Petition by 'financial creditors' dismissed due to failure to establish default under Insolvency and Bankruptcy Code

The Tribunal dismissed the petition as the petitioners, claiming to be 'financial creditors,' failed to establish a default by the corporate debtor. The Tribunal found that the petitioners did not fulfill their obligations as per the agreements, leading to the amount not being due and payable. Consequently, the requirements of Section 7(5) of the Insolvency and Bankruptcy Code were not met, resulting in the dismissal of the petition.

---

---

Issues Involved:
1. Whether the petitioners qualify as 'financial creditors' under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Whether there is a default on the part of the corporate debtor that warrants the initiation of the Corporate Insolvency Resolution Process.

Issue-wise Detailed Analysis:

1. Qualification as 'Financial Creditors':

The petitioners, claiming to be 'financial creditors,' filed the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking the initiation of Corporate Insolvency Resolution Process against the respondent company, M/s. Trustworthy Gems & Jewellers Private Limited. The Tribunal examined whether the petitioners meet the definition of 'financial creditors' as per Section 5(7) and 5(8) of the Code.

Section 5(7) defines a 'financial creditor' as any person to whom a financial debt is owed, including those to whom such debt has been legally assigned or transferred. Section 5(8) defines 'financial debt' as a debt along with interest, if any, which is disbursed against the consideration for the time value of money. The Tribunal noted that financial transactions typically involve the consideration of the time value of money, where compensation is based on the inherent risk factor in the series of payments. The Tribunal concluded that the petitioners satisfy the initial requirement of Section 5(8) of the Code, as their claim involved disbursement against the time value of money.

2. Existence of Default:

The Tribunal then examined whether there was a default by the corporate debtor. The petitioners contended that they had deposited a sum of Rs. 1,85,00,000 with the respondent company towards the security of liabilities of K.K. Kohli & Brothers Private Limited (now SRS Automotive Components Pvt. Ltd.) and that the respondent had failed to pay the agreed interest from December 2015 onwards. The petitioners provided a confirmation of account dated 01.04.2017, indicating the deposit amount and the accrued interest.

The respondent, in its reply, argued that the petitioners had not cleared their own liabilities within the agreed period, and thus, the respondent was not liable to pay any amount until the petitioners fulfilled their obligations. The Tribunal referred to the agreements and addendums between the parties, which stipulated that the petitioners were to clear the liabilities of K.K. Kohli & Brothers Private Limited within a maximum of five years. The respondent claimed that the petitioners had failed to do so, and as a result, the amount was not due and payable.

The Tribunal emphasized that for a default to be established, the debt must be due and payable, as defined in Section 3(11) and 3(12) of the Code. The Tribunal referred to the Supreme Court's decision in Innoventive Industries Ltd. v. ICICI Bank, which stated that the Adjudicating Authority must be satisfied that a default has occurred, and the corporate debtor can argue that the debt is not due or payable in law or fact.

The Tribunal concluded that the petitioners had not fulfilled their obligations as per the agreements, and therefore, the amount was not due and payable. Consequently, no default had occurred, and the requirements of Section 7(5) of the Code were not satisfied.

Conclusion:

The Tribunal dismissed the petition, stating that the petitioners did not meet the requirements of Section 7(5) of the Code, as no default had occurred due to the petitioners' failure to fulfill their obligations. The dismissal was not to be construed as an opinion on the merits of the controversy in any other proceedings, and the Tribunal emphasized that these were summary proceedings.

---