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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 ..... t the Corporate Debtor-Rushabh Civil Contractors Pvt. Ltd on the ground of non-payment of debt that had become due and payable. Aggrieved by the impugned order, the present appeal has been preferred by the ex-Director of the Corporate Debtor. 2. Put briefly, a Section 7 application had been filed by the Financial Creditor-Gajendra Investment Ltd. ("GIL" in short) seeking initiation of Corporate Insolvency Resolution Process ("CIRP" in short) against Corporate Debtor-Rushabh Civil Contractors Pvt. Ltd. ("Rushabh" in short). The Respondent No. 1-Financial Creditor had given an amount of Rs 3.77 Cr. to the Appellant-Corporate Debtor on 14.09.2016 and the Corporate Debtor having failed to repay the outstanding sum, a Demand Notice was issued to the Corporate Debtor seeking repayment of the outstanding amount alongwith interest. Since the amount was not paid back by the Corporate Debtor within the stipulated time of 3 days, Financial Creditor claimed that a default had occurred on 19.06.2019 amounting to Rs 1.51 Cr. in their Section 7 application which was admitted by the Adjudicating Authority on 27.06.2022. Assailing this impugned order, the present appeal has been preferred on 04.07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was filed as counterblast to the Section 7 petition filed by the Corporate Debtor against Centrio for non-payment of financial dues of Rs 12.39 cr by them. 4. Refuting the submissions made by the Appellant, Shri Devashish Chauhan, the Ld. Counsel for the Respondent No.1 submitted that the Financial Creditor had provided financial assistance to the Corporate Debtor from time to time. The Financial Creditor had addressed a letter dated 14.06.2019 to the Corporate Debtor asking the Corporate Debtor to pay the outstanding debt of Rs 1.51 Cr being the debt outstanding as on 31.05.2019. This letter was received by the Corporate Debtor on 15.06.2019. This letter provided 3 days' time to the Corporate Debtor to make the payment. However, the Corporate Debtor neither responded to the letter nor made payment to the Financial Creditor following which the Financial Creditor filed the Section 7 application holding the date of default to be 19.05.2019 which has been correctly admitted by the Adjudicating Authority. 5. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due from any person and includes a financial debt and operational debt; 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 by the debtor or the corporate debtor, as the case may be; 5(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; 5(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) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m" to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor. A distinction is made by the Code between debts owed to financial creditors and operational creditors. A financial creditor has been defined under Section 5(7) as a person to whom a financial debt is owed and a financial debt is defined in Section 5(8) to mean a debt which is disbursed against consideration for the time value of money. As opposed to this, an operational creditor means a person to whom an operational debt is owed and an operational debt under Section 5(21) means a claim in respect of provision of goods or services. 28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor - it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise". 10. We now come to the first limb of argument raised by the Appellant that in the absence of any Financial Contract executed between the Corporate Debtor and Financial Creditor, whether a financial debt can be said to have been demonstrated by the Financial Creditor and whether in such circumstances the Adjudicating Authority could have adjudicated that there was debt and an incidence of default. It is the case of the Appellant that the Adjudicating Authority has completely overlooked the fact that IBBI (Application to Adjudicating Authority) Rules, 2016 mandates that a Section 7 application is to be supported by a Financial Contract between the Financial Creditor and the Corporate Debtor. However, in the present facts of the case there is no evidence of any document or instrument executed between the two parties setting out the debt amount, tenure of debt, interest rate and schedule of payment. Since the Section 7 petition is not accompanied by any document/agreement which outlines any financial debt and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avit by the Respondent No.1 as may be seen at pages 172-174 of Appeal Paper Book ("APB" in short). That this monies were received by the Corporate Debtor has also not been denied by the Corporate Debtor. When we peruse the material placed on record, we find that the Financial Creditor also sent a communication dated 15.04.2017 to the Corporate Debtor seeking confirmation of the Corporate Debtor on their accounts as standing in the books of Financial Creditor for the period 01.04.2016 to 31.03.2017 as placed at pages 44-45 of APB. We also find that the accounts have been duly confirmed and signed by the Corporate Debtor wherein the financial assistance has been acknowledged including interest @ 12% booked