TaxTMI 
TaxTMI 
2024 (7) TMI 320
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....ndent No.1 under Section 7 of the Code seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against Sangeeta Aviation Services Private Limited ("Corporate Debtor"). The Adjudicating Authority allowed the said Application vide order dated 10th August, 2021, thereby, allowing initiation of CIRP of the Corporate Debtor. Appellant's Case: 1. The Impugned Order is challenged on the grounds that it is contrary to law and adversely affects the rights of the Corporate Debtor, as Respondent No.1 has wrongfully claimed to be a Financial Creditor under Section 7 of the Code and has misled the Adjudicating Authority. 2. As a background of the Case: a) Respondent No.1 filed C.P. No. 3073/2019 (Gannon Dunkerley & Co. Ltd. vs. Sangeeta Aviation Services Private Limited) under Section 7 of the Code in July 2019 ("Section 7 Application"). b) Respondent No.1's claim is based solely on a decree dated January 9, 2019, by the Hon'ble Bombay High Court in Commercial Summary Suit No. 714 of 2018, awarding interest at the rate of 12% per annum as compensation, which is standard in such Recovery Civil Suits. 3. Main grounds for Resisting the Applicati....
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....ng of the terms "disburse" and "time value of money" used in the principal clause of Section 5(8) of the IBC. This Court has interpreted the term "disbursal" in Pioneer Urban Land and Infrastructure Ltd vs. Union of India11 in the following terms : "70. The definition of "financial debt" in Section 5(8) then goes on to state that a "debt" must be "disbursed" against the consideration for time value of money. "Disbursement" is defined in Black's Law Dictionary (10th Edn.) to mean: "1. The act of paying out money, commonly from a fund or in settlement of a debt or account payable. 2. The money so paid; an amount of money given for a particular purpose." 71. In the present context, it is clear that the expression "disburse" would refer to the payment of instalments by the allottee to the real estate developer for the particular purpose of funding the real estate project in which the allottee is to be allotted a flat/apartment. The expression "disbursed" refers to money which has been paid against consideration for the "time value of money". In short, the "disbursal" must be money and must be against consideration for the "time value of money", m....
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....scribed in sub-clauses (a) to (f) of Section 5(8); it may also include any derivative transaction or counter-indemnity obligation as per sub-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 sub-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 sub-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 subclauses (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 ....
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....ancial 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 specific and distinct connotations and roles in insolvency and liquidation process of corporate persons, have only been defined in Part II whereas the expressions "secured creditor" and "security interest" are defined in Part I." ( emphasis supplied ) Reinforced the essential requirement of disbursement against the time value of money for any transaction to be considered a financial debt. 7. The Corporate Debtor's arguments were rejected on grounds that the decree's validity could not be challenged by the NCLT, and only an appeal against the decree could address those concerns. The Adjudicating Authority found the Application to meet the legal requirements of debt, default, and limitation. 8. The Appellant submits that the Impugned Order passed by the Adjudicating Authority on August 10, 2021, is legally unsustainable. The Applicatio....
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....) for Rs.1,21,71,243 with 12% annual interest on the principal amount of Rs.1 crore from the date of the suit until payment or realization. As a commercial suit, the plaintiff is entitled to a decree for costs under Section 35 of the Code of Civil Procedure, 1908 (CPC). 15. Following the Hon'ble Bombay High Court's order, the Financial Creditor is entitled to 12% annual interest, establishing Respondent No. 1 as the Financial Creditor. Legal Precedents: 16. A decree holder is entitled to file a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, against the Corporate Debtor. This position is supported by the decision in "M/s Urgo Capital Limited Vs. M/s Bangalore Dehydration and Drying Equipment Co. Pvt. Ltd." (2020 SCC OnLine NCLAT 149) by the Hon'ble NCLAT, New Delhi. 17. The Hon'ble Supreme Court in "Dena Bank Vs. C. Shivakumar Reddy and Anr." (2021 (10) SCC 330) (Civil Appeal No. 1650 of 2020) held that a judgment or decree in favour 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. 18. The Adjudicating ....
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.... Section 5(8) of the IBC has been quoted above. Section 5(8) defines 'financial debt' to mean "a debt along with interest if any which is disbursed against the consideration of the time value of money and includes money borrowed against the payment of interest, as per Section 5(8) (a) of the IBC. The definition of 'financial debt' in Section 5(8) includes the components of sub-clauses (a) to (i) of the said Section 22. The NCLT and NCLAT have overlooked the words "if any" which could not have been intended to be otiose. 'Financial debt' means outstanding principal due in respect of a loan and would also include interest thereon, if any interest were payable thereon. If there is no interest payable on the loan, only the outstanding principal would qualify as a financial debt. Both NCLAT and NCLT have failed to notice clause(f) of Section 5(8), in terms whereof 'financial debt' includes any amount raised under any other transaction, having the commercial effect of borrowing. xxx 31. At the cost of repetition, it is reiterated that the trigger for initiation of the Corporate Insolvency Resolution Process by a Financial Credito....
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....nsequently, a decree sheet dated 22nd May 2015 and 06th August 2015 were drawn wherein a decree of payment of Rs.8,04,43,637 (Rupees eight crore four lakh forty-three thousand six hundred thirty-seven only) along with past, present and future pendente-lite interest at 21% per annum was passed in favour of the Appellant. 24. The Corporate Debtor"/Respondent has neither challenged the decree as mentioned earlier nor filed any review till the date of the filing of the Company Appeal (AT) (Insolvency) No. 984 of 2019 Page 10 of 12 petition under Section 7 of the I & B Code. It is also clear that the Defendant No.1 to 5 in the said suit were jointly and severally liable to discharge their obligations of the decree above leaving it to the sole discretion of the Plaintiff/Appellant to recover the said amount from any of the said Defendants. 27. We further direct the Adjudicating Authority to pass an order for admitting the petition under Section 7 of the I & B Code 2016. Parties are directed to be present before the Adjudicating Authority on dated 27th January 2020." ( emphasis supplied ) 25. Reliance can also be placed on order of Hon'ble Apex Court in t....
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....me 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. 29. Therefore, 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: 30. 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. Conclusion and Orders: 31. Considering the detailed arguments....