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TMI Blog2024 (10) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... td. (Corporate Debtor) for initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor under Section 7 of the Insolvency & Bankruptcy Code (IBC), 2016 (in short 'Code'). AA vide its order dated 25.04.2024 had rejected the prayer of the Petitioners to initiate the CIRP against the Corporate Debtor/ Respondent. The financial creditors have filed this appeal under Section 61 of the Code, challenging the order by AA. 2.TheorderpassedbyAAinbriefisgivenbelow- Six financial creditors filed an application against the CD, claiming a debt of Rs.1,25,44,997.25 with interest @ 12% per annum. The date of default is mentioned as 30.11.2022. However, no record of the default was filed with the Information Utility. The Corporate Debtor argued that the application was not maintainable due to non-compliance with IBBI regulations and claimed the loan was an unsecured advance from the applicants, who were also the promoters, with no agreement on repayment or interest. After the application was filed, the Corporate Debtor repaid Rs.99,07,375.48, but the petitioners insisted that the petition should proceed since the full amount was unpaid. 3.The AA rejected the applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on January 17, 2024, the CD made partial repayments totalling Rs.99,07,375.48 through RTGS and subsequently filed an affidavit before AA, asserting that they have paid the principal in full and interest for which TDS was paid and there was no contractual obligation to pay interest and that the appellants' claim for interest was unjustified. The CD argued that the appellants were inflating their claims to meet the threshold required for initiating insolvency proceedings. (vi)The AA, in its order, noted the CD's repayment of Rs. 99 lakhs and concluded that the insolvency proceedings could not be used solely for the recovery of money, leading to the dismissal of the appellants' petition. However, the Authority did not make any findings on the issues of debt and default. 5.Submission of the Appellant The appellant has assailed the impugned order dated 25.04.2024 on the following grounds: i. The appellant has argued that the AA erred in dismissing the application under Section 7 of the Code. The primary basis for dismissal was the view that the forum is unsuitable for money recovery, which the appellant contends misinterprets the Code's purpose. Section 7 of the Code is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial debt, are contradicted by the financial statements and other evidence. vi. The appellants have cited several judicial precedents to support their challenge against the impugned order. They have cited a judgment of Coordinate Bench of this Tribunal in Company Appeal (AT) (Ins) No. 1336 of 2019 'Shrem Residency Pvt. Ltd. V. Shraman Estates Pvt. Ltd.' (dated 11.01.2023) which emphasizes that under Section 7 of the Code, the NCLT must admit a petition if there is clear evidence of debt and default, without addressing the merits of the dispute. Similarly, Hon'ble Supreme Court in Civil Appeal No. 7121 of 2022, N. Suresh Kumar Reddy vs. Canara Bank (dated 09.08.2022) reaffirmed that once a default is established, the application under Section 7 must be admitted, focusing solely on the occurrence of default rather than on any disputes regarding the debt. Additionally, the Supreme Court's judgment in innovative Industries Ltd. vs. ICICI Bank Ltd. [(2018) 1 SCC 407, dated 31.01.2018] further reinforces that the AA is mandated to admit a petition if a default is proven, regardless of any contested issues related to the debt itself. 6.Submission of the Respondent The Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting part of the promoter's contribution, rather than loans. As there was no formal loan agreement or contract stipulating the terms of a loan, the Appellants' claims do not qualify as financial debt under the IBC. Relevant case law, including Nidhi Rekhan vs. Samyak Projects Private Limited [CA (AT) (Ins.) No. 1035/20 decided on 31.01.20], supports the position that investors cannot claim to be financial creditors. vii. The Respondent claims that the Section 7 application is a retaliatory measure following the removal of Appellant No. 1 as director of CD. The timing of the application, filed shortly after the director's removal, suggests that it was an attempt to extort money rather than a genuine insolvency claim. Analysis and findings 7.We have heard the counsels in detail and examined the records submitted by the parties. Before proceeding further, we have a look at some of the key definitions from the Code: Section 3 (11) 'debt' means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. Section 3 (12) 'default' means a non-payment of debt when whole or any part or instalment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 (8) of the Code. The question of default would only arise if the aforesaid amount is classified as financial debt. 14.We have also seen that the respondent has paid an amount of Rs.99,07,375.48 to the appellants towards full and final payment of the claim of appellants. Details of the payment made are shown in the table below: - Principal (Rs.) Interest (Less TDS) Petitioner No.1 36,64,273 3,95,741.48 (payable for FY 2021-22 because TDS is deducted for said FY) Petitioner No.2 Nil Nil Petitioner No.3 16,28,250 1,75,851 (payable for FY 2021-22 because TDS is deducted for said FY) Petitioner No.4 13,57,590 NIL (No TDS is deducted and therefore, there is no question of interest) Petitioner No.5 8,29,120 NIL (No TDS is deducted and therefore, there is no question of interest) Petitioner No.6 18,56,550 NIL (No TDS is deducted and therefore, there is no question of interest) Total 93,35,783 5,71,592.48 The Corporate Debtor has also raised dispute regarding further claim of interest. The appellant has also not disputed the receipt of the aforesaid amount, nor did they raise any objection at that stage. 15.In this regard we also have a look at the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .23] which lay down the criteria for classifying a particular debt as a financial debt and also clearly state that proceedings under IBC are for corporate insolvency resolution and not for recovery of debt. 20.After considering the arguments and reviewing the pleadings presented by both parties, we concur with the AA findings. The appellant has not submitted any agreement showing that the respondent, or corporate debtor, was obligated to pay interest on the alleged loan. Additionally, the AA correctly determined that, for a debt to qualify as a "financial debt," the amount advanced to the corporate debtor must be in consideration of the time value of money, which is clearly absent in this case. It was also rightly concluded that the appellant does not qualify as a financial creditor, since no money was disbursed with consideration for time value. Further, the CD's claim to have paid the entire amount of principal and interest for which TDS has been deducted, has not been disputed by the appellant. Now the dispute is only about recovery of balance amount of claimed interest. As already held this Appellate Tribunal is not a debt recovery forum. The appellant is free to raise such di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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