for FY 2016-17 on the assistance disbursed by the Financial Creditor. We also find that in the demand notice issued by the Respondent No.1, it was noted that the Corporate Debtor had returned some amount back to the Financial Creditor during the period from 14.09.2016 till 31.05.2019 as is seen at page 47 of APB. That the Corporate Debtor repaid certain amount of the outstanding debt between September 2016 till May 2019 also evidences acknowledgement of debt. Since no claim been ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .66 lakhs towards interest payment on 01.08.2018 which clearly establishes that there was an understanding between the two parties in respect of interest payment as integral to the monies disbursed by them to Corporate Debtor. It was also pointed out that interest was continuously leviable on the debt even after 31.03.2017 until the date of default, however as no interest amount was paid by the Corporate Debtor, no TDS was deducted by the Financial Creditor. For the period until 31.03.2017, Financial Creditor had chosen the accounting method of treating interest income of the Corporate Debtor on accrual basis and from 01.04.2017 onwards, Financial Creditor chose the interest income accounting on receipt basis. 17. We do not wish to go into the propriety of the accounting principles being followed by the Financial Creditor. All that we find relevant to be noticed is that in the accounts confirmed and signed by the Corporate Debtor, there is clear indication that interest at the rate of 12% was booked for FY 2016-17 on the assistance disbursed by the Financial Creditor. We also find that TDS Form 26AS reflects that Rs 2,66,558/- was booked under Section 194A of the Income Tax Act to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of liability. In addition to the balance confirmation statement the liability of the Corporate Debtor is clearly reflected in the balance sheet of the Corporate Debtor. ....... 19. The above settled position of law is directly applicable to the facts of the present case. In view of the same, it is abundantly clear that the Corporate Debtor owes a financial debt to the Financial Creditor. There is Balance confirmation by the Corporate Debtor of the dues payable to the Financial Creditor. On account of its acknowledgement of debt the Corporate Debtor has confirmed the amount as stipulated in the confirmation of accounts dated 15.04.2017, due and payable to the Financial Creditor. The Financial Creditor submits that in view of the Corporate Debtor's loan having become due and payable on demand and its failure and inability to pay the same, the Petition to be admitted. 20. Upon perusal of records, this Bench is of the considered opinion that there is no dispute regarding the fact that Corporate Debtor owes money to the Financial Creditor." 20. Thus, to answer the second issue raised by the Appellant, we are of the considered view that we have no reasons to disagree with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t No. 1. Hence, to answer the third question raised by the Appellant, we are of the view that the submission advanced of adjustment of loan by virtue of the terms contained in the MoU and consequential non-requirement for the Corporate Debtor to repay the Respondent No.1 does not inspire our confidence. 23. This brings us to the last argument canvassed by the Appellant that in terms of the order of this Tribunal, the Appellant had deposited Rs 34.99 Lakh along with interest at the rate of 12% per annum for two years. However, the Financial Creditor has refused to accept this amount which shows that this is not a bonafide action on the part of the Financial Creditor. Reliance has been placed on the judgement of this Tribunal in Jag Mohan Daga Vs Bimal Kanti Chowdhary, Interim Resolution Professional of M/s Vindhya Industries Pvt. Ltd. & Anr. in CA(AT)(Ins.) No. 848 of 2022, wherein it has been held that when an offer is made by the Corporate Debtor to pay the entire demanded amount with interest but is refused by the Financial Creditor, it clearly indicates that the Financial Creditor wants to drag the CIRP process and is not interested in the debt. It was also added that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... countered that Corporate Debtor is not liable to pay the outstanding amount to the Financial Creditor except for questioning the quantum of debt. However, as long as the financial debt is more than the threshold limit, quantum of debt cannot be used as a ground of defence to assail the admission of Section 7 application. 26. In our considered view, on the question as to whether debt and default was adequately demonstrated before the Adjudicating Authority, basis the records made available before it, the Adjudicating Authority has rightly concluded that it was satisfied with the evidence and material produced before it by the Respondent No.1 to prove that a debt had arisen; that a default has occurred and 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. 27. With the aforesaid discussion, we affirm the decision of the Adjudicating Authority admitting the Section 7 application. The Appeal fails and is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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