2021 (2) TMI 901 - AT - Insolvency and Bankruptcy

Tribunal directs restoration of Company Petition under IBC 2016, overturning NCLT's decision

The Tribunal allowed the appeal, directing the NCLT to restore the Company Petition under Section 7 of the IBC 2016, admitting the petition and proceeding ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - clear-cut stand of the ‘Appellant’ is that the ‘Adjudicating Authority’ (National Company Law Tribunal) had failed to take into consideration that the amount paid by the ‘Applicants’ to the ‘Respondent’ was clearly of ‘Financial Debt’ - HELD THAT:- It is to be pointed out that Section 3(11) of the Code defines ‘Debt’ meaning, a liability or obligation in respect of ‘claim’ which is due from any person and includes a ‘financial debt’ and ‘operational debt’. Section 3(12) of the Code defines ‘default meaning, non-payment of debt when whole of any part or instalment of the amount of debt has become due and payable and is not (paid) by the debtor or the corporate debtor, as the case may be - It is to be remembered that for a ‘default’, there must be a subsisting debt. After all, the word ‘default’ is like not doing something which one should do. In fact, the term ‘default’ refers to an ‘omission’ or ‘failure’ to perform a legal or contractual duty. Suffice it to point that the word ‘default’, applies to a sum of money which was promised at a future date as against a sum now due and payable. It cannot be forgotten that Section 5(8) of the ‘Insolvency & Bankruptcy’ Code speaks of ‘time value’ and these words are interpreted to mean ‘compensation’ or the ‘price paid for the length of time for which the money was disbursed. An existing obligation to pay a sum of money is the sine qua non of a ‘financial debt’. The ‘Financial Creditor’ has a right to ‘financial debt’. Thus, the essence of any debt to be mentioned as ‘financial debt’ is the ‘time value of money’, as borrowing money is for monetary transaction - To determine the plea of ‘occurrence of default’ is the debt which must be due and become payable. An existence of ‘debt’ and ‘default’ are to be met for ‘admission’ of an ‘Application’ under section 7 of the ‘Insolvency and Bankruptcy’ Code. A ‘Debt’ is/was recoverable from the ‘Corporate Debtor’. There is no second opinion of an important fact that distinction between ‘Deposits’ and ‘Loans’ may not be a significant factor for interpreting the word, ‘Deposit’. One cannot ignore a candid fact that ‘maturity of claim’, ‘default of claim’ or ‘invocation of guarantee’ has no nexus in regard to the filing of claim before the ‘Interim Resolution Professional’ under section 18(1)(b) of the ‘Insolvency & Bankruptcy Code’ and the ‘Resolution Professional’ under section 25(2)(e) of the Code - As per the ‘Companies (Acceptance of Deposits) Rules, 2014’, the term ‘deposit’ is defined under rule 2(1) (c ) in an inclusive fashion. The meaning of ‘deposit’ is elongated by covering receipts of money in any other form. For approaching the jurisdiction of the ‘Tribunal’ as per Section 74(2) of the ‘Companies Act, 2013’, even a partial failure by the Company to repay the deposit was sufficient. Resting on the fact that the ‘Respondent’/’Corporate Debtor’ under the ‘Recurring Investment Plan’ had assured to provide the Investors’ interest on their investment sum along with the Investment amount, for the ‘time value of money’ (of course based on the amounts of investments made by the Investors) and in view of the fact that the ‘Respondent’/’Corporate Debtor’ failed in its commitment to offer the allotment and/or the possession of the ‘Plots of Land’ as promised by it or pay the assured returns, or repay the sums collected by it along with interest on the maturity of the schemes etc, this ‘Tribunal’ comes to a consequent conclusion that the ‘Appellant’s’ position is that of a ‘Financial Creditor’ as per Section 5(7) read with Section 5(8) of the ‘Insolvency & Bankruptcy Code’ and that there is default in payment of the accepted amounts by the ‘Respondent’/’Corporate Debtor’ - the ‘Respondent/’Corporate Debtor’ squarely comes within the ambit of definition of ‘Financial Debt’ and the contra conclusions arrived at by the ‘Adjudicating Authority’ (National Company Law Tribunal, New Delhi Bench-V) to the effect that ‘the amount which the applicants deposited does not come under the definition of ‘Debt’ and further that it was unable to accept the contention of the applicants that there was a default in payment of debt, are incorrect, invalid and the same is set aside by this ‘Tribunal’ to secure the ends of justice. The ‘Impugned Order’ of the ‘Adjudicating