2018 (2) TMI 447 - AT - Insolvency and Bankruptcy

Appellate Tribunal rules Appellant not 'Financial Creditor' under Insolvency Code. Loans didn't meet 'Financial Debt' criteria.

Dr. B.V.S. Lakshmi Versus Geometrix Laser Solutions Private Limited

The Appellate Tribunal upheld the Adjudicating Authority's decision, ruling that the Appellant did not qualify as a 'Financial Creditor' under the ... Corporate Insolvency Resolution Process - whether Appellant is not a ‘Financial Creditor’? - a loan advanced against the time value of money - according to Appellant, the Time value of money to be calculated by expected future value of the Appellant’s investment in the Respondent for allowing it to continue as a “on-going concern” and to make profits. - Held that:- In the present case, the Appellant has failed to bring on record any evidence to suggest that she disbursed the money has been made against ‘consideration for the time value of money’. There is nothing on the record to suggest that the Respondents borrowed the money. In absence of such evidence, the Appellant cannot claim that the loan if any given by the Appellant comes within the meaning of ‘financial debt’ in terms of sub-section (8)(a) of Section 5 of the ‘I&B Code’. The Appellant has also failed to show that the amount has been raised by Respondent under any other transactions, such as sale or purchase agreement, having commercial effect of borrowing. In absence of any such evidence, the Appellant cannot claim that loan amount, if any given to the Respondent comes within the meaning of ‘financial debt’, as defined under sub-section (8)(f) of Section 5 of the ‘I&B Code’. We hold that the Adjudicating Authority rightly held that the Appellant is not a ‘Financial Creditor’. Appeal dismissed. Issues Involved:1. Whether the Appellant qualifies as a 'Financial Creditor' under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code).2. Whether the loans advanced by the Appellant constitute 'Financial Debt' under Section 5(8) of the I&B Code.3. Whether the Adjudicating Authority's decision to reject the application was justified.Issue-wise Detailed Analysis:1. Qualification as a 'Financial Creditor':The Appellant filed an application under Section 7 of the I&B Code to initiate the Corporate Insolvency Resolution Process (CIRP) against the Respondent. The Adjudicating Authority (National Company Law Tribunal, Hyderabad Bench) rejected the application, stating that the Appellant does not come within the meaning of 'Financial Creditor' and failed to satisfy the requisite ingredients of Section 7 of the I&B Code.2. Constitution of 'Financial Debt':The Appellant claimed that loans totaling Rs. 91,47,864/- were advanced to the Respondent in fifty-two transactions between 26th April 2013 and 9th March 2015. These loans were purportedly for repaying interest/instalments on bank loans and ensuring payment of salaries and money due to suppliers/vendors. The Appellant argued that the loans carried interest, evidenced by an email from the Respondent's Managing Director and the Auditor's report dated 31st August 2016. The Appellant contended that the loans were repayable on demand and were acknowledged in the Respondent's books of account.The Appellant's counsel argued that the debt owed by the Respondent is a 'Financial Debt' under Section 5(8)(a) and (f) of the I&B Code, as the loans carried interest and had the commercial effect of a borrowing. The Appellant also argued that the definition of 'Financial Debt' is inclusive and should cover the loans advanced against the time value of money.3. Justification of the Adjudicating Authority's Decision:The Respondent argued that the Appellant is not a 'Financial Creditor' in the absence of any 'Financial Debt' being disbursed by the Appellant. The Respondent relied on the decision in 'Nikhil Mehta and Sons (HUF) Vs. AMR Infrastructure Ltd.' to argue that the essential criteria for a 'Financial Creditor' include disbursement against the consideration for time value of money. The Respondent also submitted that the Appellant failed to establish the disbursement against the consideration for time value of money and that the amounts reflected in the balance sheet were merely 'unsecured loans.'The Respondent further argued that the Appellant moved the Adjudicating Authority with unclean hands, placing false and fabricated documents on record. The Respondent claimed that the Appellant was guilty of siphoning funds and had lodged a criminal complaint and FIR against the Appellant in August 2016.Findings:The Appellate Tribunal reviewed the ledger statements and balance sheets provided by the Appellant, which showed the amounts as 'unsecured loans.' The Tribunal highlighted that for a debt to qualify as 'Financial Debt' under Section 5(8) of the I&B Code, it must be disbursed against the consideration for the time value of money. The Appellant failed to provide evidence that the loans were disbursed against the consideration for the time value of money or that the Respondent borrowed the money.The Tribunal concluded that the Appellant did not meet the criteria for 'Financial Debt' under Section 5(8)(a) or (f) of the I&B Code. Consequently, the Appellant could not be considered a 'Financial Creditor.'Conclusion:The Tribunal upheld the Adjudicating Authority's decision, stating that the Appellant is not a 'Financial Creditor' and dismissed the appeal. No costs were ordered.