Tribunal rules against financial debt classification under Insolvency and Bankruptcy Code

The Tribunal overturned the Adjudicating Authority's decision to classify the Respondent's claim as a financial debt, ruling that it did not meet the criteria under the Insolvency and Bankruptcy Code. Additionally, the Tribunal deemed the claim inadmissible due to being filed significantly beyond the prescribed timelines of the Corporate Insolvency Resolution Process. Furthermore, the Tribunal clarified that the Resolution Professional cannot admit claims without formal submission by creditors, emphasizing adherence to the prescribed claim submission procedures outlined in the IBC. The Tribunal set aside the Adjudicating Authority's order and deemed it illegal, ultimately allowing the appeal and confirming the interim order.

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Issues Involved:
1. Whether the Respondent's claim qualifies as a financial debt.
2. Whether the claim was filed within the prescribed timelines.
3. Whether the Resolution Professional (RP) can admit claims suo motu.

Issue-wise Detailed Analysis:

1. Whether the Respondent's claim qualifies as a financial debt:
The Respondent, the State of Karnataka, extended a loan facility to the Corporate Debtor under a special incentives and concessions scheme, which included an interest-free soft loan in the nature of deferment of 75% of eligible gross Value Added Tax (VAT). The Corporate Debtor was obligated to repay the loan in 10 equal installments starting from the 11th year. The Appellant argued that the claim did not qualify as a financial debt since there was no disbursement of money and no interest charged. However, the Adjudicating Authority held that the transaction amounted to a "Financial Debt" under Section 5(8) of the Insolvency and Bankruptcy Code (IBC), stating that the definition of financial debt includes interest-free loans advanced to finance business operations. The Tribunal, however, disagreed, stating that the arrangement did not involve the time value of money and thus did not qualify as a financial debt. The Tribunal concluded that the claim might be in the nature of operational debt as defined under Section 5(21) of the Code, which includes statutory dues like VAT.

2. Whether the claim was filed within the prescribed timelines:
The Respondent filed its claim more than 800 days after the initiation of the Corporate Insolvency Resolution Process (CIRP) and almost a year after the approval of the resolution plan by the Committee of Creditors (CoC). The Tribunal noted that the Respondent failed to file its claim within the stipulated period despite public announcements and advertisements. The Tribunal referenced previous judgments, emphasizing that the CIRP is a time-bound process and late claims cannot be entertained as they would disrupt the resolution process. The Tribunal found the Respondent's claim to be belated and thus not admissible.

3. Whether the Resolution Professional (RP) can admit claims suo motu:
The Tribunal clarified that the RP cannot admit claims suo motu without a formal claim being submitted by the creditors. The IBC and its regulations prescribe the procedure for submitting claims, which must be followed. The Tribunal emphasized that every claim must be submitted with proof in the prescribed forms (Form-B for operational creditors and Form-C for financial creditors). The Tribunal concluded that the RP does not have the authority to admit claims without them being formally filed.

Conclusion:
The Tribunal set aside the order passed by the Adjudicating Authority, which had directed the RP to admit the Respondent's claim as a financial creditor and to consider the reconstitution of the CoC. The Tribunal found the order to be illegal and unjustifiable, allowing the appeal and making the interim order dated 03.08.2021 absolute.

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