9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (5) TMI 859 - AT - IBCSeeking initiation of CIRP - default committed by the Corporate Debtor in repayment of a financial debt - default falls within restricted period under Section 10A of IBC - record of default of in the records of the information utility - conclusive proof of the debt and default - liquidator of the alleged financial creditor has filed a petition for recovery of the amount and not for resolution of the Corporate Debtor against the regulations of the Code. Financial debt - Appellant conceded that Rs. 2.5 Crores might has been disbursed but not as loans and advances since there is no contract or written document/ agreement for the same - HELD THAT - The loans and advances have been clearly reflected in the audited financial statement of the Corporate Debtor which is adequate to establish that the money disbursed was indeed given as a loan. There is no law or provisions in the Code which requires that there has to be written contract or documentation to establish the loan. The reflection of the same in audited financial statements as well reflection in information utility i.e. National E-Governance Services Ltd. is good enough proof of financial debt. Hence on this account the arguments of the Appellant is rejected. The money disbursed of Rs. 2.5 Crores to the Respondent No.1 by Respondent No.2 indeed was a financial debt. Alleged default falls within restricted period under Section 10A of the Code - HELD THAT - As regard the alleged default falling in 10A exempted period of the Code since one of the legal notice was issued by the Counsel of the Respondent No. 2 to the Corporate Debtor on 20.07.2020 and as such as per the Appellant the same falls within the exempted period of 25.03.2020 to 25.03.2021 in terms of Section 10A of the Code - it is noted that in Part IV of Form I filed along with application under Section 7 of the Code under which default of Rs. 2.5 Crores was reflected as on 31.01.2019. It is a fact that other demand letter/ legal notice was issued on 20.07.2020 however the original debt of default as reflected in Part IV is 31.01.2019 which is not covered under the exempted period in terms of Section 10A of the Code. Record of default of in the records of the information utility is a conclusive proof of the debt and default or not - HELD THAT - The Rs. 2.5 Crores has been categorically reflected in the audited financial statements of the Corporate Debtor in the balance sheet as on 31.03.2020 as well as on 31.03.2022. This is good enough evidence of establishing the fact of debt payable to the Financial Creditor. The mere fact that the same was also been reflected in the record of the information utility (NESL) will not dilute the debt granted by the Financial Creditor to the Corporate Debtor and this recorded transaction of loan with the information utility is only as additional evidence of debt and default. In fact the additional information as evident by the record of the information utility establishes the claims of the Financial Creditor. Thus the contention of the Appellant in this regard stands rejected. Liquidator of the alleged financial creditor has filed a petition for recovery of the amount and not for resolution of the Corporate Debtor against the regulations of the Code - HELD THAT - The Appellant pleaded that the role of the liquidator is limited in settling the assets available with entity under liquidator and should have taken action for the timely conclusion of liquidation process including selling non readily realizable assets including book debts through auctions based on valuation reports. It is the case of the Appellant that the alleged claims of Rs. 2.5 Crores payable by the Corporate Debtor should have been auctioned by the Respondent No. 2 rather than initiating CIRP proceeding against Corporate Debtor/ Respondent No. 1. In this connection it is noted that the Respondent No. 2 / Liquidator had specifically taken approval of the Adjudicating Authority for instituting legal proceedings on behalf of the Respondent No. 2 including filing an application under Section 7 of the Code. Conclusion - The Respondent No. 2 is well within his rights to take any legal action including filing Section 7 application for recovering the recoverable dues from any entity like the Respondent No. 1 herein. It cannot be the case of the Appellant that the Respondent/ Liquidator should not have taken legal recourse for clear default by the Respondent No. 1. The Respondent No. 2 / Liquidator was within his right and was rather obligated under the Code and relevant regulations to do so. Appeal dismissed.
