2020 (1) TMI 1398 - Tri - Insolvency and Bankruptcy

Tribunal deems petitioner 'Financial Creditor' under Insolvency and Bankruptcy Code

The tribunal classified the petitioner as a 'Financial Creditor' under Section 7 of the Insolvency and Bankruptcy Code, 2016, due to the payments made ... Financial Creditors or not - amount paid for initiating OTS of Corporate Debtor - agreement to sell - It is the contention of the Corporate Debtor that the impugned amount was paid under the 'Agreement to sale' which did not materialise due to default made by the Petitioner and led to incurring of heavy losses by the Corporate Debtor. As such, the Petitioner being a purchaser under an Agreement of Sale cannot claim to be a Financial Creditor as defined U/s. 5(7) of the IB Code, 2016 - HELD THAT:- A 'Financial Debtor' is a 'debtor' against consideration for time value of money and a 'debtor' includes a 'claim' or right of payment or right to remedy for a contractual breach - Further, in the definition of 'Financial debt' in clause (1) thereof included an amount raised under any other 'transaction' including any forward sale or purchase agreement having the commercial effect of a borrowing. A 'transaction' has also been defined U/s. 3(33) which includes 'an agreement or arrangement in writing of the transfer of assets or funds or goods or services, from or to the Corporate Debtor'. In the instant case, the amounts were paid by the Petitioner to the Lender of the Corporate Debtor, on behalf of the Corporate Debtor. Pursuant to such payments only, an Agreement of sale was executed between parties, which ultimately failed due to denial of permission by TSIIC to the Corporate Debtor to transfer the impugned land. Thus, as per the Agreement, the Corporate Debtor had to return the amount paid on its behalf by the Petitioner, with interest as agreed upon between parties, indicating time value of money. Therefore, the Petitioner herein squarely falls within the definition of 'Financial Creditor' U/s. 5(7) of the Code and the contention of the Corporate Debtor fails. Service of notice - HELD THAT:- There is no requirement of a demand notice to be served before filing a Petition U/s.7 as is the case with an Operational Debt. Therefore, this contention cannot be taken to be a ground for rejection of the instant application. This Adjudicating Authority is satisfied that the Petitioner herein is a Financial Creditor to the Corporate Debtor. The Corporate Debtor has not disputed the receipt of the impugned amounts including interest, but has only taken a legal argument, which has found to be not acceptable by this Adjudicating Authority. On the other hand, the Petitioner has established the existence of a Financial Debtor which the Corporate Debtor was liable to pay, but failed to do so. Considering these facts and circumstances, this Adjudicating Authority is inclined to admit the instant Petition - Petition admitted. Issues Involved:1. Classification of the petitioner as a 'Financial Creditor' under Section 7 of the Insolvency and Bankruptcy Code, 2016.2. Validity and enforceability of the Agreement of Sale between the Financial Creditor and Corporate Debtor.3. Requirement of permissions from statutory authorities (TSIIC) for the transfer of allotted land.4. Obligations and indemnities under the Agreement of Sale.5. Compliance with the One Time Settlement (OTS) scheme.6. Commencement of Corporate Insolvency Resolution Process (CIRP).Issue-wise Detailed Analysis:1. Classification of the Petitioner as a 'Financial Creditor':The primary issue was whether the petitioner could be classified as a 'Financial Creditor' under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The tribunal referred to Section 5(8) of the IBC, which defines 'Financial Debt' and includes any amount raised under any transaction having the commercial effect of a borrowing. The tribunal concluded that the amounts paid by the petitioner to the lender on behalf of the Corporate Debtor constituted a financial debt, as the payments were made with the expectation of repayment with interest, indicating the time value of money. Therefore, the petitioner was classified as a 'Financial Creditor.'2. Validity and Enforceability of the Agreement of Sale:The tribunal examined the Agreement of Sale dated 10-12-2017 between the Financial Creditor and the Corporate Debtor. The agreement stipulated that the Financial Creditor would pay the OTS amount to the lender on behalf of the Corporate Debtor, and in return, the Corporate Debtor would transfer the allotted land, structures, and machinery to the Financial Creditor. The tribunal noted that the agreement included indemnity clauses, obligating the Corporate Debtor to refund the amount paid by the Financial Creditor with interest if the transfer could not be completed due to failure in obtaining necessary permissions.3. Requirement of Permissions from Statutory Authorities:The tribunal observed that the transfer of the allotted land required a No Objection Certificate (NOC) from the Telangana State Industrial Infrastructure Corporation (TSIIC). The Corporate Debtor's request for an NOC was rejected by TSIIC, which communicated that the allotment was in the process of being canceled due to the Corporate Debtor's failure to commence the project within the stipulated period. The tribunal held that the Corporate Debtor's inability to obtain the NOC constituted a breach of the Agreement of Sale.4. Obligations and Indemnities under the Agreement of Sale:The tribunal reviewed the indemnity clauses in the Agreement of Sale, which required the Corporate Debtor to indemnify the Financial Creditor for any failure to fulfill the agreement, including the failure to obtain necessary permissions. The tribunal found that the Corporate Debtor was obligated to refund the amount paid by the Financial Creditor, along with interest at the rate of 24% per annum, as stipulated in the agreement.5. Compliance with the One Time Settlement (OTS) Scheme:The tribunal noted that the OTS scheme required the Corporate Debtor to settle its dues by paying a specified amount to the lender. The Financial Creditor paid a total of Rs. 2.35 crores on behalf of the Corporate Debtor under the OTS scheme. However, due to the failure in obtaining the NOC from TSIIC, the OTS could not be completed, and the Financial Creditor demanded a refund of the amount paid with interest.6. Commencement of Corporate Insolvency Resolution Process (CIRP):The tribunal concluded that the Corporate Debtor had defaulted in repaying the financial debt owed to the Financial Creditor. As a result, the tribunal admitted the petition under Section 7 of the IBC and ordered the commencement of the Corporate Insolvency Resolution Process (CIRP). An Interim Resolution Professional (IRP) was appointed to take charge of the Corporate Debtor's management, and a moratorium was declared to prohibit certain actions against the Corporate Debtor during the CIRP.Conclusion:The petition was admitted, and the Corporate Insolvency Resolution Process was initiated against the Corporate Debtor. The tribunal appointed an Interim Resolution Professional and declared a moratorium to facilitate the resolution process. The tribunal's decision was based on the classification of the petitioner as a Financial Creditor, the enforceability of the Agreement of Sale, and the failure of the Corporate Debtor to obtain necessary permissions and comply with the OTS scheme.