2022 (8) TMI 230 - AT - Insolvency and Bankruptcy

Tribunal affirms Financial Creditor status under I&B Code, dismisses fraud claims

The Tribunal concluded that the Respondents qualified as Financial Creditors under the I&B Code, 2016 based on loan agreements and financial ... Financial Creditor - Financial Debt - Default - Admission of application under Section 7 - Information Utility evidence - Moratorium under Section 14 - Summary jurisdiction of the Adjudicating Authority - Collusion/fraud not to be gone into at the admission stageFinancial Creditor - Financial Debt - Default - Admission of application under Section 7 - Information Utility evidence - Respondents qualify as Financial Creditors, a financial debt is established and default has occurred such that the Adjudicating Authority rightly admitted the Section 7 application and initiated CIRP. - HELD THAT: - The Tribunal examined the Form-1, the loan agreements dated 04.12.2019 and the record of the National e-Governance Services Limited (information utility). The Form-1 and the loan agreements expressly recorded the amounts, the repayment date (on or before 31.12.2019) and signatures of the parties. The information utility's Form-C corroborated the existence of the contract and the sanctioned amount. In view of the statutory definitions of 'debt', 'default', 'financial creditor' and 'financial debt', the Respondents fell within the definition of Financial Creditors and the liability constituted a financial debt. Having regard to the authenticated records of the information utility and the loan documents, the Adjudicating Authority was satisfied that a default had occurred and rightly admitted the application under Section 7 and imposed moratorium under Section 14 thereby initiating CIRP. [Paras 14, 16, 19, 21, 23]The admission under Section 7 was correct; debt and default are established and the CIRP initiation was valid.Information Utility evidence - Summary jurisdiction of the Adjudicating Authority - Records of an information utility constitute legally authenticated evidence for the limited purpose of satisfying the Adjudicating Authority that a debt and default exist. - HELD THAT: - The Tribunal analysed the statutory role and obligations of an information utility under the I&B Code and its regulations, noting that such utilities create and store financial information and provide access thereto. The National e-Governance Services Limited's certificate in Form-C is an authenticated record under Chapter V of the Code and may be relied upon by the Adjudicating Authority to satisfy itself about the existence of debt and default when admitting an application under Section 7. [Paras 14, 15, 16]The information utility record is admissible and sufficient evidence for the Adjudicating Authority to conclude that a debt and default exist for admission purposes.Summary jurisdiction of the Adjudicating Authority - Collusion/fraud not to be gone into at the admission stage - Allegations of collusion, fraud or detailed scrutiny of underlying transactions are beyond the scope of the Adjudicating Authority's enquiry at the admission stage under Sections 7, 9 or 10. - HELD THAT: - The Tribunal reiterated the limited, summary character of the Adjudicating Authority's jurisdiction when entertaining applications under the Code: its task is to see whether a debt is payable and a default has occurred. Detailed inquiries into collusion or fraud, or protracted factual disputes, fall outside the admission stage and are to be examined at appropriate later stages of the insolvency process or in other fora. The Appellants' contentions of collusion and the demand for production of bank transfer entries were therefore not a ground to negate admission once the information utility records and loan agreements established debt and default. [Paras 20, 21]Claims of collusion/fraud do not defeat admission where debt and default are established by the records; such matters are not to be gone into at the admission stage.Final Conclusion: The Tribunal held that the Respondents are Financial Creditors, the financial debt and default were established by loan agreements and the information utility records, and the Adjudicating Authority correctly admitted the Section 7 application and initiated CIRP; the appeal is dismissed with parties to bear their own costs. Issues Involved:1. Whether the Respondents qualify as Financial Creditors under the I&B Code, 2016.2. Whether there exists a debt and if any default occurred.3. Allegations of collusion and fraud by the Respondents.4. The applicability of penalties under Section 65 of the I&B Code, 2016.5. Admissibility of the application for initiation of CIRP under Section 7 of the I&B Code, 2016.Issue-wise Detailed Analysis:1. Whether the Respondents qualify as Financial Creditors under the I&B Code, 2016:The Tribunal examined the loan agreements dated 04.12.2019, which were executed between the Respondents and the Corporate Debtor. It was observed that the loan agreements specified the amounts and repayment terms, confirming the Respondents as Financial Creditors. The agreements were signed by both parties, and the National e-Governance Services Limited's records corroborated the financial transactions. The Tribunal concluded that the Respondents are Financial Creditors as per Section 5(7) and 5(8) of the I&B Code, 2016.2. Whether there exists a debt and if any default occurred:The Tribunal reviewed the financial debt amounting to Rs.34,73,54,802/- and noted that the debt was to be repaid by 31.12.2019. The default was established through the loan agreements and the certificate from the National e-Governance Services Limited. The Tribunal confirmed that the debt and default were substantiated by the records, fulfilling the criteria under Section 3(11) and 3(12) of the I&B Code, 2016.3. Allegations of collusion and fraud by the Respondents:The Appellants alleged that the loan agreements were executed fraudulently and with malicious intent. However, the Tribunal held that the NCLT, exercising its summary jurisdiction, cannot delve into allegations of collusion or fraud. The primary focus is on whether the debt is payable and if a default has occurred. The Tribunal found no substantial evidence to support the claims of collusion and fraud.4. The applicability of penalties under Section 65 of the I&B Code, 2016:The Appellants argued that the initiation of CIRP by the Respondents was with malicious intent and should be penalized under Section 65 of the I&B Code, 2016. However, the Tribunal did not find any merit in this argument, as the debt and default were clearly established. The Tribunal emphasized that the Adjudicating Authority's role is to verify the existence of debt and default, not to investigate the intent behind the initiation of CIRP.5. Admissibility of the application for initiation of CIRP under Section 7 of the I&B Code, 2016:The Tribunal upheld the Adjudicating Authority's decision to admit the application under Section 7 of the I&B Code, 2016. The Adjudicating Authority had relied on Section 7(5)(a) of the Code, which mandates admitting the application if a default is established, the application is complete, and there are no disciplinary proceedings against the proposed Resolution Professional. The Tribunal found that all these conditions were met, and the application was rightly admitted.Conclusion:The Tribunal concluded that the debt and default were proven, and the Respondents qualified as Financial Creditors. The allegations of collusion and fraud were dismissed due to lack of evidence. The application for initiation of CIRP under Section 7 was found to be admissible. Consequently, the Appeal was dismissed, and the order of the Adjudicating Authority was upheld.