2023 (4) TMI 1430 - Tri - IBC

Financial creditor's Section 7 application dismissed for being filed beyond limitation period after decree execution

The NCLT dismissed a financial creditor's application under Section 7 of IBC for initiating Corporate Insolvency Resolution Process against a corporate ... Maintainability of application under Section 7 of IBC - Financial Creditor seeking initiation of Corporate Insolvency Resolution Process against Corporate Debtor - petition filed within the limitation period as prescribed under the Law or not - HELD THAT:- The decree was passed on 10.08.2015 by the Hon'ble High Court and the date of default 07.04.2016. Thus, it makes amply clear that the present application under Section 7 has been filed beyond the period of limitation and is therefore barred by limitation. Admittedly, the Applicant has initiated execution proceedings for executing a decree passed by Hon’ble High Court which is still pending and in terms of the judgment of the Hon’ble NCLAT in Deem Roll-Tech Limited vs. R.L. Steel & Energy [2017 (3) TMI 1573 - NATIONAL COMPANY LAW TRIBUNAL, NEW DELHI], the Applicant has rightly initiated against the execution proceedings before the appropriate Court and this Tribunal cannot be converted into an Executive Court. The present application filed under Section 7 of IBC is not maintainable and therefore dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe Tribunal considered the following core legal questions:(a) Whether the Applicant qualifies as a 'Financial Creditor' under Section 5(7) of the Insolvency and Bankruptcy Code, 2016 (IBC) for initiating a Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Code, given that the claim arises from a decree passed by the Hon'ble High Court.(b) Whether the application filed under Section 7 of the IBC is barred by limitation, considering the date of default and the date of filing.(c) Whether the Tribunal has jurisdiction to entertain the present application for initiation of CIRP when execution proceedings on the decree are pending before the Hon'ble High Court.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Qualification of Applicant as Financial Creditor under Section 5(7) of IBCRelevant legal framework and precedents: Section 5(7) of the IBC defines 'Financial Creditor' as any person to whom a financial debt is owed. The question arose whether a decree-holder, whose claim arises from a decree passed by a civil court, falls within this definition. The Tribunal referred to authoritative precedents including:Hon'ble NCLAT judgment in Shri Sushil Ansal vs. Ashok Tripathi & others, which held that a decree-holder does not qualify as a Financial Creditor under Section 5(7) of the IBC because the amount claimed under the decree is an adjudicated amount and not a financial debt disbursed against consideration for time value of money.Hon'ble NCLAT judgment in Digamber Bhondwe vs. JM Financial Asset Reconstruction Company Limited, which clarified that although the definition of 'Creditor' in Section 3(10) includes decree-holder, the specific provisions in Part II of the IBC dealing with CIRP under Sections 7 and 9 restrict initiation to Financial and Operational Creditors, excluding decree-holders.Court's interpretation and reasoning: The Tribunal concurred with the above precedents, emphasizing that the Applicant, being a decree-holder, does not fall within the definition of Financial Creditor under Section 5(7) of the IBC. The decree-holder's claim arises from an adjudicated amount and not from a financial debt as contemplated under the Code.Key evidence and findings: The Applicant's claim is based on a decree passed by the Hon'ble Delhi High Court pursuant to a settlement agreement. The Applicant had initiated execution proceedings before the High Court to recover the decree amount.Application of law to facts: Since the Applicant's claim is based on a decree and the Applicant is not a Financial Creditor within the meaning of Section 5(7), the Tribunal found that the application under Section 7 is not maintainable on this ground.Treatment of competing arguments: The Applicant contended that the Corporate Debtor had admitted liability under the settlement agreement and that the cause of action was continuing, thus the application was within limitation and maintainable. The Tribunal rejected this, holding that admission of liability under the settlement agreement does not convert a decree-holder into a Financial Creditor under the Code.Conclusion: The Applicant does not qualify as a Financial Creditor under Section 5(7) of the IBC and thus cannot initiate CIRP under Section 