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TMI Blog2022 (8) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... t/Mr. Vinay Yadav. By the impugned order the Adjudicating Authority, while admitting the Section 7 Application observed as follows:- "10. Section 7(5)(a) of the Code is as follows: 5) Where the Adjudicating Authority is satisfied that - (a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may by order, admit such application." 11. In the present case, the concurrence of default is evidenced by the details furnished by the petitioner including cheque bearing No.000221 dated 01.09.2016 amounting to Rs. 57,00,000 and cheque bearing No.000222 dated 01.09.2016 amounting to Rs. 30,50,000 (Annexure-C (Colly)). It can be seen that aforesaid cheques were dishonoured due to "Insufficient Balance" as evident from cheque Return Memo dated 05.12.2016, 21.11.2016 and 30.11.2016 attached as Annexures D, E & F respectively. The financial creditor has also issued a Legal notice dated 19.10.2018 (Annexure-G) through its counsel demanding full payment of pending amount. Original postal receipts and tracking report showing the delivery of Legal notice dated 19.10.2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor in favour of the second Respondent, which had returned on account of insufficient funds. * It is submitted that in the ongoing proceedings under Section 138 of the NI Act, the Corporate Debtor had already paid an amount of Rs. 67,90,000/- vide a Demand Draft dated 09.09.2019. As per the directions of the Trial Court, the Corporate Debtor paid interest @ 6% p.a and the second Respondent did not oppose the plea of the Corporate Debtor for closure of the proceedings before the JMIC, Gurgaon. Furthermore, the second Respondent has accepted the amount and did not challenge the orders of the Trial Court. Therefore, any claim including interest thereupon arising out of the said cheque amounting to Rs. 57,00,000/- is wholly mis-conceived. Even assuming the claim of the second Respondent is correct, the present amount due is only Rs. 30,50,000/-. * It is submitted that in order to put an end to the dispute, without prejudice to its contentions, the Appellant had annexed a Demand Draft of Rs. 30,50,000/-, but the Respondent, with an intention to extract more money is now demanding interest at exorbitant rate of 18% p.a. * The Ld. Counsel for the Appellant has placed reliance on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assurances of assured return along with interest @ 18 % p.a thereon. Pursuant to the order dated 07.08.2019 under the NI Act, the Corporate Debtor paid a total sum of Rs.67,90,000/- out of which Rs. 57,00,000/- towards the discharge of the principal sum Rs. 10,88,000/- towards the interest component on the said amount and Rs. 2,000/- towards cost. * It was never the case of the Appellant before the Adjudicating Authority that the second Respondent was not a Financial Creditor and the debt due was not a financial debt. Legal Notice dated 19.10.2018 reiterating the terms of loan including interest @ 18% p.a was never replied to, disputed or objected to by the Corporate Debtor. Hence, adverse inference ought to be drawn against the Corporate Debtor. In the reply dated 06.08.2019, the Corporate Debtor had not challenged the maintainability of the Section 7 Application nor disputed the financial debt. Hence, the Adjudicating Authority has rightly held that there is a 'debt' and 'default' in payment of the financial debt and is more than Rs. 1,00,000/-, as admitted the application. * Ld. Counsel for the second Respondent placed reliance on the Judgments of the Hon'ble Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hence the Adjudicating Authority has rightly admitted the Section 7 Application. Assessment : 4. After hearing the submissions of both the parties at length, we are of the considered view that the main issue which arises for consideration in this Appeal is whether the Section 7 Application admitted against a Solvent Company, in the background where the Company has issued two cheques as security for the amount lent, and one cheque amount has been paid, (pursuant to the Order of the Trial Court under Section 138 of the NI Act, 1881, to compound one of the cases), and for the balance second cheque amount, does the initiation of Insolvency Proceedings fall within the ambit of the scope, objective and spirit of the Code which is 'Resolution' and not 'Recovery'? Whether the Adjudicating Authority while admitting a Section 7 Application, as in this case, examine only if there is a 'Debt' and 'Default' but also assess if the intent of the Applicant is primarily only 'Recovery of the dues'? 5. For better understanding of the case on hand, a few dates are important: * It is the case of the second Respondent that an amount of Rs.97,00,000/- was lent to the 'Corporate Debtor' as 'Sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are of the view that the amounts claimed pertain to the period prior to the date of Notification. We also do not wish to delve into the other submissions of the Appellant regarding the nature of transactions, absence of Financial Contract, non-registration of debt with the information utility whether interest at 18% per annum was ever concluded between the parties except for reference in the legal Notice issued by the second Respondent. This Tribunal is of the earnest view that taking into consideration the facts and circumstances of the attendant case on hand, the issue with respect to Admission of Section 7 Petition is required to be decided on the touchstone of the ratio of the Hon'ble Supreme Court in 'Vidarbha Industries Power Limited' Vs. 