Authority’ (National Company Law Tribunal, New Delhi, Bench-V) is set aside by this ‘Tribunal’ for the reasons ascribed in the instant ‘Appeal’ - the ‘Adjudicating Authority’ (National Company Law Tribunal, New Delhi Bench-V) is directed to restore the Company Petition filed by the ‘Appellants’/’Financial Creditors’/’Petitioner’ (under Section 7 of the ‘Insolvency & Bankruptcy Code’) to its file and admit the same and to proceed further in accordance with Law. Issues Involved:1. Whether the amount deposited by the Appellant with the Corporate Debtor qualifies as 'Financial Debt' under Section 5(8) of the Insolvency & Bankruptcy Code, 2016 (IBC 2016).2. Whether the default in repayment by the Corporate Debtor constitutes a 'default' under Section 3(12) of the IBC 2016.3. Whether the Appellant's application under Section 7 of the IBC 2016 is maintainable.4. Whether the Appellant should seek remedy under Chapter V of the Companies Act, 2013 instead of IBC 2016.Issue-wise Detailed Analysis:1. Qualification of 'Financial Debt':The National Company Law Tribunal (NCLT) initially ruled that the amount deposited by the Appellant with the Corporate Debtor does not qualify as 'Financial Debt' under Section 5(8) of the IBC 2016. The NCLT based its decision on the fact that the Appellant had deposited money under various schemes floated by the Corporate Debtor, which promised returns or land allotment upon maturity. The NCLT concluded that these deposits did not constitute a 'Financial Debt' but were instead governed by the Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014.2. Default in Repayment:The NCLT held that since the deposited amount did not qualify as 'Financial Debt,' there was no 'default' in repayment under Section 3(12) of the IBC 2016. The NCLT emphasized that 'default' means non-payment of debt, and since the deposits did not meet the definition of 'debt,' the claim of default was not accepted.3. Maintainability of Section 7 Application:The NCLT rejected the application under Section 7 of the IBC 2016, stating that the Appellant's claim did not fall within the ambit of 'Financial Debt' as defined in Section 5(8) of the IBC 2016. Consequently, the NCLT concluded that the Appellant's application for initiating Corporate Insolvency Resolution Process (CIRP) was not maintainable.4. Remedy under Chapter V of the Companies Act, 2013:The NCLT suggested that the Appellant could seek remedy under Chapter V of the Companies Act, 2013, which deals with the acceptance of deposits and their repayment. The NCLT granted liberty to the Appellant to file an appropriate application under the Companies Act, 2013.Appellant's Submissions and Case Laws:The Appellant argued that the NCLT failed to consider Sections 3(6) and 3(11) of the IBC 2016, which define 'claim' and 'debt' respectively. The Appellant contended that the deposits made were indeed 'Financial Debt' as they were disbursed against the 'time value of money.' The Appellant cited several case laws, including the Supreme Court's decision in Innoventive Industries Ltd. v. ICICI Bank, which held that the IBC overrides other laws and that 'claims' include disputed claims. The Appellant also referred to Nikhil Mehta & Sons v. AMR Infrastructure Ltd., where it was held that money disbursed against 'time value of money' is a 'Financial Debt.'Tribunal's Assessment:The Tribunal concluded that the Appellant's position is that of a 'Financial Creditor' as per Section 5(7) read with Section 5(8) of the IBC 2016. The Tribunal noted that the Corporate Debtor had assured returns on the investment sum, which constituted 'time value of money.' The Tribunal held that the Corporate Debtor's failure to repay the deposited amounts along with interest constituted a 'default' under Section 3(12) of the IBC 2016. The Tribunal set aside the NCLT's order, stating that the Appellant's application under Section 7 of the IBC 2016 was maintainable.Final Judgment:The Tribunal allowed the appeal and directed the NCLT to restore the Company Petition filed by the Appellant under Section 7 of the IBC 2016. The NCLT was instructed to admit the petition and proceed in accordance with the law. The Tribunal also closed the Appellant's application seeking exemption to file the certified copy of the NCLT's order, directing the Appellant to submit the certified copy within two weeks.Conclusion:The Tribunal held that the deposited amounts qualified as 'Financial Debt,' the default in repayment constituted a 'default,' and the Appellant's application under Section 7 of the IBC 2016 was maintainable. The NCLT's order was set aside, and the case was remanded for further proceedings.