2019 (2) TMI 1717 - Tri - Insolvency and Bankruptcy

Improper Debt Conversion Dismisses Company Petition: Transparency & Integrity Emphasized

M/s. SAREGAMA INDIA LIMITED Versus M/s. HOME MOVIE MAKERS PRIVATE LIMITED

The court dismissed the Company Petition due to the petitioner's improper attempt to convert the debt from operational to financial, lack of transparency, ... Maintainability of application - initiation of CIRP - Corporate Debtor having defaulted repaying of the petitioner - Existence of dispute or not - HELD THAT:- We believe that it is not a financial debt and the petitioner tried to masquerade it as financial debt when reply came to section 8 Notice from the corporate debtor - this Bench having felt that this petitioner should not have concealed the facts and tried to metamorphose this petition as petition u/s 7 of the Code, this Company Petition is hereby dismissed by imposing costs of payable to the Corporate Debtor within 15 days hereof. Petition dismissed. Issues:1. Nature of the debt - Financial or operationalRs.2. Validity of the claim under Section 7 of the Insolvency & Bankruptcy Code, 2016.3. Dispute regarding the commercialization of Free Commercial Time (FCT) and related agreements.4. Concealment of facts by the petitioner.Analysis:Issue 1: Nature of the debt - Financial or operationalRs.The petitioner initially claimed the debt as operational, but later filed a petition under Section 7 of the Code as a financial debt. The debtor disputed the claim, highlighting discrepancies in the transaction related to the commercialization of FCT. The correspondence between the parties indicated a disagreement over the usage of banked FCTs and monetary adjustments, questioning the debt's classification. The bench observed that the transaction did not fit the criteria of a financial debt as defined under the Code, especially considering the petitioner's own acknowledgment of the debt as operational in a previous notice.Issue 2: Validity of the claim under Section 7 of the CodeThe petitioner's attempt to convert the claim from operational to financial debt raised concerns about the validity of the petition under Section 7 of the Code. The bench noted that the petitioner failed to establish the debt as a financial one, and the attempt to change the nature of the claim was viewed as an improper tactic. The lack of disclosure regarding the debtor's response and the attempt to portray the debt differently led to the dismissal of the Company Petition.Issue 3: Dispute regarding the commercialization of FCT and related agreementsThe dispute between the parties centered around the commercialization of FCT and the agreements governing the usage and sale of FCT. The debtor contended that the petitioner failed to market the FCT effectively, while the petitioner claimed non-usage of FCT necessitated a refund. The agreements between the parties outlined terms for the recovery of advances made and adjustments from FCT sales. The bench emphasized the importance of clarity in transactions involving FCT and highlighted the need for adherence to contractual obligations.Issue 4: Concealment of facts by the petitionerThe bench expressed dissatisfaction with the petitioner's attempt to conceal facts and alter the nature of the claim in response to the debtor's dispute. By dismissing the Company Petition and imposing costs on the petitioner, the bench emphasized the importance of transparency and integrity in insolvency proceedings. The decision to dismiss the petition was based on the petitioner's failure to disclose relevant information and the improper portrayal of the debt as financial without sufficient grounds.In conclusion, the judgment highlighted the significance of accurately categorizing debts, maintaining transparency in legal proceedings, and upholding the integrity of insolvency resolution processes.