2023 (2) TMI 73 - AT - Insolvency and Bankruptcy

Tribunal Upholds Financial Creditor's Section 7 Application under I&B Code

Priyal Kantilal Patel Versus IREP Credit Capital Pvt. Ltd. & Anr.

The appeal was dismissed by the Tribunal, upholding the order admitting the Section 7 Application by the Financial Creditor under the I&B Code, 2016. ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - HELD THAT:- When we look into the Part-IV of Section 7 Application, in the Application the Financial Debt as was originally claimed in the earlier application has been claimed. The Application is not founded only on the default of the consent terms rather application is founded on the original financial debt which was extended by the financial creditor to the corporate debtor. Present is not a case where Section 7 Application has been filed only on the ground of default in the settlement agreement rather section 7 application has been filed on the basis of original financial debt which was extended by the Financial Creditor to the Corporate Debtor. The mere fact that in earlier company petition, consent terms was arrived, which consent terms was breached by the corporate debtor, the financial debt which was claimed by the financial creditor would not be wiped out nor the nature and character of financial debt shall be changed on account of breach of the consent terms. Permitting such interpretation shall be giving premium to the corporate debtor who breach the consent terms. It is relevant to notice that in clause 9 of the consent terms there was clear stipulation that financial creditor shall be entitled to revive the company petition, the mere fact that instead of reviving company petition, a fresh company petition has been filed under section 7 shall not be reason to reject the company petition and not to entertain the said company petition. The second submission of Learned Counsel for the appellant that the application could not have been filed under section 7 by the financial creditor, there is no dispute that financial creditor has extended financial benefits to the corporate debtor - HELD THAT:- The mere fact that the majority debenture holders have not initiated any section 7 application shall not preclude the financial creditor who was entitled to initiate section 7 application on its own right. There are no substance in the submission of learned counsel for the Appellant. It shall be open for the appellant, in event, settlement is entered between the parties, to file Application under Section 12-A of the I&B Code, 2016 - appeal dismissed. Issues:Admission of Section 7 Application based on breach of consent terms, maintainability of Section 7 application due to breach of consent terms, nature of debt claimed in Section 7 Application, reliance on previous judgments, entitlement of financial creditor to initiate Section 7 application.Analysis:The appeal was filed against the order admitting a Section 7 Application by the Financial Creditor under the I&B Code, 2016, based on a breach of consent terms. The Financial Creditor had initially filed an application under Section 7, but a consent terms agreement was reached, leading to the withdrawal of the original Company Petition. However, when the consent terms were breached by the Corporate Debtor, instead of reviving the earlier petition, a fresh one was filed, which was admitted by the Adjudicating Authority, leading to the appeal.The Appellant argued that the breach of consent terms did not give the right to initiate a Section 7 Application as it does not constitute financial debt. They relied on previous judgments to support their position. The Respondent contended that the nature of debt claimed remained financial, and the fresh application was valid, given the terms of the consent agreement.The Tribunal examined the consent terms and the details of the financial debt claimed in the Section 7 Application. It noted that the application was based on the original financial debt extended by the Financial Creditor, not just the breach of consent terms. The Tribunal distinguished the present case from the judgments relied upon by the Appellant, emphasizing that the nature of the financial debt was not altered by the breach of consent terms.Regarding the entitlement of the Financial Creditor to file the Section 7 Application, the Tribunal held that the majority debenture holders' inaction did not preclude the Financial Creditor from initiating the application independently. The Tribunal dismissed the appeal, stating that if a settlement was reached, the parties could file an application under Section 12-A of the I&B Code. The impugned order admitting the Section 7 Application was upheld, finding no error in the decision.