2021 (10) TMI 116 - AT - Insolvency and Bankruptcy

Appeal Dismissed: Appellant Not 'Financial Creditor' under Insolvency & Bankruptcy Code

The appeal was dismissed by the Tribunal as it found that the Appellant did not meet the criteria of a 'financial creditor' under the Insolvency and ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Debt or not - Financial creditors or not - liability of respondent to repay the deposit along with interest under Sections 73 and 74 of the Companies Act, 2013, and interest was to be paid at the rate of 18% as per Rule 17 of the Companies (Acceptance of Deposits) Rules 2014 - HELD THAT:- It is clear from definition given in Section 3(11) that debt is a much bigger set of financial liabilities, whereas “financial debt” is only a subset of the overall set of debt. Moreover, Section 5(8) defines ‘financial debt’ to mean a debt along with interest which is disbursed against the consideration for the time value of money, where money should necessarily be borrowed against the condition of time value of money. Under Section 5(7), ‘financial creditor’ is a person to whom ‘financial debt’ is owed or to whom such debt has been legally assigned or transferred to - The Appellant has nowhere been able to show any document that there was a financial contract to borrow by the Corporate Debtor by the Respondent – Corporate Debtor, in which refund of principal amount alongwith interest was included explicitly. We are, therefore, not persuaded by the contention of the Appellant that there was a time value of money attached with the deposited which was established through a prior contract before the principal amount was deposited for purchasing of shares by the Appellant with the Respondent. Moreover, the amount deposited should be a credit to be used by the Respondent-Corporate Debtor for the growth of his enterprise. The Appellant has not given any document or argument to show that the amount deposited by him was to be used by the Respondent for establishing or running his business. The appeal, therefore, does not need consideration and is dismissed at the stage of admission. Issues:1. Maintainability of the appeal under Section 7 of the Insolvency and Bankruptcy Code, 2016.2. Interpretation of 'financial debt' and 'financial creditor' under the IBC.3. Claim for interest on principal amount under the Companies Act, 2013.Issue 1: Maintainability of the appeal under Section 7 of the Insolvency and Bankruptcy Code, 2016:The appeal was filed by the Appellant against the order of the Adjudicating Authority, which held that the default in payment of interest by the Respondent did not fall under the definition of 'financial debt' as per the IBC. The Appellant contended that the Respondent failed to pay interest on the principal amount refunded, amounting to a financial debt. However, the Adjudicating Authority found that the Appellant did not meet the criteria of a 'financial creditor' under the IBC due to the absence of a financial contract or agreement establishing the interest as a financial debt.Issue 2: Interpretation of 'financial debt' and 'financial creditor' under the IBC:The Appellant argued that the interest on the principal amount constituted a financial debt under Rule 17 of the Companies (Acceptance of Deposit) Rules, 2014, and should be refunded by the Respondent. The Appellant presented various documents, including notices from the Income Tax Department and ROC, to support the claim for interest payment. However, the Tribunal noted that the Appellant failed to provide a financial contract or agreement demonstrating that the interest was disbursed against consideration for the time value of money, as required by the definition of 'financial debt' under the IBC.Issue 3: Claim for interest on principal amount under the Companies Act, 2013:The Appellant relied on Sections 73 and 74 of the Companies Act, 2013, to assert that the Respondent was obligated to repay the deposit along with interest. Despite providing documentary evidence and correspondence indicating the expectation of interest payment, the Appellant could not establish the existence of a financial contract between the parties that would categorize the interest as a financial debt under the IBC. Consequently, the Tribunal dismissed the appeal at the admission stage, citing the lack of intervention required in the impugned order and no basis for considering the appeal further.