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TMI Blog2024 (7) TMI 320X X X X Extracts X X X X X X X X Extracts X X X X ..... that stipulation of the payment of interest is not a condition precedent to qualify as a financial debt. The threshold for initiating Section 7 proceedings exists even if interest is not considered as noted in Hon ble Supreme Court's decision in M/s Orator Marketing Pvt. Ltd. Vs. M/s Samtex Desinz Pvt. Ltd. (supra) wherein it was held that interest is not a necessary component for a debt, and therefore the Appellant doesn t have grounds on this count. In the instant case the Respondent is a decree holder and as per the definition of financial debt and legal precedents we cannot ignore it to be interest. The arguments of the Appellant that the Respondent has not produced any agreement for the amount claimed by it, which is a sine qua non for falling under Section 5(8) of the IBC, 2016 as the amount paid by the Applicant was not borrowed against the payment of interest nor the claim of the Applicant comes within the meaning of Section 5(8)(d) of the said IBC, 2016, cannot stand the scrutiny of the definition of debt and also the legal precedents. Procedural and Formal Defects - HELD THAT:- The Appellant has also raised concerns about procedural defects, including incorrect forms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed includes an interest of Rs. 27,05,753/- based on the order from the Bombay High Court. However, a money suit decree does not necessarily qualify as a financial debt under Sections 5(7) and 5(8) of the Code. Respondent No.1 does not qualify as a Financial Creditor under Section 5(7), and the claimed amount does not constitute a financial debt as defined under Section 5(8) of the Code. 3.2. Lack of Agreement for the Claimed Amount: The Applicant did not produce any agreement for the claimed amount, which is essential to qualify as a financial debt under Section 5(8) of the Code. 3.3. Improper Application of Section 55(2): The Application incorrectly referenced Section 55(2) of the Code, which applies only to the Fast Track Insolvency Resolution Process, not to regular CIRP. 3.4. Defective Written Communication: The proposed Interim Resolution Professional (IRP) failed to provide necessary disclosures in accordance with the IBBI (Insolvency Professionals) Regulations, 2016, and incorrectly used Form 5 applicable to Operational Creditors instead of Form 1. 4. Deficiencies in the Transaction: 4.1. Lack of Board Resolution: No board resolution of the Corporate Debtor backed the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March 2018 has discussed the interpretation of the term time value of money and stated: The current definition of 'financial debt' Under Section 5(8) of the Code uses the words includes , thus the kinds of financial debts illustrated are not exhaustive. The phrase disbursed against the consideration for the time value of money has been the subject of interpretation only in a handful of cases under the Code. The words time value have been interpreted to mean compensation or the price paid for the length of time for which the money has been disbursed. This may be in the form of interest paid on the money, or factoring of a discount in the payment. 48. The IBC has made provisions for identifying, annulling or disregarding avoidable transactions which distressed companies may have undertaken to hamper recovery of creditors in the event of the initiation of CIRP. Such avoidable transactions include: (i) preferential transactions under Section 43 of the IBC; (ii) undervalued transactions under Section 45(2) of the IBC; (iii) transactions defrauding creditors under Section 49 of the IBC; and (iv) extortionate transactions under Section 50 of the IBC. The IBC recognizes that for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al debt within the meaning of Section 5(8) of the Code. This debt may be of any nature but a part of it is always required to be carrying, or corresponding to, or at least having some traces of disbursal against consideration for the time value of money. 46. 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 decree-holder . 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 . 46.1. The use of the expression means and includes in these clauses, on the very same principles of interpreta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner who filed a Petition before the Hon'ble National Company Law Tribunal (NCLT) seeking its admission. On August 10, 2021, the Hon'ble NCLT admitted the Petition and appointed Mr. Modilal Pamecha as the Interim Resolution Professional. 