4. Whether the waiver clause (Clause 6.5) in the Share Purchase Agreement (SPA) discharged the debt claims of the Appellants.
5. Whether the cheques issued by the Corporate Debtor were valid and enforceable.
6. Whether the Section 7 application was filed with mala-fide intent.

Summary:
1. Debt and Default:
The primary issue was whether there was a debt and default deserving the admission of the Section 7 application filed by the Appellants. The Appellants argued that the Corporate Debtor acknowledged the debt through various agreements and failed to repay the loans, leading to default.

2. Validity of FFAs:
The Appellants contended that the Corporate Debtor had acknowledged its liability through the FFAs. However, the Respondent argued that no documentary evidence was provided to show that FFAs were executed. The Adjudicating Authority noted that the FFAs were undated and not signed by the Respondent, thus discounting them as credible evidence.

3. Balance Sheet Reflection:
The Appellants claimed that the financial debt was disclosed in the provisional balance sheet dated 03.03.2022. The Respondent countered that the balance sheet dated 04.03.2022, acknowledged by the Appellants, showed no amount due, indicating that the debt was not crystallized.

4. Waiver Clause in SPA:
The Respondent argued that Clause 6.5 of the SPA discharged all claims and rights of the Appellants against the Corporate Debtor. The Tribunal agreed, stating that the Appellants had waived their rights and claims, and the debt claims stood discharged.

5. Validity of Cheques:
The Appellants argued that cheques for Rs. 1.66 crore were issued but not counter-signed, leading to default. The Respondent stated that the cheques were signed by an unauthorized person (one of the Appellants) and were therefore invalid. The Adjudicating Authority found the cheques to be forged instruments.

6. Mala-fide Intent:
The Respondent claimed that the Section 7 application was filed with mala-fide intent, supported by several police complaints against the Appellants. The Tribunal noted that the Appellants failed to prove the existence of any crystallized debt and default.

Conclusion:
The Tribunal upheld the Adjudicating Authority's decision to dismiss the Section 7 application, stating that the Appellants failed to prove the existence of a crystallized debt and default. The appeal was dismissed with no order as to costs.