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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 ..... 21-2022 - It is also observed that no interest has ever been demanded by appellants from the respondent before the demand notice under Section 7. 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 dispute before appropriate forum for recovery of balance claim, if any. There are no grounds to interfere with the order passed by the AA. The appeal is dismissed. - [Justice Rakesh Kuma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute regarding the interest, the AA determined that the application was not appropriate for the IBC process and rejected it. 4.The brief facts of the case are as follows: (i)The CD was incorporated on August 30, 2013, with an authorized capital of Rs.3 crore and a paid-up share capital of Rs. 2.1 crore. The Appellant No. 1 was one of the Promoter Director of the CD. (ii)Between 2013 and 2022, the Corporate Debtor (CD) approached the appellants for financial assistance, resulting in the appellants advancing loans over this period. The cumulative amount of the loans provided by the appellants totalled Rs. 1,25,44,997.25. The specific details of each loan disbursement are given in the demand notice under Section 7 of the Code dated November 12, 2022. The notice also highlighted that for the financial year ending March 31, 2022, the CD paid Rs. 6,53,661.30 as interest and TDS was also deducted in respect of Appellant 1 and 3 in compliance with the Income Tax Act. Despite these payments, the CD failed to pay interest to Appellant 4 to 6 from April 1, 2019, onwards, leading to an outstanding interest liability of Rs. 20,36,880.79 by October 30, 2022. (iii)There is no formal loan agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly demonstrate both elements. The respondent's payment of Rs.99,07,375.48 on 16.01.2024 was partial and made under the threat of the petition's admission, which does not nullify the default. According to the appellant, the AA should have concentrated on confirming whether a debt existed and whether there was a default, rather than whether the debt was fully settled. They reference established legal principles that a partial payment or payment made under pressure does not negate a default, as supported by numerous judicial precedents. iii. The appellants have further stated that the respondent engaged in significant suppression of material facts, which misled the tribunal. For instance, the respondent allegedly did not disclose the No Dues Certificate from HDFC dated 06.02.2021. Additionally, they misled the tribunal about the status of the credit facility with Bank of Baroda (BOB), and suppressed information related to a letter dated 07.03.2023 requesting not to renew the credit facility. The appellant argues that these omissions and misrepresentations skewed the tribunal's understanding of the case, affecting its judgment. iv. The appellants have disputed the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dispute. The Respondent further submitted that the Appellants claims regarding additional interest are unfounded, as TDS deductions do not entitle the Appellants to further interest. The payment and its calculation were detailed in an affidavit filed on 16.01.2024, and no objections were raised by the Appellants. iii. Respondent asserted that the proceedings under the IBC are not appropriate for claiming interest in the absence of a formal loan agreement. iv. The respondent further stated that the appellants are all members of the same family. When the respondent company was incorporated in 2013, Appellants Nos. 1, 5, and 6 served as its promoters, shareholders, and directors. In January 2018, Appellants Nos. 5 and 6 were removed as directors. Following a family dispute in 2019, the shares held by Appellants Nos. 4 to 6 were transferred to Appellants Nos. 2 and 3. Appellant No. 1, who has been a director since the company's inception, was removed from the board. He has contested this move through a petition before the NCLT, Ahmedabad. The appellants have not provided any counter arguments to these facts. v. The respondent has cited the decisions of this Tribunal in cases such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an agreement between the appellants and the CD. There is no document which provides the tenure of the loan, rate of interest prescribed and frequency of payment of interest i.e. whether monthly, yearly or any other interval. The only document in this regard relied by appellants are the ledger accounts of the appellants maintained by the CD. Regarding payment of interest by the CD to the appellants the only document in this regard is TDS certificates for the financial year 2021-2022. 10.We also observe that no interest has ever been demanded by appellants from the respondent before the demand notice under Section 7. 11.As per definition of the financial debt, such debt should have consideration for time value of money which inter alia means that the interest is to be paid at regular interval or the same accumulates and is paid back along with principal after a particular period as specified in the agreement. 12.We also observe that in the present case the Appellant 1 was promoter director of CD and was getting salary from CD till his removal from the board of CD. A company petition against such removal is also pending in the Tribunal. The present company petition for CIRP against CD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business and facilitate more investments leading to higher economic growth and development. 16.It is clear from the aforesaid objectives of the IBC that it s a forum for resolution of insolvency and not for recovery of debt. It has been laid down by the Hon ble Supreme Court in Swiss Ribbon Pvt. Ltd. Vs. Union of India ((2019) 4 SCC 17), that IBC is not a recovery proceeding and the Application which has been filed by the appellant in the present case is only the application for recovery of balance amount of interest. The Corporate Debtor has already paid the amount of principal and interest for the amount for which TDS was paid. The aforesaid application for initiation of CIRP process against CD was not filed for resolution of insolvency of the Corporate Debtor. 17.In his legal submission the appellant had cited cases involving existence of debt and default thereafter and submitted that the AA has no discretion but to order CIRP if debt and default is proven. In this regard, they have cited relevant Judgments: Inventive Industries Ltd. v. IC ..... X X X X Extracts X X X X X X X X Extracts X X X X
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