'Axis Bank Limited', 2022 SCC OnLine SC 841, wherein the Hon'ble Apex Court has observed as follows: "55. When an application is filed under Section 7(2) of the IBC, the Adjudicating Authority (NCLT) is required to ascertain the existence of a default from the records of the information utility or any other evidence furnished by the financial creditor under sub-section (3) of Section 7 of the IBC, within 14 days of the date of receipt o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e timelines in the IBC. No extraneous matter should come in the way. However, the viability and overall financial health of the Corporate Debtor are not extraneous matters. 61. The Adjudicating Authority (NCLT) found the dispute of the Corporate Debtor with the Electricity Regulator or the recipient of electricity would be extraneous to the matters involved in the petition. Disputes with the Electricity Regulator or the Recipient of Electricity may not be of much relevance. The question is whether an award of the APTEL in favour of the Corporate Debtor, can completely be disregarded by the Adjudicating Authority (NCLT), when it is claimed that, in terms of the Award, a sum of Rs. 1,730 crores, that is, an amount far exceeding the claim of the Financial Creditor, is realisable by the Corporate Debtor. The answer, in our view, is necessarily in the negative. 62. In our view, the Appellate Authority (NCLAT) erred in holding that the Adjudicating Authority (NCLT) was only required to see whether there had been a debt and the Corporate Debtor had defaulted in making repayment of the debt, and that these two aspects, if satisfied, would trigger the CIRP. The existence of a financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for initiation of CIRP and not from the date of filing the same. 84. In Swiss Ribbons (supra) this Court considering the vires of the IBC observed as follows:- "43. A financial creditor may trigger the Code either by itself or jointly with other financial creditors or such persons as may be notified by the Central Government when a "default" occurs. The Explanation to Section 7(1) also makes it clear that the Code may be triggered by such persons in respect of a default made to any other financial creditor of the corporate debtor, making it clear that once triggered, the resolution process under the Code is a collective proceeding in rem which seeks, in the first instance, to rehabilitate the corporate debtor. Under Section 7(4), the adjudicating authority shall, within the prescribed period, ascertain the existence of a default on the basis of evidence furnished by the financial creditor; and under Section 7(5), the adjudicating authority has to be satisfied that a default has occurred, when it may, by order, admit the application, or dismiss the application if such default has not occurred. On the other hand, under Sections 8 and 9, an operational creditor may, on the occurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second Respondent is a 'Financial Creditor' and the debt is acknowledged in the books of accounts and hence the Adjudicating Authority was right in admitting the Section 7 Application, keeping in view the admitted 'debt' & 'default'. Reliance was placed on the Judgements of the Hon'ble Supreme Court in 'Innoventive Industries Ltd.' (Supra) and 'Orator Marketing Pvt. Ltd.' (Supra). While, we find force in the submissions of the Ld. Sr. Counsel that there is 'debt' and a 'default' what should also be examined is whether the intent for initiation of CIRP is 'Recovery' or 'Resolution.' 13. It is pertinent to mention that the second Respondent in para 14 of their Reply and in para 40 of their objections have never refuted the submission of the Appellant that 'the 'Corporate Debtor' 'is a going concern' and a viable unit and has great commercial prospects... and that the 'Corporate Debtor' in their Reply dated 07.08.2019 have clearly stated that they had the bona fide intention of returning the pending amount'. The case of the Second Respondent is that despite being a viable unit, the Appellant has defaulted in paying these amounts. Having accepted interest at 6% per annum, it is the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Code reads as hereunder: "65. Fraudulent or malicious initiation of proceedings.-(1) If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, as the case may be, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees." (Emphasis Supplied) 16. Though the aforesaid Section does not expressly mention 'Debt Recovery Action' under 'for any purpose other than resolution of insolvency..', keeping in view the factual occurrence of the events of this particular matter, we hold that the 'intent' may not be a 'malafide intent', but is nevertheless a fundamental attempt to obtain an edge/ advantage / an upper hand in 'recovering their dues'. At this juncture we place reliance on the judgment of The Hon'ble Madras High Court in 'S.T. Sahib' Vs. 'Hasan Ghani Sahib', 1956 SCC OnLine Mad 344', wherein the Hon'ble High Court has examined the word 'malice' and observed that 'malice' would mean 'inappropriate' and wrongful motive to use the law in a manner other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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