2022 (1) TMI 1136 - AT - Insolvency and Bankruptcy

Tribunal upholds appeal under Section 7 of Insolvency and Bankruptcy Code

The tribunal dismissed the appeal, ruling that the application under Section 7 of the Insolvency and Bankruptcy Code was filed within the limitation ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - accrual of right to apply - amount of interest which was payable on 30th June, 2015 was not paid by the Corporate Debtor - time limitation for filing an Application under Section 7 of the Code - Insufficiently stamped documents - admissible evidence or not - HELD THAT:- Section 7 (1) of the Code provides that a Financial Creditor may file an Application for initiating ‘Corporate Insolvency Resolution Process’ against the Corporate Debtor before the Adjudicating Authority when a default has occurred. The definition of Debt under Section 3(12) of the Code the expression used is ‘Default means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid’ - In the present case, non-payment of amount of interest on 30th June, 2015 was non-payment of part of debt since interest was also part of debt. The submissions of Learned Sr. Counsel for the Appellant is agreed upon that there was default when interest was not paid on 30th June, 2015. When a Financial Creditor has not filed the Application on first default i.e. payment of interest whether he is precluded to file Application for subsequent defaults i.e. when default is committed for an instalment or for whole debt when it becomes due? - HELD THAT:- The Financial Creditor is at liberty to file Section 7 Application but is neither mandatory nor necessary that on first default Financial Creditor should rush to the Insolvency Court. Financial Creditor may await and give more time to Corporate Debtor to find out as to whether actually the Corporate Debtor has become insolvent and unable to repay the debt and even Financial Creditor ignores non-payment of interest when the Corporate Debtor first defaulted it shall not lose its right to file Application under Section 7 of the Code when default of instalment or whole amount became due. The only statutory requirement is that default as claimed in the Application under Section 7 should be within three years from the date when application is filed under Section 7 of the Code because any default of amount committed before three years of filing of the Application shall become time barred debt and cannot be said to be payable and due within the meaning of Section 3(11) and Section 3(12) of the Code. Hon’ble Supreme Court of India in B.K. EDUCATIONAL SERVICES PRIVATE LIMITED VERSUS PARAG GUPTA AND ASSOCIATES [2018 (10) TMI 777 - SUPREME COURT] had occasion to consider the law of limitation in reference to Insolvency and Bankruptcy Code and Section 3(11) and 3(12). Hon’ble Supreme Court held that Financial Creditor or Operational Creditor can initiate an application with relation to debt which has not become time barred. Thus, non-filing of the Application under Section 7 of the Code by the Appellant on default of interest which occurred on 30th June, 2015 shall not foreclose the right of the Financial Creditor to file an Application under Section 7 of the Code when default on first instalment occurred on 30th November, 2015 and when entire loan became due by notice dated 05.01.2017 - Appellant has not claimed in Section 7 Application the amount of defaulted interest on 30th June, 2015. Thus the Application filed by the Financial Creditor under Section 7 claiming amount of default of the first instalment and default of the entire loan which occurred on 30th November, 2015 and 01st February, 2017 was well within time which has been filed on 28th November, 2018. The submission of Mr. Ramji Srinivasan, Sr. Advocate that no date of default has been given in Part-IV of Section 7 Application is not correct when Item 2 of Part-IV is read, it is clear that computation of amount from the date of default as on 31st October, 2018 in tabular form was from 30th November, 2015 thus 30th November, 2015 was clearly indicated as date of default under Section 7 Application. Insufficiently stamped documents - admissible evidence or not - HELD THAT:- The Supreme Court in N.N. GLOBAL MERCANTILE PVT. LTD. VERSUS INDO UNIQUE FLAME LTD. AND ORS. [2021 (1) TMI 1121 - SUPREME COURT] held under the Maharashtra Stamp Act, 1958 the work order is chargeable to extend stamp duty hence till the stamp duty is paid work order remain enforceable. The present is not a case where proof of financial debt by financial Creditor was only the Facility Agreement dated 22nd May, 2013 and 19th August, 2013, other materials including Registered Mortgage Deed clearly proved the financial debt. Furthermore, present is a case where Corporate Debtor has not denied receiving of Financial Facility as extended by Standard Chartered Bank and there is no denial of disbursement of 5 million dollars in three tranches and there was sufficient material before the Adjudicating Authority to come to the conclusion that default has been committed in payment of debt. The decision of the Adjudicating Authority that Corporate Debtor has committed default is not vitiated which was fully supported by the materials on record even if Facility Agreement dated 22nd May, 2013 and 19th August, 2013 are ignored. The Corporate Debtor has taken a Financial Benefits from Standard Chartered Bank and obtained disbursal in three tranches of 5 Million Dollar each, which disbursements have not been denied in a pleading before the Adjudicating Authority - The submission of the Appellant that facility agreement being not stamped Section 9 Proceeding ought not to have proceeded has to be rejected - Appeal dismissed. Issues Involved:1. Limitation for filing an application under Section 7 of the Insolvency and Bankruptcy Code (IBC).2. Admissibility of unstamped documents as evidence in proving financial debt.Detailed Analysis:1. Limitation for Filing an Application Under Section 7 of the IBC:The primary issue was whether the application filed under Section 7 of the IBC was barred by limitation. The appellant argued that the right to apply accrued when the first default occurred, which was the non-payment of interest on 30th June 2015. Since the application was filed on 28th November 2018, it was contended to be beyond the three-year limitation period.The tribunal noted that the Facility Agreement dated 22nd May 2013, and the Supplemental Agreement dated 19th August 2013, stipulated that the repayment of the loan would start 27 months from the first disbursement date, which was 30th August 2013. Thus, the first installment became due on 30th November 2015. The tribunal held that the application was filed within three years from the default on the first installment and the acceleration notice dated 5th January 2017, making the entire loan due.The tribunal emphasized that the IBC does not mandate that the application must be filed on the first default. A financial creditor can file an application for subsequent defaults as long as it is within three years from the date of default claimed in the application. The tribunal relied on the Supreme Court's judgment in 'B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta & Associates' [(2019) 11 SCC 633], which held that the right to sue accrues when a default occurs, and an application filed beyond three years from the date of default would be barred by limitation.2. Admissibility of Unstamped Documents as Evidence:The appellant contended that the Facility Agreement and the Supplemental Agreement were insufficiently stamped and, therefore, inadmissible as evidence. The tribunal acknowledged that these documents were not duly stamped but noted that other substantial evidence was available to prove the financial debt.The tribunal referred to the Registered Mortgage Deed entered between the parties on 26th June 2013, which was duly stamped and registered, evidencing the financial facility. The tribunal also considered the correspondences between the parties and the No-Objection Certificate from the Reserve Bank of India, which supported the existence of the financial debt.The tribunal cited the Supreme Court's judgment in 'M/s. Innoventive Industries Ltd. Vs. ICICI Bank Ltd. and Anr.' [(2018) 1 SCC 407], which stated that in cases of financial debt default, the adjudicating authority must see the records and other evidence produced by the financial creditor to satisfy itself that a default has occurred. The tribunal concluded that there was sufficient material on record to prove the financial debt and default, even if the unstamped Facility Agreement and Supplemental Agreement were ignored.Conclusion:The tribunal dismissed the appeal, holding that the application under Section 7 of the IBC was filed within the limitation period and that sufficient evidence existed to prove the financial debt and default, notwithstanding the unstamped documents. The tribunal emphasized that the IBC aims for the resolution of insolvency and not merely for the recovery of debts, allowing financial creditors to file applications for subsequent defaults within the limitation period.