2022 (2) TMI 68 - AT - Insolvency and Bankruptcy

Tribunal upholds dismissal of appeal due to lack of financial debt & default under IBC.

Surinder Kumar Singal Versus M/s Aarkay Innovations Limited

The Tribunal affirmed the order rejecting the application filed by the Appellant under Section 7 of the Insolvency and Bankruptcy Code, finding no merit ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - recovery of an amount deposited towards the promoter’s contribution - existence of debt and dispute or not - HELD THAT:- The Appellant has filed incomplete Application without information provided under Clause 3, 5 and 6 of Part I and Clause 5, 6 and 7 of Part V. Further information under Clause 1 of Part IV is wrong as no amount of debt has been granted. Even otherwise as per statement at page No. 59 & 60 of the Appeal, the total amount deposited is stated to be ₹ 3.85 Crores and not ₹ 1.95 Crore which is mentioned at page 43 of the Appeal. No information about workings for computation of amount and days of default in tabular form in Clause 2 of Part IV. No document specified under rule 3(1)(d) of IBC (Application to Adjudicating Authority) Rules, 2016 and Regulation 2A and 8(2) of IBBI Regulations 2016 to prove the existence of financial debt, the amount and date of default. It is also an admitted fact that no evidence/records have been placed to satisfy the three essential ingredients namely a) Disbursal of loan amount. b) Such disbursal was for a consideration for time value of money. c) A default has arisen either in repayment of whole or in part. No mandatory information/ documents/ evidence required under Clause 3 to 8 of Part-V of Form-1 have been placed. No documents/evidence were placed to prove that the Respondent Company borrowed the alleged unsecured loan from the Appellant. It is also an admitted fact that there are no documents/records to prove that the Appellant is a Financial Creditor. The Appellant stated that the Audited Balance Sheets and other documents mentioned in para 8 of Part-V of the Application prove beyond doubt that two ingredients of IBC Application i.e. Debt and Default are fully stratified. Meaning thereby, there was no Financial Debt defined under Section 5(8) of IBC - the audited Balance Sheets also do not prove the existence of financial debt and default defined under Section 3(12) of IBC. These Balance Sheets do not prove that the whole loan or its instalment when became due and payable and the same is/are not repaid. There is no ‘debt’ and ‘default’ proved by the Appellant in the instant Appeal. Thus, there is no illegality committed by the Ld. Adjudicating Authority while passing the impugned order - appeal dismissed. Issues Involved:1. Whether the unsecured loan given by the Appellant qualifies as 'financial debt' under Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (IBC).2. Whether the Appellant can be considered a 'financial creditor' under Section 7 of the IBC.3. Whether the application filed by the Appellant under Section 7 of the IBC was complete and substantiated with necessary evidence.4. Whether there was a 'debt' and 'default' as required under the IBC.Issue-wise Detailed Analysis:1. Whether the unsecured loan given by the Appellant qualifies as 'financial debt' under Section 5(8) of the IBC:The Appellant argued that the unsecured loan given to the Respondent qualifies as 'financial debt' since the Respondent had been paying interest on the loan and deducting TDS on the interest paid. The Appellant relied on the judgment in 'Shailesh Sangani Vs. Joel Cardoso & Anr.' where it was held that the disbursement of debt should be against consideration for the time value of money. However, the Tribunal noted that the absence of a loan agreement or board resolution setting out the terms and conditions of the loan made it difficult to establish that the unsecured loan falls within the scope of 'financial debt' as defined under Section 5(8) of the IBC.2. Whether the Appellant can be considered a 'financial creditor' under Section 7 of the IBC:The Respondent contended that the Appellant, being a promoter, director, and guarantor, misused the provisions of Section 7 of the IBC to enforce the recovery of an amount deposited as promoter's contribution. The Tribunal found that the Appellant had concealed material facts such as his role as a promoter and director and the nature of the amount deposited. The Tribunal concluded that the Appellant failed to prove that he is a 'financial creditor' as defined under Section 7 of the IBC.3. Whether the application filed by the Appellant under Section 7 of the IBC was complete and substantiated with necessary evidence:The Tribunal observed that the application filed by the Appellant was incomplete and lacked necessary information and documents. The Appellant did not provide information under specific clauses of Part I and Part V of the application form. The Tribunal also noted discrepancies in the amount stated as outstanding and the lack of evidence to prove the disbursement of the loan amount. The Tribunal emphasized that no mandatory information or documents required under the IBC rules and regulations were provided to prove the existence of financial debt and default.4. Whether there was a 'debt' and 'default' as required under the IBC:The Tribunal found that no evidence or records were placed to satisfy the essential ingredients of disbursal of loan amount, consideration for the time value of money, and default in repayment. The Tribunal referred to the judgment in 'M/s Innoventive Industries Ltd. Vs. ICICI Bank & Anr.' where it was held that a debt may not be due if it is not payable in law or in fact. The Tribunal concluded that there was no 'debt' and 'default' proved by the Appellant in the instant appeal.Order:The Tribunal affirmed the order dated 12.01.2021 passed by the National Company Law Tribunal, Chandigarh Bench, rejecting the application filed by the Appellant under Section 7 of the IBC. The Tribunal found no merit in the appeal and dismissed it, stating that there was no illegality in the impugned order. The Registry was directed to upload the judgment on the website of the Appellate Tribunal and send a copy to the Adjudicating Authority.This summary provides a comprehensive analysis of the issues involved in the legal judgment, preserving the original legal terminology and significant phrases from the text.