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2021 (8) TMI 314
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....ee of the debt in question. 2. The short question involved in this Appeal is, whether a person who gives a term loan to a Corporate Person, free of interest, on account of its working capital requirements is not a Financial Creditor, and therefore, incompetent to initiate the Corporate Resolution Process under Section 7 of the IBC. 3. M/s Sameer Sales Private Limited, hereinafter referred to as to "Original Lender", advanced a term loan of Rs. 1.60 crores to the Corporate Debtor for a period of two years, to enable the Corporate Debtor to meet its working capital requirement. The Original Lender has assigned the outstanding loan to the Appellant. 4. According to the Appellant the loan was due to be repaid by the Corporate Debtor in full within 01.02.2020. The Appellant claims that the Corporate Debtor made some payments, but Rs. 1.56 crores still remain outstanding. 5. The Appellant filed a Petition under Section 7 of the IBC in the NCLT for initiation of the Corporate Resolution Process. The petition was, however, rejected by a judgment and order dated 23.10.2020. The Adjudicating Authority (NCLT) held : "11. Heard the parties and perused the case records. 12. There is no ....
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....imed to be a 'Financial Creditor' as defined under Section 5(7) & (8) of the Insolvency and Bankruptcy Code, 2016. 24. Therefore, neither the present claim can be termed to be a 'financial debt' nor does the applicant come within the meaning of 'financial creditor'. Once the applicant does not come within the meaning of 'financial creditor' he becomes ineligible to file the application under Section 7 of the Insolvency Code 2016. 25. for the reasons stated above this petition fails and the same stands dismissed as not maintainable." 6. Being aggrieved, the Appellant filed an appeal under Section 61 of the IBC. The appeal has been dismissed by the NCLAT, by the judgment and order impugned before this Court. 7. The relevant part of the impugned judgment and order is extracted hereinbelow for convenience: "5. We have heard Counsel for both sides and perused the Appeal and the Reply filed by the Respondent. The fact that loan was advanced to the Respondent, is not in dispute. The narrow question involved is whether the transaction concerned can be treated as a transaction of Financial Debt as defined in Section 5(8) of IBC. The definition of "Financial Debt" under IBC Section 5....
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....borrowed against payment of interest comes within the definition financial debt. However, if the money borrowed is not against payment of interest, under the definition of financial debt, the core requirement is to find whether there is "consideration for the time value of money". The facts of the matter disclose and the Appeal also records that when the Corporate Debtor was unable to get any further loan from the market after having taken loan from M/s. Tata Capital Financial Services Ltd., M/s. Sameer Sales which was related party to the Corporate Debtor, extended interest free unsecured loan to the Corporate Debtor payable on or after 1st February, 2020 and that too upon demand by the lenders. It would be appropriate to reproduce the Loan Agreement itself to understand the same. The Loan Agreement (Annexure A-2) reads as under:- LOAN AGREEMENT THE PRESENT LOAN AGREEMENT IS BEING EXECUTED BETWEEN M/S SAMEER SALES PVT. LTD. AND M/S SAMTEX DESINZ PVT. LTD. AT NEW DELHI ON THIS 20th DAY JANUARY Two thousand Eighteen. BETWEEN (1) M/S SAMEER SALES PRIVATE LIMITED, a company registered under the Companies Act, 1956 bearing CIN No. U51900DL1992PTC047363, having registered office....
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....r after 01/02/2020 upon demand by the Lender. 6.The Borrower agrees that so long as the loan as in outstanding the Borrower will inform the Lender in any change in the constitution of the Borrower. 7.The Borrower shall repay the entire loan on or before 04/02/2020 and that till such a time the entire amount is not repaid the terms of the present agreement shall remain in force. The Borrower is entitled to pre-pay the loan amount at any time, without any penalty, after giving the lender notice in writing of its intention of the same. 8.The agreement shall remain in force of the term indicated in Clause 7 above unless terminated earlier in accordance with Clause 7. 9.All notices under this agreement shall be in writing and shall be either delivered via special messenger and hand and upon the addresses as may be advised from time to time by either party. 10. The agreement shall be governed by Indian Law and the Courts of Delhi shall have jurisdiction to settle any dispute arising out of or in connection with this agreement. For the Borrower Samtex Desinz Pvt Ltd For the Lender Director Director Witness : When we read the background as recorded in paragraphs - 1 ....
