2017 (12) TMI 1844 - AT - Insolvency and Bankruptcy

Tribunal recognizes M/s. PEC Ltd. as 'Financial Creditor' under Insolvency Code

PEC Ltd. Versus Sree Ramakrishna Alloys Ltd. and M/s. Sri Gangadhara Steels Limited

The tribunal held that the appellant, M/s. PEC Ltd., qualified as a 'Financial Creditor' under the Insolvency and Bankruptcy Code, 2016, allowing their ... Application for initiation of CIRP - financial creditor or operational creditor - application was preferred by the Appellant under Section 7 of the I & B Code - whether the application has been treated to be an application under Section 9 of the I & B Code or not? - HELD THAT:- The Appellant-M/s. PEC Ltd. has disbursed the amount to 'M/s. Sree Ramakrishna Alloys Limited' against the consideration for the time value of money. It is also clear that M/s. Sree Ramakrishna Alloys Limited by the agreement dated 24th February, 2014 has borrowed money from the Appellant-M/s. PEC Limited against the payment of interest. Thus, the Appellant-M/s. PEC Ltd. come within the meaning of 'Financial Creditor' and is eligible to file an application under Section 7 of the 'I & B Code' there being a debt and default on the part of the Respondent. The Adjudicating Authority failed to appreciate that the application(s) preferred by Appellant under Section 7 of the 'I & B Code' cannot be treated as an application under Section 9 of the 'I & B Code' and the Appellant who is a 'Financial Creditor' cannot be treated as 'Operational Creditor'. If an application is filed by a person under Section 7 of the 'I & B Code' and in case the Adjudicating Authority comes to the conclusion that the Applicant is not a 'Financial Creditor' in such case the Adjudicating Authority has jurisdiction to reject the application under Section 7 of the 'I & B Code', but the said Authority cannot treat the format of the application under Section 7 of the 'I & B Code' (Form-1) as an application under Section 9 of the 'I & B Code' (Form-5), nor can treat such person an 'Operational creditor', in absence of any claim made under Section 9 of the 'I & B Code'. Further, as the informations required to be given in Form-1 varies from the informations as required to be given in Form-5 (As per Section 9), including instructions made below the requisite form(s), no application filed under Section 7 can be treated as an application under Section 9 of the 'I & B Code - in absence of a notice under sub-section (1) of Section 8 of the 'I & B Code', an application under Section 7 cannot be treated to be an application under Section 9. In the present case, as the application preferred by the Appellant under Section 7 in both the appeals are maintainable and have been admitted, order of moratorium has been passed and 'Interim Resolution Professionals' have been appointed, no interference is called for against the impugned order - Appeal allowed. Issues Involved:1. Whether the appellant, M/s. PEC Ltd., is a 'Financial Creditor' under Section 7 of the Insolvency and Bankruptcy Code, 2016.2. Whether the applications filed under Section 7 can be treated as applications under Section 9 of the Insolvency and Bankruptcy Code, 2016.Issue-Wise Detailed Analysis:1. Financial Creditor Status:The appellant, M/s. PEC Ltd., a Government of India Enterprise, filed applications under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I & B Code) against the respondents, M/s. Sree Ramakrishna Alloys Limited and M/s. Sri Gangadhara Steels Limited, alleging defaults on financial debts. The agreements between the appellant and respondents involved the procurement of M.S. Billets, with the appellant providing financial assistance through an Irrevocable Letter of Credit (ILC). The agreements stipulated that the respondents would pay interest on the borrowed amounts, thus establishing the appellant as a 'Financial Creditor' under Section 5(7) and Section 5(8) of the I & B Code. The tribunal confirmed that the appellant disbursed amounts against the consideration for the time value of money, qualifying them as a 'Financial Creditor' eligible to file applications under Section 7.2. Treatment of Applications Under Section 9:The grievance of the appellant was that their applications under Section 7 were erroneously treated as applications under Section 9 by the Adjudicating Authority, depriving them of their rights as 'Financial Creditors' and excluding them from the 'Committee of Creditors'. The tribunal held that an application filed under Section 7 cannot be treated as an application under Section 9. The requirements for filing under Section 7 and Section 9 are distinct, including the necessity of issuing a demand notice under Section 8 for applications under Section 9, which is not required for Section 7 applications. The tribunal emphasized that the Adjudicating Authority has the jurisdiction to reject an application under Section 7 if the applicant is not a 'Financial Creditor', but it cannot convert it into a Section 9 application.Judgment:The tribunal concluded that the applications filed by the appellant under Section 7 were maintainable and should not have been treated as applications under Section 9. The orders admitting the applications and passing the moratorium were upheld, but the part of the orders treating the appellant as an 'Operational Creditor' was modified. The appellant, M/s. PEC Ltd., was directed to be treated as a 'Financial Creditor' and included in the 'Committee of Creditors' for both cases. The appeals were allowed with these observations and directions, with no order as to costs.