7.Issue 2: Limitation for filing the Section 7 applicationRelevant legal framework and precedents: The limitation period for filing an application under Section 7 of the IBC is three years from the date of default. The date of default is critical in determining the maintainability of the application.Court's interpretation and reasoning: The Tribunal noted that the date of default was 07.04.2016, when the cheque for Rs. 10,00,00,000 was dishonoured. The present application was filed on 15.10.2019, which is beyond the three-year limitation period.Key evidence and findings: The settlement agreement dated 11.09.2014 stipulated payment terms, including the cheque dated 31.03.2016, which was dishonoured on 07.04.2016. The application under Section 7 was filed more than three years after the default.Application of law to facts: The Tribunal applied the three-year limitation period from the date of default and concluded that the application was time-barred.Treatment of competing arguments: The Applicant argued that the cause of action was continuing due to ongoing execution proceedings and admitted liability, thus the limitation period had not expired. The Tribunal rejected this, holding that the limitation period is calculated from the date of default and cannot be extended by subsequent proceedings.Conclusion: The application under Section 7 is barred by limitation and hence not maintainable.Issue 3: Jurisdiction of the Tribunal in presence of pending execution proceedingsRelevant legal framework and precedents: Execution of decrees is governed by civil procedure rules and falls within the jurisdiction of civil courts. The Tribunal referred to the judgment in Deem Roll-Tech Limited vs. R.L. Steel & Energy, where it was held that execution of decrees is to be pursued before appropriate civil courts and not through the insolvency resolution process.Court's interpretation and reasoning: The Tribunal observed that execution proceedings on the decree were already pending before the Hon'ble Delhi High Court. Therefore, the Tribunal cannot assume the role of an executing court and entertain the present application under Section 7.Key evidence and findings: Execution Petition No. 65/2016 was pending before the Delhi High Court, and the Applicant had sought attachment of bank accounts as part of execution.Application of law to facts: The Tribunal held that since execution proceedings are pending, the appropriate remedy for recovery of the decree amount lies before the civil court, not the insolvency tribunal.Treatment of competing arguments: The Applicant sought initiation of CIRP as an alternative remedy, relying on admitted liability and continuing default. The Tribunal rejected this, emphasizing the distinct jurisdictional roles and procedural mechanisms.Conclusion: The Tribunal lacks jurisdiction to entertain the Section 7 application when execution proceedings are pending before the civil court.3. SIGNIFICANT HOLDINGSThe Tribunal made the following crucial legal determinations:'The answer to the question whether a decree-holder would fall within the definition of 'Financial Creditor' has to be an emphatic 'No' as the amount claimed under the decree is an adjudicated amount and not a debt disbursed against the consideration for the time value of money and does not fall within the ambit of any of the clauses enumerated under Section 5(8) of the 'I&B Code'.''We further reject the submission that because in Section 3(10) of I&B Code in definition of 'Creditor' the 'decree holder' is included it shows that decree gives cause to initiate application under Section 7 of I&B Code. Section 3 is in Part I of I&B Code. Part II of I&B Code deals with 'Insolvency Resolution And Liquidation For Corporate Person', & has its own set of definitions in Section 5. Section 3 (10) definition of 'Creditor' includes 'financial creditor', 'operational creditor', 'decree holder' etc. But Section 7 or Section 9 dealing with 'Financial Creditor' and 'operational creditor' do not include 'decreeholder' to initiate CIRP in Part II.''In relation to a decree obtained from a civil court the Applicant is well within its rights to have it executed before the appropriate civil court. It is therefore averred that since execution proceedings have already been pending before the Hon'ble Delhi High Court, the present application is not maintainable.'The Tribunal concluded that the application under Section 7 of the IBC was not maintainable on the grounds of limitation, lack of status as Financial Creditor, and lack of jurisdiction due to pending execution proceedings, and accordingly dismissed the application.