Appeal Dismissed in CIRP Case Due to Lack of Authorization, Caution Urged in IBC Applications

The Tribunal dismissed the Appeal, upholding the decision of the Adjudicating Authority. The application for Corporate Insolvency Resolution Process (CIRP) was found to lack proper authorization from the Financial Creditor. The Loan Agreement's genuineness was questioned due to discrepancies in dates, and collusive transactions with internal dealings were identified, leading to the conclusion that the transactions did not constitute a financial debt as defined in the Insolvency and Bankruptcy Code. The Appeal was dismissed, emphasizing caution in admitting applications under the IBC to prevent encouraging recovery proceedings.

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Issues Involved:
1. Authorization for initiating CIRP.
2. Genuineness of the Loan Agreement.
3. Discrepancies in the Petition and Demand Notices.
4. Collusive transactions and internal dealings.
5. Definition and existence of Financial Debt.

Detailed Analysis:

1. Authorization for Initiating CIRP:
The Learned Adjudicating Authority dismissed the application on the ground that the 'Financial Creditor' never authorized the Director to initiate CIRP against the 'Corporate Debtor.' The CIRP was initiated without proper authorization.

2. Genuineness of the Loan Agreement:
The Loan Agreement dated 02.12.2015 was questioned due to the disbursement occurring on 07.11.2015, raising doubts about the transaction's genuineness. The Respondent contended that the Loan Agreement was fabricated, as the disbursement date preceded the agreement date. The Appellant argued that the loan was provided till 11.01.2018, reflected in bank statements, and confirmed by the Respondent's accounts for FY 2015-16, 2016-17, and 01.04.2017 to 31.01.2018.

3. Discrepancies in the Petition and Demand Notices:
The Petition had inconsistent and inaccurate information, with discrepancies in the Demand Notices issued prior to the actual 'dates of default.' The Appellant issued a Demand Notice on 06.05.2019 and a revised one on 13.05.2019, calling upon the 'Corporate Debtor' to repay the outstanding amount. The Respondent replied on 15.05.2019, declining repayment and terming the borrowing transaction as 'Improper.'

4. Collusive Transactions and Internal Dealings:
The Respondent argued that the transactions were collusive, involving circular transactions between the Appellant and 'Satra Group.' The Hon'ble Supreme Court in 'Phoenix ARC Pvt. Ltd. Vs. Spade Financial Services Ltd.' observed that collusive transactions do not constitute 'financial debt.' The Bank Statements reflected maximum transactions with 'Satra Group' entities, indicating internal dealings. The Appellant failed to rebut the Respondent's claims of regular internal transactions with documentary evidence.

5. Definition and Existence of Financial Debt:
The Appellant argued that the existence of debt and default should be the primary consideration as per 'M/s. Innoventive Industries' and other judgments. However, the Tribunal noted that the transactions between the parties were not genuine financial debts but collusive in nature. The definition of 'Financial Debt' under Section 5(8) of the Code was not satisfied. The Tribunal emphasized caution in admitting applications under IBC to avoid encouraging recovery proceedings.

Conclusion:
The Tribunal dismissed the Appeal, confirming the Impugned Order of the Learned Adjudicating Authority. The Appellant failed to prove that the transaction in question was a 'Financial Debt' as defined in the Code. The Tribunal did not delve into the technicalities of authorization or the genuineness of the MOU due to the primary issue of collusive transactions. The Registry was directed to upload the Judgment on the Tribunal's website and send a copy to the Learned Adjudicating Authority.

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