TaxTMI 
TaxTMI 
2024 (7) TMI 320
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....ng 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 Application are as follows: 3.1. Debt Amount Calculation: The total debt a....
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....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", meaning thereby, the fact that such money is now no longer with the lender, but is with the borrower, who then utilises the money....
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....tion 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 be traced to such essential elements in the principal clause. In yet other words, the essential element of disbursal, and that too against the consideration for time v....
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....tor 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 Application under Section 7 of the Code should not have been admitted as the Respondent No.1 is not a Financial Creditor, and the amount claimed is not a financial debt under the Code. Therefore, the Appe....
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.... 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 Authority, Mumbai, has also relied on the Supreme Court's judgment in "M/s Orator Marketing Pvt. Ltd. Vs. M/s Samtex Desinz Pvt. Ltd.," (Civil Appeal No. 2231 of 2021) which held that the stipulation of interest is not a precondition to qualify as a financial debt. The definition of 'financial debt' under Section 5(8) of the IBC includes both principal and, if applicable,....
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.... "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 Creditor under Section 7 of the IBC is the occurrence of a default by the Corporate Debtor. 'Default' means non-payment of debt in whole or part when the debt has become due and payable and debt means a liability or obligation in respect of a claim which is due from any person and includes financial debt and operational debt. The definition of 'debt' is also expansive and the same includes inter alia financial debt. The definition of 'Financial Debt' in Section 5(8) of IBC does not ex....
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....etition 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 the matter of Dena Bank Vs. C. Shivakumar Reddy and Anr. (Civil Appeal No. 1650 of 2020) wherein at para 143, following it was held: "143. Moreover, a judgment and/or decree for money in favour of the Financial Creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the Financial Creditor, would give rise to a fresh cause of action for the Financial Creditor, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, within three years ....