2021 (4) TMI 764 - Tri - Insolvency and Bankruptcy

Adjudicating Authority dismisses petition under Insolvency and Bankruptcy Code, emphasizing financial debt requirement.

Bhaskar Enterprises Versus Shree Jagdamba Dyeing and Printing Mills Pvt. Ltd.

The Adjudicating Authority rejected the Petitioner's petition under Section 7 of the Insolvency and Bankruptcy Code, finding insufficient evidence to ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues or not - Financial Creditors or not - existence of debt and dispute or not - HELD THAT:- The Petitioner has not enclosed any documents to show the existence of Financial Debt such as agreement or promissory note or letter of request or letter of acknowledgement or payment of Interest or Income Tax 26 AS Statement or other documents. He has shown only Bank entries to show that the payment is made to Corporate Debtor. On the other hand, the Respondent has stated that the amount received is for Sale of goods, for Sale of Business. The Petitioner failed to prove the debt due is financial debt and hence he cannot be considered as a Financial Creditor as per Section 5(7) of the IB Code. As per Section 7 of IB Code, only a Financial Creditor can initiate Corporate Insolvency Resolution Process. This Adjudicating Authority is of the view that the present petition filed under Section 7 of IB Code, does not qualify for admission - Petition dismissed. Issues:Initiation of corporate insolvency resolution process under Section 7 of the Insolvency and Bankruptcy Code, 2016 based on default in payment by the Corporate Debtor.Detailed Analysis:Issue 1: Initiation of CIRP under Section 7 of the IB CodeThe Petitioner, a sole proprietorship firm, filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of the corporate insolvency resolution process against the Respondent company, a textile manufacturing entity. The Petition was based on an unsecured loan of Rs. 50,00,000 provided by the Petitioner to the Corporate Debtor at 12% interest per annum, with repayment terms agreed upon but not fulfilled by the Corporate Debtor.Issue 2: Allegations and Counter-AllegationsThe Petitioner alleged non-repayment of the loan amount despite repeated requests and reminders to the Corporate Debtor. Additionally, the Petitioner highlighted discrepancies in the audited balance sheets of the Corporate Debtor, indicating non-disclosure of the debt owed to the Petitioner. In response, the Respondent denied the allegations, accusing the Petitioner of attempting to take over the company unlawfully and causing damage to the manufacturing unit.Issue 3: Defenses Raised by the RespondentThe Respondent contended that the Petitioner, along with others, engaged in fraudulent activities by entering into an agreement for the takeover of the company but failing to fulfill payment obligations. The Respondent further argued that the Petitioner's actions led to structural damages and unauthorized sale of machinery, refuting the claim of being a Financial Creditor.Issue 4: Rebuttal and Submission of DocumentsThe Petitioner refuted the Respondent's claims through written submissions, emphasizing that the agreement for the company's takeover was irrelevant to the financial debt owed. The Petitioner also clarified that the police complaint submitted by the Respondent did not involve the Petitioner. Moreover, the Petitioner defended the application's validity, stating that the computation of default days was not mandatory for the petition's acceptance.Issue 5: Adjudication and DecisionAfter hearing both parties and reviewing the documents, the Adjudicating Authority found the Petitioner's petition under Section 7 of the IB Code inadequate for admission. The Authority noted the lack of sufficient evidence to establish the debt as a financial debt, as required for a petitioner to be considered a Financial Creditor under the Code. Consequently, the petition was rejected, emphasizing that only a Financial Creditor can initiate the Corporate Insolvency Resolution Process under the IB Code.Conclusion:The judgment concluded by rejecting the petition under Section 7 of the IB Code, with no order as to costs. It clarified that the observations made in the order would not hinder the Petitioner from seeking recourse through other legal avenues. The Registry was directed to communicate the order to both parties for further action.