2024 (7) TMI 320 - AT - Insolvency and Bankruptcy

NCLAT confirms decree holder qualifies as financial creditor under IBC Section 7 despite no interest agreement

H.E. Captain Ammeet K Agarwal, Suspended Director of Sangeeta Aviation Services Private Limited Versus Gannon Dunkerley And Company Limited, Mr. Bijendra Kumar Jha

The NCLAT dismissed an appeal challenging a financial creditor's status under IBC Section 7. The appellant argued that a Bombay HC decree holder was not a ... Nature of debt - financial debt or not - Financial Creditor or not - whether the decree from the Hon’ble Bombay High Court qualifies as a financial debt under Sections 5(7) and 5(8) of the IBC in the facts of the instant case?. Nature of debt - HELD THAT:- The IBC defines financial debt as a debt along with interest, if any, with disbursement against consideration for the time value of money - the Hon’ble Supreme Court's decision in M/s Orator Marketing Pvt. Ltd. Vs. M/s Samtex Desinz Pvt. Ltd. [2021 (8) TMI 314 - SUPREME COURT] has also clarified that interest is not a necessary component for a debt to be considered financial, broadening the interpretation of financial debt. It was held that stipulation of the payment of interest is not a condition precedent to qualify as a financial debt. The threshold for initiating Section 7 proceedings exists even if interest is not considered as noted in Hon’ble Supreme Court's decision in M/s Orator Marketing Pvt. Ltd. Vs. M/s Samtex Desinz Pvt. Ltd. (supra) wherein it was held that interest is not a necessary component for a debt, and therefore the Appellant doesn’t have grounds on this count. In the instant case the Respondent is a decree holder and as per the definition of financial debt and legal precedents we cannot ignore it to be interest. The arguments of the Appellant that the Respondent has not produced any agreement for the amount claimed by it, which is a sine qua non for falling under Section 5(8) of the IBC, 2016 as the amount paid by the Applicant was not borrowed against the payment of interest nor the claim of the Applicant comes within the meaning of Section 5(8)(d) of the said IBC, 2016, cannot stand the scrutiny of the definition of debt and also the legal precedents. Procedural and Formal Defects - HELD THAT:- The Appellant has also raised concerns about procedural defects, including incorrect forms and disclosures by the IRP. However, such procedural issues do not fundamentally alter the nature of the debt or the status of the creditor. The decree from the Bombay High Court, supported by the underlying transaction involving bills of exchange and dishonoured cheques, constitutes a financial debt under the IBC - Respondent No. 1 qualifies as a Financial Creditor - The procedural defects cited by the Appellant do not significantly undermine the validity of the claim under Section 7. Appeal dismissed. Issues Involved:1. Qualification of Respondent No.1 as a Financial Creditor.2. Nature of the debt and its classification as a financial debt under Sections 5(7) and 5(8) of the Insolvency and Bankruptcy Code, 2016 (IBC).3. Procedural and formal defects in the application under Section 7 of the IBC.4. Legal precedents and their applicability to the case.Detailed Analysis:1. Qualification of Respondent No.1 as a Financial Creditor:The Appellant challenged the Impugned Order on the grounds that Respondent No.1 wrongfully claimed to be a Financial Creditor under Section 7 of the IBC. The Appellant argued that the debt did not qualify as a financial debt under Sections 5(7) and 5(8) of the Code. However, the Respondent No.1 asserted that the decree from the Hon'ble Bombay High Court, which awarded interest at 12% per annum, established them as a Financial Creditor. The Tribunal upheld that a decree holder could be treated as a Financial Creditor if the underlying transaction involved disbursement against consideration for time value of money.2. Nature of the Debt and its Classification as a Financial Debt:The Appellant contended that the debt amount, including interest, did not qualify as a financial debt under Section 5(8) of the IBC. They argued that there was no agreement stipulating loan terms, interest, or repayment period, which are essential elements of a financial debt. The Tribunal referred to various legal precedents, including the Hon'ble Supreme Court's decision in 'M/s Orator Marketing Pvt. Ltd. Vs. M/s Samtex Desinz Pvt. Ltd.,' which clarified that interest is not a necessary component for a debt to be considered financial. The decree from the Bombay High Court, based on a previous transaction involving bills of exchange and dishonoured cheques, implied an underlying transaction where money was advanced with an expectation of repayment with interest. Therefore, the Tribunal concluded that the debt qualifies as a financial debt under the IBC.3. Procedural and Formal Defects:The Appellant raised concerns about procedural defects, including the use of incorrect forms and disclosures by the Interim Resolution Professional (IRP). The Tribunal noted that such procedural issues do not fundamentally alter the nature of the debt or the status of the creditor. The Tribunal emphasized that the procedural defects cited by the Appellant do not significantly undermine the validity of the claim under Section 7 of the IBC.4. Legal Precedents and Their Applicability:The Tribunal referred to several legal precedents to support its decision:- 'M/s Urgo Capital Limited Vs. M/s Bangalore Dehydration and Drying Equipment Co. Pvt. Ltd.' by the Hon'ble NCLAT, New Delhi, which supported the position that a decree holder could file a petition under Section 7 of the IBC.- 'Dena Bank Vs. C. Shivakumar Reddy and Anr.' by the Hon'ble Supreme Court, which held that a judgment or decree in favor of the Financial Creditor creates a fresh cause of action to initiate proceedings under Section 7 of the IBC within three years from the date of the judgment or decree.- 'M/s Orator Marketing Pvt. Ltd. Vs. M/s Samtex Desinz Pvt. Ltd.' which clarified that interest is not a necessary component for a debt to be considered financial.Conclusion and Orders:The Tribunal concluded that:- The decree from the Bombay High Court, supported by the underlying transaction involving bills of exchange and dishonoured cheques, constitutes a financial debt under the IBC.- Respondent No. 1 qualifies as a Financial Creditor.- The procedural defects cited by the Appellant do not significantly undermine the validity of the claim under Section 7.- The appeal under Section 61 of the IBC is dismissed, upholding the NCLT's Impugned Order dated August 10, 2021, initiating CIRP against the Corporate Debtor, Sangeeta Aviation Services Private Limited. Respondent No. 1 is entitled to proceed as a Financial Creditor under Section 7 of the IBC. Accordingly, I.A. No. 5680 of 2023 stands disposed of.