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....e Industries Ltd. Vs. ICICI Bank Ltd. (2018) 1 SCC 407, authored by Nariman, J., this Court analysed the scheme of the IBC and held: "27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of "debt", we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a "claim" and for the meaning of "claim", we have to go back to Section 3(6) which defines "claim" to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor. A distinction is made by the Code between debts owed to financial creditors and operational creditors. A financial creditor has been defined under Section 5(7) as a person to whom a fi....
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.... authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. 29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code................................................................... The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code. 30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is "due" i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only wh....
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....rate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor's assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends." 13. This Court further held: "42. A perusal of the definition of "financial creditor" and "financial debt" makes it clear that a financial debt is a debt tog....
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....on 5(8) of the IBC cannot be read in isolation, without considering some other relevant definitions, particularly, the definition of 'claim' in Section 3(6), 'corporate debtor' in Section 3(8), 'creditor' in Section 3(10), 'debt' in section 3(11), 'default' in Section 3(12), 'financial creditor' in Section 5(7) as also the provisions, inter alia, of Sections 6 and 7 of the IBC. 16. Under Section 6 of the IBC, a right accrues to a Financial Creditor, an Operational Creditor and the Corporate Debtor itself to initiate the Corporate Insolvency Resolution Process in respect of such Corporate Debtor, in the manner provided in Chapter II of the IBC. 17. Section 7 of the IBC enables a Financial Creditor to file an application for initiating Corporate Insolvency Resolution Process against a Corporate Debtor either by itself, or jointly with other Financial Creditors or any other person on behalf of the Financial Creditor, as may be notified by the Central Government, when a default has occurred. 18. The eligibility of a person, to initiate the Corporate Insolvency Resolution Process, if questioned, has to be adjudicated upon consideration of the key words and expressions in the aforesai....
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....as the power to define a word in a statute. Such definition may either be restrictive or be extensive. Where the word is defined to include something, the definition is prima facie extensive. 24. In Dilworth v. Commissioner of Stamps (1899) AC 99 the Privy Council, dealing with a definition which incorporated the word "include", said, "The word 'include' is very generally used in interpretation clauses in order to enlarge the meaning; and when it is so used these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also those as things which the interpretation clause declares that they shall include. But the word 'include' is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expressions defined. It may be equivalent to 'mean and include', and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions." 25. In dealing with the definition of '....
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....ction 5(8); it may also include any derivative transaction or counter-indemnity obligation as per clauses (g) and (h) of Section 5(8); and it may also be the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in clauses (a) to (h). The requirement of existence of a debt, which is disbursed against the consideration for the time value of money, in our view, remains an essential part even in respect of any of the transactions/dealings stated in clauses (a) to (i) of Section 5(8), even if it is not necessarily stated therein. In any case, the definition, by its very frame, cannot be read so expansive, rather infinitely wide, that the root requirements of "disbursement" against "the consideration for the time value of money" could be forsaken in the manner that any transaction could stand alone to become a financial debt. In other words, any of the transactions stated in the said clauses (a) to (i) of Section 5(8) would be falling within the ambit of "financial debt" only if it carries the essential elements stated in the principal clause or at least has the features which could be traced to such essential elements in the principal ....
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....makes it clear that for a person to become a creditor, there has to be a debt, i.e., a liability or obligation in respect of a claim which may be due from any person. A "secured creditor" in terms of Section 3(30) means a creditor in whose favour a security interest is created; and "security interest", in terms of Section 3(31), means a right, title or interest or claim of property created in favour of or provided for a secured creditor by a transaction which secures payment for the purpose of an obligation and it includes, amongst others, a mortgage. Thus, any mortgage created in favour of a creditor leads to a security interest being created and thereby, the creditor becomes a secured creditor. However, when all the defining clauses are read together and harmoniously, it is clear that the legislature has maintained a distinction amongst the expressions "financial creditor", "operational creditor", "secured creditor" and "unsecured creditor". Every secured creditor would be a creditor; and every financial creditor would also be a creditor but every secured creditor may not be a financial creditor. As noticed, the expressions "financial debt" and "financial creditor", having their ....