2024 (4) TMI 1377 - Tri - IBC

Acknowledgement of financial debt in a restructuring preserves creditor rights and permits insolvency proceedings on default.

The note addresses when a repayment restructuring and settlement preserve the underlying loan as a financial debt, concluding that an agreement which ... Financial debt - default - settlement/restructuring agreement - liberty to revive or file fresh petition - admissibility u/s 7 of the IBC - limitation and acknowledgment of debt - real estate company not immune from CIRP - moratorium - appointment of Interim Resolution Professional - HELD THAT:- There are many insolvency proceedings which are also pending against Corporate Debtor. As such, Corporate Debtor should be immediately put into CIRP, otherwise, there will be further depletion of its assets, properties and funds. The Code does not bar commencement of CIRP against a real estate company. No hesitation to hold that the Financial Creditor was well within its right to file the petition under section 7 of the Code after the Corporate Debtor defaulted to pay its dues in terms of the settlement deed referred hereinabove. It is the stand taken on behalf of Corporate Debtor that section 7 is not a remedy since there is no disbursement of debt is legally untenable. The debt that has been has been claimed is on the amount that was disbursed as loan and not the amount in the Deed of Settlement, hence, the amount claimed falls under the definition of financial debt. The Corporate Debtor in its own submissions has stated that due to the ill health of in Director, the Corporate Debtor has not adhered to the timelines of the Deed of Settlement, hence the Corporate Debtor has defaulted in payment. Thus, it is clear that there is a debt and default. With respect to the issue of limitation, it is seen that the Corporate Debtor has acknowledged the debt and as such the petition is within limitation period. The Company Petition made by the Financial Creditor is complete in all respects as required by law. The Petition and the submissions establish that the Corporate Debtor is in default of a debt due and payable and that the default is more than the minimum amount stipulated under section 4 (1) of the Code, stipulated at the relevant point of time. I.A. (IB) No. 1920/KB/2023 is hereby dismissed. Issues: (i) Whether the claim of the Financial Creditor constitutes a 'financial debt' within the meaning of the Insolvency and Bankruptcy Code, 2016; (ii) Whether the Financial Creditor was entitled to file a fresh petition under section 7 despite earlier withdrawal/settlement and whether the present petition is maintainable; (iii) Whether CIRP initiation is barred because the Corporate Debtor is a real estate company or solvent.Issue (i): Whether the claim of the Financial Creditor constitutes a financial debt.Analysis: The parties executed a restructuring/settlement acknowledging an outstanding principal and an entitlement to interest; the restructuring recorded the original loan and provided a repayment schedule, with clause acknowledging the amount as a financial debt. Prior authorities distinguishing cases where settlement alone created the claimed obligation were considered and contrasted with situations where the underlying loan remains extant and acknowledged in the restructuring.Conclusion: In favour of the Petitioner.Issue (ii): Whether the Financial Creditor was entitled to file a fresh section 7 petition notwithstanding earlier withdrawal under settlement and whether the petition is maintainable.Analysis: The withdrawal order expressly granted liberty to seek revival in case of default and the settlement deed contained an express clause preserving the Lender's right to initiate fresh proceedings on default. Precedents dealing with revival versus fresh filing were considered and applied to the facts where the settlement permitted fresh action and the Financial Creditor had not received full payment.Conclusion: In favour of the Petitioner.Issue (iii): Whether initiation of CIRP is barred because the Corporate Debtor is a real estate company or solvent.Analysis: Financial statements and admissions in the record showed defaults, large losses and depletion of reserves. The Code does not exclude real estate companies from CIRP where statutory conditions of debt and default are satisfied. The petition met requirements of section 4(1) and limitation was satisfied by acknowledgment.Conclusion: In favour of the Petitioner.Final Conclusion: The petition under section 7 of the Insolvency and Bankruptcy Code, 2016 is admitted and CIRP is ordered to commence with appointment of an Interim Resolution Professional and imposition of moratorium.Ratio Decidendi: A restructuring agreement that records and acknowledges an underlying loan does not change the nature of the original debt; where the debtor defaults and the settlement expressly preserves the creditor's right to initiate fresh proceedings, a section 7 petition based on the acknowledged financial debt is maintainable and CIRP may be admitted upon proof of debt and default.