2019 (10) TMI 1046 - AT - Insolvency and Bankruptcy

Appellant's Claim Denied as Not 'Financial Debt' under Insolvency Code. Appeal Dismissed.

M/s Saregama India Limited Versus M/s Home Movie Makers Private Limited

The Tribunal held that the claim of the Appellant did not qualify as a 'financial debt' under Section 5(8) of the Insolvency and Bankruptcy Code. The ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to repay the debt - Adjudicating Authority dismissed the Application holding that the claim made by the Appellant (Financial Creditor) is not a ‘financial debt’ - Section 7 of Insolvency and Bankruptcy Code, 2016 - HELD THAT:- The Appellant, who claims to be a Financial Creditor, however, claims made by it, is not a Financial Debt. It is reiterated that in the marketing agreements and subsequent correspondence exchanged between the Appellant and the Respondent, no way it is mentioned that the amount paid by the Appellant to be repayable along with interest over a period of time in a single or series of payments in future. However, we are of the firm opinion that the Appellant has not disbursed money against the consideration for the time value. The claim of the Appellant is not a Financial Debt within the meaning of Section 5(8) of IBC. Appeal dismissed. Issues Involved:1. Whether the claim of the Appellant falls under the category of 'financial debt' as per Section 5(8) of the Insolvency and Bankruptcy Code (IBC), 2016.Issue-wise Detailed Analysis:1. Whether the claim of the Appellant falls under the category of 'financial debt' as per Section 5(8) of the Insolvency and Bankruptcy Code (IBC), 2016:The Appellant, M/s Saregama India Limited, filed an application under Section 7 of the IBC against the Corporate Debtor, M/s Home Movie Makers Private Limited, for the initiation of Corporate Insolvency Resolution Process. The Adjudicating Authority dismissed the application, stating that the claim made by the Appellant was not a 'financial debt'. The Appellant argued that the transaction between the parties clearly established it as a financial debt, while the Respondent contended that it did not meet the criteria of a financial debt under Section 5(8) of the IBC, as there was no Time Value of Money involved.The Appellant and Respondent had entered into agreements dated 28.09.2013 and 09.12.2016, whereby the Respondent sold its rights to the Appellant for Free Commercial Time (FCT) in consideration of agreed amounts. The Appellant paid an advance sum to the Respondent, which was communicated via a letter dated 31.01.2017. The Appellant issued a notice under Section 8(1) of the IBC, claiming an amount as Operational Debt but later filed a petition under Section 7, claiming it as Financial Debt.The Respondent did not deny the agreement but stated that the Appellant was to market and sell FCT and pay the telecast fee, which was not done, adversely impacting the Respondent's production. The Respondent claimed that the FCT remained unsold and no amount was payable by the Respondent, reserving the right to recover damages for breach of the marketing agreement.The Tribunal examined whether the claim constituted a 'financial debt' involving the disbursement of money against the consideration for Time Value of Money. It was found that the agreements did not include any clause for payment of interest in case of default, and the money was not disbursed against the consideration for Time Value of Money. The Tribunal emphasized that the IBC is not a Civil Court to decide on the breach of contracts but strictly follows the provisions of the Code.Section 5(8) of the IBC defines 'financial debt' as a debt along with interest, if any, disbursed against the consideration for Time Value of Money. The Tribunal referred to previous judgments, emphasizing that a financial transaction must involve the consideration for Time Value of Money. The Appellant's claim did not meet this criterion, as the agreements and subsequent correspondence did not indicate that the amount paid was to be repaid with interest over time.The Tribunal concluded that the Appellant's claim was not a Financial Debt within the meaning of Section 5(8) of the IBC and upheld the Adjudicating Authority's order dismissing the application. The appeal was dismissed with no order as to costs.