2018 (12) TMI 417 - Tri - Insolvency and Bankruptcy

Tribunal rules in favor of Financial Creditors in loan dispute, admits insolvency petition

The Tribunal found that the amounts claimed by the Financial Creditors were loans, not investments, as evidenced by TDS certificates and ledger accounts. ... Corporate insolvency process - admitted Financial Liability - amount advanced by the Financial Creditors is an amount advanced as Loan - Whether the amount claimed by the Financial Creditors is an Investment or it is an amount advanced as a Loan? - Whether the amount claimed by the Financial Creditors is discharged as on date or is still in continuance? Held that:- Bench has examined the TDS Certificate i.e. Form – 26AS which is placed on record by the Financial Creditors. By going through the same it is noticed that the Debtor had deposited the TDS amount of ₹ 14,000/-, ₹ 10,500/- and ₹ 10,500/- respectively for 1st, 2nd and 3rd Financial Creditor. This TDS was deducted by the Debtor U/s. 194A of the Income Tax Act, 1961 and the same has been deposited also with the Income Tax Department. It is noticed that the S. 194A stands for the Tax on Interest other than the Interest on Securities. Since, the TDS is deducted U/s. 194A it cannot be towards the distribution of profits and therefore a conclusion can be drawn that the Debtor has paid the amount to the 1st to 3rd Financial Creditors towards the Interest Amount of Loan. In light of above observation to answer the above framed first question it can be stated that ‘the amount advanced by the Financial Creditors is an amount advanced as Loan’. Moreover the Debtor has not made out a case of disbursement of any ‘Dividend’ or ‘Profit’ so as to demonstrate the impugned transaction at all related to an Investment. Though there is pending dispute, prior to institution of the Petition U/s. 7 of the Code, the Adjudicating Authority need not to look into that dispute for the adjudication of the S. 7 Petition. In this case, the Bench has also perused the Orders of the Hon’ble Bombay High Court in the said Civil Suit and noticed that the Hon’ble Bombay High Court, in any way, has not restricted this Bench from proceeding in this case. At the cost of repetition, the issues in that Suit are altogether different and do not relate the question of default in repayment of an admitted Financial Debt. As far as the question of the ‘default’ is concerned, it has already been established supra. Hence, to conclude the discussion it can be stated that the Petition under Adjudication deserves Admission. The facts of the case have already established that the amount claimed is ‘Financial Debt’ as defined U/s. 5 (8) of the Code and there is a Default in the re-payment of the Debt as defined U/s. 3 (12) of the Code. As a consequence, keeping admitted facts in mind that the Financial Creditor had not received the outstanding Debt from the Corporate Debtor and that the formalities as prescribed under the Code have been completed by the Financial Creditor the Bench is of the conscientious view that this Petition deserves ‘Admission’. Issues Involved:1. Maintainability of the Application under the Insolvency and Bankruptcy Code (IBC).2. Nature of the amount claimed by the Financial Creditors - whether it is a loan or an investment.3. Whether the amount claimed by the Financial Creditors has been discharged.4. Jurisdiction of the Tribunal in light of the pending Civil Suit before the Hon’ble Bombay High Court.5. Existence of default in repayment of the financial debt.Detailed Analysis:1. Maintainability of the Application under the Insolvency and Bankruptcy Code (IBC):The Corporate Debtor challenged the maintainability of the application, arguing that the amounts advanced were investments rather than loans, and that there was no written agreement or contract specifying the terms of repayment or interest. The Tribunal, however, found that the amounts claimed by the Financial Creditors were disbursed as loans, evidenced by TDS certificates and ledger accounts, and thus the application was maintainable under Section 7 of the IBC.2. Nature of the Amount Claimed by the Financial Creditors - Loan or Investment:The Tribunal examined the TDS certificates (Form 26AS) submitted by the Financial Creditors, which showed that TDS was deducted under Section 194A of the Income Tax Act for interest payments. This indicated that the amounts were loans, not investments, as TDS under Section 194A pertains to interest on loans rather than profit distribution. The Tribunal concluded that the amounts advanced by the Financial Creditors were loans.3. Whether the Amount Claimed by the Financial Creditors has been Discharged:The Corporate Debtor argued that the amounts claimed had been discharged through the transfer of shares to the Financial Creditors. However, the Tribunal found no evidence to support this claim, noting that the alleged fraud regarding the share transfer was still under adjudication in the pending Civil Suit before the Hon’ble Bombay High Court. Therefore, the Tribunal concluded that the amount claimed had not been discharged and was still outstanding.4. Jurisdiction of the Tribunal in Light of the Pending Civil Suit:The Corporate Debtor contended that the Tribunal lacked jurisdiction due to the pending Civil Suit before the Hon’ble Bombay High Court, which involved allegations of fraud by the Financial Creditors. The Tribunal determined that the issues in the Civil Suit were unrelated to the financial debt in question and did not affect its jurisdiction to adjudicate the insolvency petition. The Tribunal emphasized that the pending dispute did not preclude the admission of the petition under Section 7 of the IBC.5. Existence of Default in Repayment of the Financial Debt:The Tribunal found that the Financial Creditors had not received any repayment after 31.08.2016, establishing a default as defined under Section 3(12) of the IBC. The Tribunal also noted that the Financial Creditors had completed all procedural requirements for the application. The Tribunal relied on the Supreme Court’s judgment in 'Innovative Industries v. ICICI Bank,' which clarified that the existence of a dispute does not prevent the admission of a Section 7 petition if the debt is due and payable.Conclusion:The Tribunal concluded that the amounts claimed by the Financial Creditors were financial debts as defined under Section 5(8) of the IBC and that there was a default in repayment. Consequently, the petition was admitted, and the Corporate Insolvency Resolution Process (CIRP) was initiated. The Tribunal appointed an Interim Resolution Professional (IRP) and declared a moratorium as per Section 14 of the IBC. The Miscellaneous Application filed by the Corporate Debtor was dismissed.