Appellate Tribunal overturns insolvency application, citing genuine debt dispute. Corporate Debtor freed, Adjudicating Authority's orders deemed illegal.

The Appellate Tribunal set aside the order admitting the application under Section 7 of the I&B Code, declaring it not a fit case for initiating corporate insolvency resolution due to a genuine dispute about the debt. All orders by the Adjudicating Authority were deemed illegal, and the Corporate Debtor was released from proceedings, allowed to function independently. The Adjudicating Authority was directed to fix the Resolution Professional's fee to be paid by the Corporate Debtor. The appeal was allowed with no order as to costs.

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Issues Involved:
1. Dispute regarding the existence of debt and default.
2. Determination of the respondent's status as a 'financial creditor' under Section 5(7) & (8) of the Insolvency and Bankruptcy Code (I&B Code).
3. Validity of the application under Section 7 of the I&B Code.
4. Examination of evidence and payments made by the Corporate Debtor.
5. Adjudicating Authority's decision and its legality.

Issue-wise Detailed Analysis:

1. Dispute regarding the existence of debt and default:
The appellant, a shareholder and director of the Corporate Debtor, challenged the order admitting the application under Section 7 of the I&B Code, arguing that there was an existing dispute regarding the debt and default. The Adjudicating Authority found no evidence of such a dispute and confirmed the existence of default.

2. Determination of the respondent's status as a 'financial creditor':
The appellant contended that the respondents did not qualify as 'financial creditors' under Section 5(7) & (8) of the I&B Code. However, the Adjudicating Authority held that the respondents were indeed financial creditors, as there was evidence of default and the debt was due.

3. Validity of the application under Section 7 of the I&B Code:
The appellant argued that the application under Section 7 was not maintainable due to the existence of a dispute. The Hon'ble Supreme Court's precedent in "Innoventive Industries Ltd. v. ICICI Bank" was cited, stating that the Adjudicating Authority must ascertain the existence of default from the records or evidence furnished by the financial creditor. The corporate debtor can point out that the debt is not due if it is not payable in law or fact.

4. Examination of evidence and payments made by the Corporate Debtor:
The appellant provided details of payments made between August 2015 and July 2016, supported by bank statements. The respondents, through affidavits, claimed that the payments were made under different loan agreements and not the one in question. The respondents detailed the loans and repayments, stating that certain amounts were still outstanding. The appellant disputed these claims, presenting evidence of multiple agreements and repayments totaling Rs. 5,11,00,000 and argued that the entire amount, along with additional sums, had been repaid.

5. Adjudicating Authority's decision and its legality:
The Appellate Tribunal found that there were eight agreements between the parties, and the payments made by the appellant were not disputed. However, there was a dispute regarding the specific agreement under which the claimed amount was due. The Tribunal concluded that there was a genuine dispute about the debt and the amount payable under the agreements. Consequently, it was not a fit case for initiating corporate insolvency resolution under Section 7, and the parties should seek relief from a competent court.

Conclusion:
The impugned order dated 5th January 2018, admitting the application under Section 7, was set aside. All orders passed by the Adjudicating Authority, including the appointment of the Resolution Professional, declaration of moratorium, and freezing of accounts, were declared illegal and set aside. The Corporate Debtor was released from the proceedings and allowed to function independently. The Adjudicating Authority was directed to fix the fee of the Resolution Professional, to be paid by the Corporate Debtor. The appeal was allowed with no order as to costs.

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