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TMI Blog2024 (10) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... application by the Financial Creditors, it has been held that written financial contract is not a pre-condition or an exclusive requirement for proving existence of debt. It has been further amplified therein that the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 and CIRP Regulations makes it clear that financial debt can be proven from other relevant documents and it is not mandatory that written financial contract can be the only basis for proving the financial debt. Though the name of the Respondent No. 1 is not specifically mentioned as a creditor, there is sufficient material on record to prove that there was disbursal of funds by Respondent No.1 to the Corporate Debtor in their account. The transaction details as culled out from the Ledger Account of the Corporate Debtor, which are quite clearly multiple in nature, are a part of record as placed on affidavit by the Respondent No.1 as may be seen at pages 172-174 of Appeal Paper Book (APB). That this monies were received by the Corporate Debtor has also not been denied by the Corporate Debtor - That the Corporate Debtor repaid certain amount of the outstanding debt between September 2016 till M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the default is above the prescribed threshold. This is a case where all the pre-requisites for filing a Section 7 stands fulfilled and the Adjudicating Authority cannot be held to have committed an error in admitting the Corporate Debtor into CIRP for having defaulted in repaying a financial debt which was above the threshold limit. The decision of the Adjudicating Authority admitting the Section 7 application is affirmed - appeal dismissed. - [ Justice Ashok Bhushan ] Chairperson And [ Barun Mitra ] Member ( Technical ) For the Appellant : Mr. Abhijeet Sinha Sr. Advocate with Mr Malak Bhatt , Ms. Neeha Nagpal and Mr. Mandeep Singh , Advocates For the Respondent : Mr. Devashish Chauhan , Mr. Paras Mithal and Mr. Gaurav Raj , Advocates JUDGMENT ( Hybrid Mode ) Per : Barun Mitra , Member ( Technical ) The present appeal filed under Section 61 of Insolvency and Bankruptcy Code 2016 ( IBC in short) by the Appellant arises out of the Order dated 27.06.2022 (hereinafter referred to as Impugned Order ) passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-I) in CP (IB) No. 2440/MB/C-I/2019. By the impugned order, the Adjudicating Authority has admitted the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the Section 7 petition non-maintainable. It has also been contended that the alleged debt had already been settled and discharged by way of an MoU entered into with a sister concern company of the Financial Creditor, namely, Centrio Life Spaces Ltd. ( Centrio in short) which MoU had clearly stipulated that the amount claimed by the Financial Creditor was to be adjusted against the amount outstanding payable by Centrio to the Corporate Debtor. Thus, the liability of the Corporate Debtor stood discharged and there was no question of debt and alleged default. It was also submitted that the transaction between the Corporate Debtor and Financial Creditor were in the nature of mere advances and not a loan and therefore not a financial debt. Without any proof of debt or default and without any agreement to prove the event of debt or default, the application of the Financial Creditor has no legs to stand on. Hence it was pointed out that the impugned order admitting the Section 7 application suffers from infirmities. It is therefore the contention of the Appellant that the Section 7 proceedings against them was filed by the Respondent No.1 to coerce them into settling and giving in to un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st debt amount repaid by the Corporate Debtor to the Financial Creditor was on 08.01.2018. Hence, it was also contended by the Respondent No.1 that the Section 7 petition was filed within the period of limitation. 6. We have duly considered the arguments advanced by the Learned Counsel for both the parties and perused the records carefully. 7. The short point for consideration before us is whether in the given facts of the case the application under Section 7 of IBC filed by the Appellant was maintainable against the Corporate Debtor. 8. Before we proceed to answer the above question, a quick glance at certain provisions of the IBC which would be relevant and constructive in considering the matter is extracted below: Sections 3(6) claim means (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured; 3(11) debt means a liability or obligation in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant statutory provisions, we would also like mention that the Adjudicating Authority has relied on the judgement of the Hon ble Supreme Court in Innoventive Industries Ltd. Vs ICICI Bank (2018) 1 SCC 407 ( Innoventive judgement in short) to understand when a financial creditor can trigger the provisions of Section 7 of IBC against the Corporate Debtor. We would also like to be guided by the well settled legal precepts laid down by this landmark judgement wherein the incidence of financial debt and default has been lucidly explained by observing as below: 27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of debt , we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a claim and for the meaning of claim , we have to go back to Section 3(6) which defines claim to mean a right to payment even if it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred 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 financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. XXXX XXXX XXXX XXXX 30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is due i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roven from other relevant documents and it is not mandatory that written financial contract can be the only basis for proving the financial debt. 12. It is the contention of the Respondent No.1 that the Corporate Debtor had clearly acknowledged the receipt of assistance from the Financial Creditor in their balance sheet for the year ending 31.03.2017 which was filed with the RoC. The assistance received was reflected under the heading Short term Borrowings- Inter Corporate loans and the balance sheet further reflected that all the above loans are repayable on demand though the name of Financial Creditor is not specifically stated in the balance sheet. 