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TMI Blog2022 (11) TMI 953X X X X Extracts X X X X X X X X Extracts X X X X ..... at if the Adjudicating Authority is satisfied that no default has occurred or the application filed under Section 7 is incomplete in so far as Section 7(2) is concerned or any disciplinary proceeding is pending againstthe proposed resolution professional then it may reject the application. In order to maintain the application under Section 7 of the Code the financial creditor has to show the default as a condition precedent - The debt has also been defined as a liability in respect of claim towards a financial debt or operational debt and the claim means the right to payment. There is no dispute, in so far as the facts of this case are concerned that the amount of interest became due and payable by the Corporate Debtor to the Appellant on 01.07.2021 to the tune of Rs. 71,80,274/- in view of the condition enumerated in the debenture which says that the debenture shall carry a coupon rate of 6% p.a. on the face value plus securities premium on quarterly rests and also in view of Section 71(8) of the Act. Reliance placed in the Judgment of the Hon ble Supreme Court, rendered in the Case of M/s Orator Marketing Pvt. Ltd. [ 2021 (8) TMI 314 - SUPREME COURT] , in which the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year but before 31st March, 2026 (i.e. the Maturity Date). (2) Debenture shall carry a coupon rate of 6% p.a. payable on face value plus securities premium on quarterly rests. 3. The Adjudicating Authority has reproduced the debenture certificate in its order for a quick reference, therefore, the same is reproduced as under:- 4. The salient features of the debenture held by the Appellant are as under: (i) The debentures are redeemable at the request of debenture holder after expiry of one year. The debenture certificate was issued on 13.04.2021, therefore, it can be redeemed by the Appellant after expiry of one year i.e. from 13.04.2021.(ii) The debentures can be redeemed by the debenture holder after expiry of one year but before 31.03.2026 (i.e. the maturity date). Meaning thereby it can be redeemed after 13.04.2021 but definitely before 31.03.2026. (iii) The debenture carries an interest at the rate of 6% p.a. (iv) The interest is payable on the face value plus securities premium on quarterly rests. 5. The debenture is defined under Section 2(30) of the Companies Act, 2013 (in short Act ) which read as under:- 2(30). debenture inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty or discretion: Provided that the liability of the debenture trustee shall be subject to such exemptions as may be agreed upon by a majority of debenture-holders holding not less than three fourths in value of the total debentures at a meeting held for the purpose. (8) A company shall pay interest and redeem the debentures in accordance with the terms and conditions of their issue. (9) Where at any time the debenture trustee comes to a conclusion that the assets of the company are insufficient or are likely to become insufficient to discharge the principal amount as and when it becomes due, the debenture trustee may file a petition before the Tribunal and the Tribunal may, after hearing the company and any other person interested in the matter, by order, impose such restrictions on the incurring of any further liabilities by the company as the Tribunal may consider necessary in the interests of the debenture-holders. (10) Where a company fails to redeem the debentures on the date of their maturity or fails to pay interest on the debentures when it is due, the Tribunal may, on the application of any or all of the debenture-holders, or debenture trustee and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22.11.2021 to the Respondent demanding interest due on the debentures of first and second quarter for the financial year 2021-22 and in the meantime the interest of third quarter (01.10.2021 to 31.12.2021) also become payable of an amount of Rs. 84,00,000/- which again was not paid. 12. The Appellant, thus, added the interest of three quarters fell due on 01.07.2021 of an amount of Rs. 71,80,274/-, on 01.10.2021 to the tune of Rs. 84,00,000/- and on 01.01.2022 to the tune of Rs. 84,00,000/-, total amounting to Rs. 2,39,80,274/- as debt which was not being paid despite demand and attributed default to it w.e.f. 29.10.2021. 13. The application filed under Section 7 of the Code was dismissed by the Adjudicating Authority on the ground that only the interest amount would not fall within the definition of financial debt until and unless principal amount has also become due and payable. 14. Counsel for the Appellant has submitted that an application under Section 7 of the Code shall be maintainable even on the component of interest if it crosses the threshold limit being part of the financial debt. In this regard, it is submitted that the financial debt is a debt with interest i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll not include any financial service provider and person is defined under Section 3 (23) which includes a company. The word debt is defined under Section 2 (11) which means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. Claim is defined in Section 2(6) means a right to payment and if debt is not paid then it is a default which is defined in Section 3(12) which means non-payment of debt as a whole or part of it or instalment which becomes due and payable. 20. Now the question is that who can recover the debt. Section 3(10) provides definition of creditor which says that any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder. It is pertinent to mention that the definition of financial debt, operational debt, financial creditor and operational creditor is not provided in Section 3 rather the same are provided in Section 5 in part II which deals with insolvency resolution and liquidation for corporate persons. Certain definitions provided in Section 5 of the Code are also required to be referred to, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d provisos as the case may be within thirty days of the commencement of the said Act, failing which the application shall be deemed to be withdrawn before its admission.] Explanation. - For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under subsection (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the application furnish (a) record of the default recorded with the information utility or such other record or evidence of default as may be specified; (b)the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. (4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to maintain the application under Section 7 of the Code the financial creditor has to show the default as a condition precedent. In this regard, we may have to refer to definition of default provided in Section 3(12) default means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid. The debt has also been defined as a liability in respect of claim towards a financial debt or operational debt and the claim means the right to payment. There is no dispute, in so far as the facts of this case are concerned that the amount of interest became due and payable by the Corporate Debtor to the Appellant on 01.07.2021 to the tune of Rs. 71,80,274/- in view of the condition enumerated in the debenture which says that the debenture shall carry a coupon rate of 6% p.a. on the face value plus securities premium on quarterly rests and also in view of Section 71(8) of the Act. 24. We may also refer to Para 27 and 28 of the Judgment of the Hon ble Supreme Court, rendered in the Case of Innovative Industries Ltd. Vs. ICICI Bank, 2018 1 SCC 401, in which the scheme of the code has been deliberated and explained in respect of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the debt , which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial creditor of the corporate debtor, it has to be shown that the corporate debtor owes a financial debt to such person. Understood this way, it becomes clear that a third party to whom the corporate debtor does not owe a financial debt cannot become its financial creditor for the purpose of Part II of the Code. 49. Expounding yet further, in our view, the peculiar elements of these expressions financial creditor and financial debt , as occurring in Sections 5(7) and 5(8), when visualised and compared with the generic expressions creditor and debt respectively, as occurring in Sections 3(10) and 3(11) of the Code, the scheme of things envisaged by the Code becomes clearer. The generic term creditor is defined to mean any person to whom the debt is owed and then, it has also been made clear that it includes a financial creditor , a secured creditor , an unsecured creditor , an operational creditor , and a decreeholder . Similarly, a debt means a liability or obligation in respect of a claim which is due from any person and this expression has also been given an extended meaning to include a financial debt and an operational debt . 31. At the cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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