2020 (7) TMI 58 - Tri - Insolvency and Bankruptcy

Tribunal rules petition not valid under IBC, emphasizes insolvency process integrity.

M.G. Mohan Kumar Versus American Road Technology & Solutions (P.) Ltd.

The Tribunal dismissed the petition, finding no financial debt within the meaning of the IBC. The Corporate Debtor was deemed solvent, and the petition ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - HELD THAT:- Debt, as defined under the Code in section 3(11) means a liability or obligation in respect of a claim which is due from any person, and includes a financial debt or an operational debt. Such a debt would arise from a claim, as defined in section 3(6), i.e. from a right to payment in the hands of the Creditor. Such a right could arise from the terms and conditions agreed to by the concerned opposite parties, in the shape of a Contract or an Agreement or Board Resolution, if any, so that the same could be enforced in the case of default. Section 3(12) of the Code defines as non-payment of a debt when the whole or part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor - The definition of 'Financial Debt' in section 5(8) of the Code clearly postulates that any money advanced must be for a consideration i.e., there must be a need for the borrowing of such money and the money must be advanced against consideration for the time value of money. The Petitioners' claim, debt and default relate to FY. 2012-13 onwards. The Code came into effect in 2016 and this Petition was filed on 25-10-2017. As per our findings above, the financial debt does not exist, as per the provisions of the Code and is also not borne out of the Financial Statements of the Corporate Debtor. Defaults 3 years prior to the Demand Notice are therefore barred by limitation. In fact part of the alleged debt was barred by limitation even prior to the commencement of the Code, and it is well settled that the IBC cannot be used for reviving a time barred debt. The Petitioner has approached this forum only for recovery. He has not made out any case that the Corporate Debtor is insolvent and unable to repay its debts because of which CIRP should be initiated against it. We find that the Company is seeing an upswing in its business. Earlier Canara Bank had issued a SARFAESI Notice to the Company in July 2016 but has now proceeded to extend loans to it showing confidence in the Company's solvency. It is engaged in important task of road repairs and has tied up with important government departments like BBMP. The Work Orders placed on the Company by BBMP show that the Company's business is continuing well and that it is a more than viable going concern. There was no financial debt within the meaning of the Code - Petition dismissed. Issues Involved:1. Existence of Financial Debt2. Default of Financial Debt3. Admissibility of the Petition under Section 7 of the Insolvency and Bankruptcy Code (IBC)4. Allegations of Misappropriation and Fraud5. Pending Criminal and Civil Cases6. Limitation Period for Debt Claims7. Solvency and Business Viability of the Corporate DebtorDetailed Analysis:1. Existence of Financial Debt:The Tribunal examined whether the alleged debts qualify as 'financial debt' under Section 5(8) of the IBC. It was determined that:- The amounts claimed by the Financial Creditor 1, Mr. M.G. Mohan Kumar, did not tally with the figures provided. The Tribunal found no evidence of a Board Resolution or agreement indicating that the amounts were given for the time value of money.- The direct payment of Rs. 9,85,000/- by Financial Creditor 1 lacked supporting evidence, and there was no agreement or Board Resolution to substantiate this as a financial debt.- For Financial Creditor 2, Brindavan Beverages Private Limited (BBPL), the Tribunal found that the loan was taken through Vanijya Advisory Services Pvt. Ltd. and not directly from BBPL. There were no Board Resolutions or agreements to support this as a financial debt.- The debts claimed by Financial Creditors 3 and 4, Mr. Harishchandra Naik and Mrs. Sapna Harishchandra Naik, were towards equity subscription and did not qualify as financial debt.2. Default of Financial Debt:The Tribunal noted that the petitioners failed to provide proof of default by the Corporate Debtor. There were no terms or conditions regarding interest or default, and no agreement or Board Resolution to substantiate the claims.3. Admissibility of the Petition under Section 7 of the IBC:The Tribunal emphasized that the proceedings under Section 7 are summary in nature, focusing on the existence of debt and default. The Tribunal found that the petitioners failed to establish the existence of a financial debt and default, as required under the IBC.4. Allegations of Misappropriation and Fraud:The Tribunal acknowledged the accusations of misappropriation and fraud against Financial Creditor 1, Mr. M.G. Mohan Kumar, which were substantiated by a forensic audit report. Criminal cases were filed against him, and his petition for anticipatory bail was rejected by the Hon'ble Sessions Court, Bengaluru.5. Pending Criminal and Civil Cases:The Tribunal noted that the pending criminal and civil cases had no bearing on the current proceedings under the IBC. However, the findings from these cases were considered to determine the credibility of the petitioners' claims.6. Limitation Period for Debt Claims:The Tribunal observed that part of the alleged debt was barred by limitation even before the commencement of the IBC. Defaults occurring three years prior to the demand notice were considered time-barred, and the IBC cannot be used to revive time-barred debts.7. Solvency and Business Viability of the Corporate Debtor:The Tribunal found that the Corporate Debtor was solvent and a going concern. The company had repaid loans and was engaged in ongoing business activities with significant government contracts. The Tribunal concluded that the petition was filed for recovery purposes and not because the Corporate Debtor was insolvent.Conclusion:The Tribunal dismissed the petition, finding no financial debt within the meaning of the IBC. The Corporate Debtor was deemed solvent, and the petition was considered an attempt at debt recovery rather than a genuine insolvency resolution process. The Tribunal emphasized that the IBC is not a substitute for debt enforcement procedures and cannot be used to jeopardize the financial health of a solvent company.