10. At the request of the Corporate Debtor, the Financial Creditor extended short-term finance, providing two payments of ₹50,00,000 each, totalling ₹1,00,00,000, as detailed below: Sl. No. Date Bank Cheque No. Amount 1. 22.03.2017 Federal Bank 51023039 50,00,000/- 2. 31.05.2017 Corporation Bank 0623326 50,00,000/- Total 1,00,00,000/- 11. To secure timely repayment, the Corporate Debtor issued two bills of exchange along with corresponding cheques in favour of the Financial Creditor (Gannon Dunkerley Co. Ltd.). The details are as follows: i. First Bill of Exchange a. Date: 22.03.2017 b. Cheque No.: 026411 c. Cheque Date: 22.06.2017 d. Bank: Oriental Bank of Commerce e. Drawer: Sangeeta Aviation Services Pvt. Ltd. f. Drawee: Gannon Dunkerley Co. Ltd. g. Amount: ₹50,00,000 ii. Second Bill of Exchange: a. Date: 31.05.2017 b. Cheque No.: 026428 c. Cheque Date: 14.05.2018 d. Bank: Oriental Bank of Commerce e. Drawer: Sangee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Creditor's petition under Section 7 of the IBC is justified and should be admitted. Appraisal : 20. Heard the Learned Counsel for the Appellant and the Respondent, perused the documents, pleadings and reliance placed in support of their case. 21. The crux of the appeal lies in whether the decree from the Hon ble Bombay High Court qualifies as a financial debt under Sections 5(7) and 5(8) of the IBC in the facts of the instant case. Nature of the Debt: 22. For better appreciation of the issue in the instant case, the definition of debt as per Section 5(7) and 5(8) is reproduced as below: (7) financial creditor means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to; (8) financial debt means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes (a) (b) (c) (d) (e) (f) (g) (h) (i) From above highlighted portion, it is clear that the IBC defines financial debt as a debt along with interest, if any, with disbursement against consideration for the time value of money. 23. Further, the Hon ble Supreme Court's decision in M/s Orator Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initiated by a decree holder and for the same reliance has been made on the citation M/s Urgo Capital Limited Vs. M/s Bangalore Dehydration and Drying Equipment Co. Pvt. Ltd. , which was passed by the NCLAT, New Delhi [citation: CA (AT) (Ins.) 984 of 2019 / (2020 SCC OnLine NCLAT 149)]. The relevant extract of the order is given hereinbelow: 18. The Adjudicating Authority has raised the questions on not taking any steps for filing execution application, even though Review Application is pending. Adjudicating Authority has erroneously rejected the application based on pending review application and for not taking any steps for execution of the decree. Adjudicating Authority was not required to question the reasons for not taking steps for executing the decree in Civil Court. Since the amount is payable to the Financial Creditor and based on the decree passed by the Court, the Financial Creditor was legally entitled to file a petition under Section 7 of the I B Code. 19. It is important to point out that the definition of creditor provided in Sec 5(10) of the I B Code provides that Creditor means any person to whom a debt is owed and includes a financial creditor, an operational cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited and the Hon ble Supreme Court's judgment in Dena Bank vs. C. Shivakumar Reddy (supra) support the position that a decree holder can be treated as a Financial Creditor if the underlying transaction involves disbursement against consideration for time value of money. 27. Appellant has unduly highlighted the necessity of disbursement against consideration for the time value of money for a debt to be classified as a financial debt and has cited several judgements in its support, viz. Earth Gracia Buildcon Pvt. Ltd (supra), Phoenix ARC Pvt. Ltd. vs. Spade Financial Services Ltd. (supra) and Anuj Jain IRP for Jaypee Infratech Ltd. vs. Axis Bank Ltd (supra). They are not supporting the case of the Appellant as in the instant case, the Hon ble Bombay High Court decree awarded the amount based on a previous transaction involving bills of exchange and dishonoured cheques. This implies an underlying transaction where money was advanced with an expectation of repayment with interest. And as noted above in the NCLAT's ruling in M/s Ugro Capital Limited (supra) and the Hon ble Supreme Court's judgment in Dena Bank vs. C. Shivakumar Reddy (supra) a decree holder can be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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