13. Coming to our analysis and findings on this standpoint, we find that though the name of the Respondent No. 1 is not specifically mentioned as a creditor, there is sufficient material on record to prove that there was disbursal of funds by Respondent No.1 to the Corporate Debtor in their account. The transaction details as culled out from the Ledger Account of the Corporate Debtor, which are quite clearly multiple in nature, are a part of record as placed on affidavit by the Respondent No.1 as may be seen at pages 172-174 of Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Ledger Account for the period 01.04.2016 to 31.03.2020, interest has been shown as due and payable only up to 31.03.2017 and thereafter no provision has been made for accrual of interest after 31.03.2017. It is also contended by the Corporate Debtor that the claim of the Financial Creditor that it had the liberty to choose the interest income accounting either on accrual basis or on receipt basis is neither supported by any document or any provision of law. It has also been contended that mere payment of TDS does not amount to acknowledgement of a debt and furthermore, the Corporate Debtor had never deposited the TDS but the same had been paid by the Financial Creditor in order to avoid liability for nonpayment of TDS. The Appellant has also relied on the judgement of this Tribunal in Prayag Polytech Pvt. Ltd. Vs Gem Batteries Pvt. Ltd. in CA(AT)(Ins.) No. 713 of 2019 where it has been held that mere deduction of TDS would not be sufficient to conclude that there was financial debt. 16. Per contra, it has been contended by the Financial Creditor that the Corporate Debtor had deposited part TDS amount of Rs 2.66 lakhs towards interest payment on 01.08.2018 which clearly establishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee how it has analysed the facts of the case before arriving at its findings. The aspect of debt and default has been dwelt at length by the Adjudicating Authority in the impugned order. We find that the Adjudicating Authority after relying on the judgements of the Hon ble Supreme Court in Innoventive Industries Ltd. supra and Swiss Ribbons Pvt. Ltd. Ors. Vs. UoI Ors. in Writ Petition (Civil) No. 99 of 2018 came to the conclusion that this is a fit case for admission of Section 7 application against the Corporate Debtor since the sums taken by the Corporate Debtor had become due and payable on demand and inability to pay by the Corporate Debtor was clear. We are reproducing the relevant paragraphs of the impugned order as below: 15. It is evident from the documents on record that the advance was availed from the Financial Creditor by the Corporate Debtor and that amount was duly disbursed to the Corporate Debtor from time to time. The balance confirmation statement which has also been signed by the Corporate Debtor evidences the fact that the amount was disbursed and the same is an acknowledgement of liability. In addition to the balance confirmation statement the liability of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and M/s MJ Shah Realtors LLP (which allegedly happen to be the common promoters of Centrio and the Financial Creditor). It was pointed out that para 7 of the MoU clearly stated that the amount claimed by the Financial Creditor was to be adjusted against the amount outstanding towards the Corporate Debtor by Centrio. Since the claim of the Financial Creditor had been adjusted towards liability of Centrio by virtue of this MoU, all liabilities of the Corporate Debtor stood discharged and there was no default. 22. From the material placed on record, it is clear that the MoU in question was entered between Centrio, Corporate Debtor and M/s MJ Shah Realtors LLP. There is nothing to evidence that the same was signed, executed or acted upon by Respondent No.1. When there is nothing to show that the Respondent No. 1 was a party or signatory to the said MoU and also keeping in mind that the Respondent No. 1 and Centrio are clearly separate legal entities, the terms of such MoU purportedly signed between Centrio and Corporate Debtor cannot be held to be binding in any manner on Respondent No. 1. Hence, to answer the third question raised by the Appellant, we are of the view that the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. It was also pointed out by the Financial Creditor that the Hon ble Apex Court had clarified in the Vidarbha judgment that it was limited to the facts of that case and was not to be applied as a general rule. The only requirement for admission of Section 7 petition is to see that the minimum outstanding amount should be more than the threshold amount under the IBC which clearly stands fulfilled in this case. It is the case of the Respondent No. 1 that once existence of debt and default is established, the Adjudicating Authority has no scope to exercise discretion and must admit Section 7 application. 25. It is trite law that under the IBC once a debt which becomes due or payable, in law and in fact, and if there is incidence of non-payment of the said debt in full or even part thereof, CIRP may be triggered by the financial creditor as long as the amount in default is above the threshold limit. It is also well accepted that debt means a liability in respect of a claim and claim means a right to payment even if it is disputed. We find that the Corporate Debtor has nowhere countered that Corporate Debtor is not liable to pay the outstanding amount to the Financial Creditor except ..... X X X X Extracts X X X X X X X X Extracts X X X X
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