Analysis: Unsecured loan not financial debt, subordination agreement binding.

Abhishek Agarwal And Others Versus Manasadevi Bakers P. Ltd.

Abhishek Agarwal And Others Versus Manasadevi Bakers P. Ltd. - TMI Issues Involved:
1. Whether the petitioners would fall under the category of financial creditors.
2. Whether the unsecured loan would fall under the category of financial debt.
3. Whether the subordination agreement has to be taken into consideration to decide the matter.

Issue-wise Detailed Analysis:

1. Whether the petitioners would fall under the category of financial creditors:

The petitioners, who are individual persons/businessmen, provided an unsecured loan of Rs. 66,75,000 to the corporate debtor, M/s. Manasadevi Bakers P. Ltd. The financial creditors are related to the directors of the corporate debtor. The petitioners argued that the corporate debtor is unable to pay its debts and sought the commencement of the corporate insolvency resolution process under section 7 of the Insolvency and Bankruptcy Code, 2016 (IB Code 2016). However, the corporate debtor contended that the petitioners provided only an interest-free unsecured loan and that the petitioners do not fall under the category of financial creditors as defined under section 5(7) and 5(8) of the IB Code, 2016. The tribunal concluded that since the unsecured loan is interest-free and there is no time fixed for repayment, the petitioners do not fall under the category of financial creditors.

2. Whether the unsecured loan would fall under the category of financial debt:

The tribunal examined the nature of the unsecured loan provided by the petitioners. According to the IB Code, financial debt means a debt along with interest, if any, which is disbursed against the consideration for the time value of money. The petitioners claimed interest in their petition, but the tribunal found that the financial statements of the corporate debtor did not reflect any provision for interest against the unsecured loans given by the petitioners. Therefore, the loan does not have consideration for the time value of money and will not come under the category of financial debt. Consequently, the petitioners cannot be treated as financial creditors.

3. Whether the subordination agreement has to be taken into consideration to decide the matter:

The corporate debtor had entered into a subordination agreement with M/s. Canara Bank, in which the petitioners were also signatories. The agreement stipulated that the creditors would not sue for, collect, assign, or receive payment of any present or future claims until the bank's claims are settled. The petitioners contended that they had not signed the agreement and that their signatures were forged. However, the tribunal found that the petitioners' family member, who is also a director of the corporate debtor, confirmed the company's loan from Canara Bank and was silent about the signatories of the agreement. Therefore, the tribunal concluded that the subordination agreement is binding on the petitioners, and the debt has not become due and payable at this point of time.

Conclusion:

The tribunal concluded that the unsecured loan provided by the petitioners does not fall under the category of financial debt, and the petitioners cannot be treated as financial creditors. Additionally, the subordination agreement is binding on the petitioners, and the debt has not become due. Therefore, the petition was dismissed.