2022 (2) TMI 418 - Tri - Insolvency and Bankruptcy

Tribunal classifies Promissory Note as Financial Debt under IBC, 2016

Vintage Footwear Private Ltd. Versus I World Business Solutions Pvt. Ltd.

The Tribunal determined that the amount claimed under the Promissory Note qualifies as a Financial Debt under Section 8 Clause (c) of the IBC, 2016. ... Financial Debt or not - amount claimed under the Promissory Note - whether the Board of Director of Corporate Debtor was authorized to borrow the loan from the applicant or note? - HELD THAT:- A bare perusal of the provision of Section 5 sub-Section 8 of IBC, 2016, any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument comes under the definition of Financial Debt. On conjoint reading of the two provisions of Section 4 and section 13 of the Negotiable Instrument Act, show that Promissory note comes under category of any of similar instrument. Hence the Promissory Notes comes under the definition of Financial Debt under Section 5 sub-Section 8(5) of the IBC, 2016, hence, we are of the considered view that the Promissory note comes under the definition of Financial Debt. Non-submission of the Board Resolution regarding the authorization to borrow the loan - HELD THAT:- Admittedly, that has not been placed by the applicant but the applicant has referred to page 57 Annexure-A7 which shows that the confirmation of amount from 01st April 2019 to 31st March, 2020 is made by the authorized signatory of the Corporate Debtor and as per the books of account, the balance is of ₹ 1,77,46,750/- as on 31st March, 2020 - for the purpose of issuance of summons under Section 7, the Adjudicating Authority requires to establish this fact that whether an amount is a Financial Debt and is their any default in payment of the Financial Debt? Since the applicant has convinced the Bench that the Promissory note comes under the definition of Financial Debt, and there is default in payment of debt, therefore, we think it proper to issue a notice upon the Respondent - Notice be issued upon the Respondent by all modes including email id of the respondent, affidavit of service be filed within a week from today. List the matter on 11.03.2022. Issues:1. Whether the amount claimed under the Promissory Note constitutes a Financial DebtRs.2. Whether the Board of Director of Corporate Debtor was authorized to borrow the loan from the applicantRs.Analysis:1. The Tribunal heard arguments regarding the nature of the amount claimed under the Promissory Note and its classification as a Financial Debt. The applicant's counsel argued that the amount claimed falls under the definition of Financial Debt as per Section 8 Clause (c) of the IBC, 2016, considering the Promissory Note as an instrument under the N.I. Act. The Tribunal referred to the relevant provisions and concluded that the Promissory Note indeed falls under the definition of Financial Debt, leading to the decision to issue a notice to the Respondent.2. The Tribunal addressed the issue of the absence of a Board Resolution authorizing the loan borrowing. While the Board Resolution was not submitted, the applicant referred to confirmation of the debt in the Corporate Debtor's balance sheet. The Tribunal emphasized the need to establish whether the amount qualifies as a Financial Debt and if there is a default in payment. Since the applicant successfully demonstrated that the Promissory Note meets the criteria of Financial Debt and there was a default in payment, the Tribunal decided to issue a notice to the Respondent.3. The Tribunal highlighted the importance of establishing the nature of the debt and any defaults before issuing summons under Section 7. Considering the arguments presented by the applicant, the Tribunal found it appropriate to issue a notice to the Respondent, directing service through various modes including email. An affidavit of service was required to be filed within a week, and the matter was listed for further proceedings on a specified date.