2021 (5) TMI 319 - Tri - Insolvency and Bankruptcy

Financial Creditor's Petition Admitted, Initiates Corporate Insolvency Resolution Process

The Financial Creditor filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the Corporate Debtor for defaulting on a ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - HELD THAT:- It is a fact that the Financial Creditor has supplied the material as per the purchase order issued by the Corporate Debtor. Due to non-payment as per the terms of the invoice, the Financial Creditor herein has converted the due amount into a loan and accordingly the Loan Agreement has been entered into between the parties on 05.03.2018 to repay the amount claimed to be in default in twelve (12) equal instalments commencing from 05.03.2018. The present Financial Creditor has supplied the goods as per the purchase order issued by the Corporate Debtor. However, the amount due under the purchase order issued by the Corporate Debtor was not paid even though the goods were supplied as per the purchase order issued by the Corporate Debtor. In view of the default, both the parties have converted the due amount into a Loan Agreement on 05.03.2018 repayable in twelve (12) instalments starting from April, 2018 to March, 2019. Thereby, the operational debt has become financial debt in view of the Agreement entered into between the parties. The Applicant filed the application under Section 7 as subsequently Loan Agreement entered into between the parties for repayment of the due amount. As such, the contention of the Corporate Debtor that it is an amount was due only for supply of goods is untenable and cannot be taken as stand for dismissing the application. Taking into account, the subsequent developments in the matter which was agreed for by both the parties. There is a financial debt which was due and not paid. Accordingly, the application has been admitted - Moratorium declared. Issues:1. Admission of petition under Section 7 of the Insolvency and Bankruptcy Code, 2016.2. Maintainability of the petition based on the nature of the alleged financial debt.3. Submission of required documents by the Financial Creditor.4. Dispute regarding the financial debt between the parties.5. Conversion of operational debt into financial debt through a Loan Agreement.6. Decision on the admission of the petition and declaration of moratorium.Issue 1: Admission of petition under Section 7 of the Insolvency and Bankruptcy Code, 2016:The petition was filed by the Financial Creditor alleging default by the Corporate Debtor in repaying a substantial sum, seeking admission under Section 7 of the IBC. The Financial Creditor provided detailed averments regarding the transaction history, including a Purchase Order for supply of goods, subsequent non-payment, and conversion of the due amount into a Loan Agreement.Issue 2: Maintainability of the petition based on the nature of the alleged financial debt:The Corporate Debtor contested the maintainability of the petition, arguing that the transaction did not constitute financial debt as per Section 7(1) of the IBC. The Financial Creditor's submission highlighted the conversion of operational debt into financial debt through the Loan Agreement, which was crucial in establishing the basis for the petition.Issue 3: Submission of required documents by the Financial Creditor:The Corporate Debtor raised a procedural issue, stating that the Financial Creditor failed to submit the necessary records with the information utility as mandated. However, the Tribunal noted that despite this lapse, the subsequent Loan Agreement and the conversion of the debt justified the admission of the petition.Issue 4: Dispute regarding the financial debt between the parties:The Corporate Debtor denied the averments made by the Financial Creditor, claiming that the petition was an abuse of process of law. The Financial Creditor maintained that there was no dispute regarding the financial debt and proceeded with the application for recovery of dues based on the Loan Agreement.Issue 5: Conversion of operational debt into financial debt through a Loan Agreement:The Tribunal observed that the initial transaction for the supply of goods evolved into a Loan Agreement due to non-payment by the Corporate Debtor. This conversion of operational debt into financial debt was crucial in establishing the validity of the petition and the Financial Creditor's right to seek recovery through the insolvency process.Issue 6: Decision on the admission of the petition and declaration of moratorium:After considering the submissions and documents provided, the Tribunal admitted the petition under Section 7 of the IBC. A moratorium was declared, prohibiting legal actions against the Corporate Debtor, appointing an Interim Resolution Professional, and outlining the necessary steps for the Corporate Insolvency Resolution Process.This detailed analysis of the judgment highlights the key legal arguments, procedural aspects, and decision-making process involved in the case before the National Company Law Tribunal, Hyderabad Bench.