Financial creditor's Section 7 application upheld despite corporate debtor's challenge on time-bar and inadequate opportunity grounds

NCLAT Principal Bench dismissed the appeal challenging admission of Section 7 application filed by financial creditor for initiation of CIRP. The tribunal held that the application was not time-barred as it was filed within three years from debt acknowledgment date. The corporate debtor's contention regarding inadequate opportunity to regularize loan account lacked substance, as the creditor had provided opportunity with specific payment deadline which was not met. The loan facility bearing 15% floating interest constituted financial debt under Section 5(8) IBC, establishing clear debt and default. The co-borrower's obligation being coextensive with primary borrower, the financial creditor was entitled to proceed against both upon default.

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Issues Involved:
1. Whether the Corporate Debtor had a financial debt qua Respondent No.1 which had become due and payable and whether there was an incidence of default thereof.
2. Whether the Facility Agreement was insufficiently stamped and its impact on the admissibility of the Section 7 petition.
3. Whether the Section 7 application was barred by limitation.
4. Whether the Corporate Debtor was given adequate opportunity to regularize its loan account before declaring it as NPA.
5. Whether the disbursement of loan against consideration for time value of money by the Financial Creditor qua the Corporate Debtor was missing.

Issue-wise Detailed Analysis:

1. Financial Debt and Default:
The Appellant argued that the loan facility was disbursed to Csango Industries Pvt. Ltd. and Pacific Link Exports Pvt. Ltd., not to the Corporate Debtor, and therefore, the Corporate Debtor had no liability to repay the loan. The Respondent No.1 countered that the Corporate Debtor was a Co-Borrower and had signed multiple documents, including the Facility Agreement and Demand Promissory Note, promising to repay the loan jointly and severally. The Tribunal noted that the Corporate Debtor had signed various documents as a Co-Borrower and had acknowledged the debt, thus establishing the existence of financial debt and default. The Tribunal concluded that the Corporate Debtor, as a Co-Borrower, had equal and similar liabilities with the Primary Borrower under the Facility Agreement.

2. Insufficient Stamping of Facility Agreement:
The Appellant contended that the Facility Agreement was insufficiently stamped and, therefore, could not be relied upon by the Adjudicating Authority. The Tribunal held that insufficient stamping is a curable defect and does not render the instrument void. The Tribunal cited the Hon'ble Supreme Court's judgment in NN Global Mercantile (P) Ltd. Vs Indo Unique Flame Ltd., which stated that non-stamping or improper stamping does not invalidate an instrument but makes it inadmissible until the defect is cured. Thus, the Tribunal found that the insufficiency of stamping did not affect the admissibility of the Section 7 application.

3. Limitation:
The Appellant argued that the Section 7 petition was barred by limitation, having been filed on 16.11.2023 while the date of default was 15.03.2020. The Tribunal referred to the Hon'ble Supreme Court's judgment in Laxmipat Surana Vs Union Bank of India, which held that an acknowledgment of debt within the limitation period extends the limitation period. The Tribunal noted that the Corporate Debtor had made part payments and acknowledged the debt within the limitation period, thus extending the limitation period. Therefore, the Section 7 application was not barred by limitation.

4. Opportunity to Regularize Loan Account:
The Appellant contended that the Corporate Debtor was not given adequate opportunity to regularize its loan account before it was declared as NPA. The Tribunal found that the Respondent No.1 had accepted to regularize the loan account subject to payment of an amount by a specified date, but the Corporate Debtor failed to pay the balance amount. The Tribunal held that the declaration of an account as NPA under the SARFAESI Act is an independent proceeding and does not obstruct the Financial Creditor from initiating CIRP under IBC.

5. Disbursement Against Consideration for Time Value of Money:
The Appellant argued that the key ingredient of disbursement against consideration for time value of money was missing. The Tribunal noted that the Sanction Letter provided for interest-bearing loan facilities, which falls within the purview of Section 5(8)(a) of IBC, defining financial debt. The Tribunal found that the disbursement of funds by Respondent No.1 was against consideration for time value of money, thus meeting the requirements of a financial debt under IBC.

Conclusion:
The Tribunal concluded that the Corporate Debtor had a financial debt which had become due and payable, and there was an incidence of default. The Facility Agreement's insufficient stamping did not affect the admissibility of the Section 7 application. The Section 7 application was not barred by limitation, and the Corporate Debtor was given adequate opportunity to regularize its loan account. The disbursement of funds by Respondent No.1 was against consideration for time value of money. Therefore, the Tribunal upheld the Adjudicating Authority's order admitting the Section 7 application and dismissed the appeal.

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