2021 (1) TMI 717 - AT - Insolvency and Bankruptcy

Tribunal upholds Financial Creditor's petition under Section 7: Corporate Debtor's appeal dismissed

Narendra Kumar Agarwal, Suman Agarwal Versus Monotrone Leasing Private Limited, Bimal Kanti Chowdhry IRP

The Tribunal upheld the Adjudicating Authority's order admitting the petition under Section 7 of the I&B Code, as the Financial Creditor successfully ... Maintainability of application - iitiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - Financial Debt or not - HELD THAT:- It appears that it is registered as a Non-Banking Financial Institution but is not authorised to accept public deposits. The alleged inter-corporate loan for a short period of 90 days repayable with a 15% per annum cannot be treated as a public deposit. Therefore, the objection of the Corporate Debtor in this regard is without any basis - the Corporate Debtor admits that up to 26th November 2018 he has paid only ₹ 2,69,075/ against the loan of ₹ 25 lacs, which was to be repaid with 15% interest per annum, within 90 days from the date of disbursal of loan. But the Corporate Debtor defaulted in repaying the amount. Therefore, it remains undisputed that the Corporate Debtor owes more than ₹ 1 lacs and committed default in repaying the same. Thus, it is clear that when a default takes place, and debt becomes due and is not paid, the Insolvency Resolution Process begins. Non-payment of debt, once it becomes due and payable, is considered a default under Section 3(12) of the Code. It is further held that the Adjudicating Authority is satisfied that default occurs, the Application must be admitted unless it is incomplete. In the instant case, the amount of ₹ 25 lacs was given as inter-corporate loan to the Corporate Debtor for 90 days which was repayable with interest @ 15% per annum. It is also clear that the Corporate Debtor has not paid the amount due and more than ₹ 1 lac. The Application is complete. Therefore, the Adjudicating Authority was justified in admitting the petition. Appeal dismissed. Issues Involved:1. Whether the Financial Creditor established a financial contract between the parties.2. Whether the transaction qualifies as a financial debt under the Insolvency and Bankruptcy Code (I&B Code).3. Whether the application under Section 7 of the I&B Code was complete and valid.4. Whether the Corporate Debtor committed a default.Issue-wise Detailed Analysis:1. Establishment of a Financial Contract:The Appellant argued that the Financial Creditor failed to show necessary Board approval before the disbursement of the alleged loan and did not establish any financial contract between the parties. It was contended that the oral agreement and payment of TDS cannot be taken as proof of financial debt. However, the Financial Creditor provided a copy of a Money Receipt, which acknowledged the inter-corporate loan of Rs. 25 lacs with 15% interest per annum for 90 days. This was further corroborated by the bank statement showing the transfer of Rs. 25 lacs to the Corporate Debtor's account. The Tribunal found that the nature of the transaction was sufficiently proven by these documents, even in the absence of a written contract.2. Qualification as Financial Debt:The Appellant contended that the transaction should be treated as an inter-corporate deposit, distinct from a loan, and not falling within the definition of financial debt. However, the Tribunal referred to Section 5(8) of the I&B Code, which defines financial debt as a debt disbursed against the consideration for the time value of money, including money borrowed against the payment of interest. The Tribunal concluded that the transaction, being repayable with interest, qualifies as financial debt under the I&B Code.3. Completeness and Validity of the Application:The Appellant argued that the application under Section 7 was incomplete as it did not mention the date of default. However, the Tribunal found that the application explicitly mentioned the date of default as 20th January 2018, with supporting financial ledgers annexed. The Tribunal also dismissed the objection regarding the Financial Creditor's certificate of registration, which did not authorize accepting public deposits, by clarifying that the inter-corporate loan for 90 days could not be treated as a public deposit.4. Default by the Corporate Debtor:The Appellant contended that no default had occurred. In response, the Financial Creditor provided evidence of the Corporate Debtor's acknowledgment of the loan and partial payments made. The Corporate Debtor admitted to receiving the loan and failing to repay the full amount with interest. The Tribunal, referencing the Supreme Court's judgment in Innoventive Industries Ltd. v. ICICI Bank, reiterated that non-payment of a debt once it becomes due and payable constitutes default under Section 3(12) of the I&B Code. The Tribunal found that the Corporate Debtor owed more than Rs. 1 lac and had defaulted in repaying the same.Conclusion:The Tribunal concluded that the Financial Creditor had established the existence of a financial debt and the occurrence of default. The application under Section 7 of the I&B Code was complete and valid. Consequently, the Tribunal upheld the Adjudicating Authority's order admitting the petition and dismissed the appeal, finding no merit in the arguments presented by the Appellant. No order as to costs was made.