The core legal questions considered by the Tribunal in this appeal are as follows:
(i) Whether the amount of Rs. 2.5 Crores claimed by the Respondent as a financial debt qualifies as such under the Insolvency and Bankruptcy Code, 2016 (Code), especially in the absence of any written contract or agreement evidencing the loan; (ii) Whether the alleged default falls within the restricted/prohibited period under Section 10A of the Code, thereby barring initiation of Corporate Insolvency Resolution Process (CIRP); (iii) Whether the record of default maintained by the Information Utility (National E-Governance Services Ltd. - NESL) constitutes conclusive proof of debt and default for the purpose of admitting a Section 7 application; (iv) Whether the Liquidator of a company undergoing liquidation (Respondent No. 2) is empowered to initiate CIRP proceedings against a third-party corporate debtor (Respondent No. 1) for recovery of dues, or whether such action exceeds the statutory mandate under the Code and Liquidation Regulations, 2016. Issue-wise Detailed Analysis: Issue (i): Nature of the Debt as Financial Debt The Appellant conceded that Rs. 2.5 Crores was disbursed but denied that it constituted a financial debt, citing the absence of any written contract or agreement. The Appellant contended that without documentation showing a commercial effect of borrowing or consideration for the time value of money, the amount cannot be classified as financial debt under Section 5(8) of the Code. The Tribunal examined the bank statements evidencing disbursement of Rs. 2 Crores on 18.10.2013 and Rs. 50 Lakhs on 09.11.2013. The audited financial statements of the Corporate Debtor as on 31.03.2020 and 31.03.2022 reflected the amount as "Unsecured Loans" and "Unsecured Loan from Body Corporate" respectively, under appropriate liabilities heads. This accounting recognition was held to be sufficient evidence of a loan disbursed, notwithstanding the absence of a written contract. The Tribunal rejected the Appellant's argument that a written agreement is mandatory to classify a debt as financial debt. It held that the reflection of the amount in audited financial statements, along with corroboration from bank records and the Information Utility, sufficed to establish the existence of financial debt. The Tribunal thus concluded that the Rs. 2.5 Crores disbursed by Respondent No. 2 to Respondent No. 1 was a financial debt within the meaning of the Code. Issue (ii): Default Date and Restricted Period under Section 10A The Appellant contended that the default occurred during the Section 10A restricted period (25.03.2020 to 25.03.2021), which prohibits initiation of CIRP, relying on a legal notice dated 20.07.2020 demanding repayment within 7 days. The Tribunal noted that the Section 7 application filed by Respondent No. 2 stated the date of default as 31.01.2019, which predates the restricted period. The Tribunal observed that the earlier demand letter dated 31.01.2019, issued by the Interim Resolution Professional, was a request for confirmation of the loan amount and did not establish a repayment timeline. The subsequent legal notice of 20.07.2020 was not the original default notice. Accordingly, the Tribunal held that the default date of 31.01.2019 was valid and outside the Section 10A prohibited period, rendering the CIRP initiation permissible. The Appellant's argument that the default fell within the restricted period was rejected. Issue (iii): Evidentiary Value of Information Utility Records The Appellant argued that records from the Information Utility (NESL) are prima facie evidence of default but not conclusive proof, and that the Corporate Debtor is entitled to challenge such records. The Appellant contended that the Adjudicating Authority erred in treating the NESL record as conclusive. The Tribunal acknowledged that the Information Utility's records are not conclusive but serve as relevant evidence. It emphasized that the audited financial statements independently corroborated the existence of the debt and default. The Tribunal further noted that the Information Utility's report was "Deemed to be Authenticated," and the Corporate Debtor had not disputed the record earlier. Thus, the Tribunal held that the Information Utility's record, combined with other documentary evidence, sufficed to establish the debt and default for admitting the Section 7 application. The Appellant's contention on this ground was rejected. Issue (iv): Powers of the Liquidator to Initiate CIRP Against Third Parties The Appellant challenged the initiation of CIRP by the Liquidator of Respondent No. 2 (a company in liquidation) against Respondent No. 1, asserting that the Liquidator's role is limited to realization and distribution of assets of the company under liquidation, and that initiating CIRP against third parties exceeds the statutory mandate and violates the Code's objectives. The Tribunal examined the Adjudicating Authority's order dated 21.02.2022 granting the Liquidator prior approval to institute suits and legal proceedings on behalf of the company under liquidation, including filing Section 7 applications against defaulting borrowers with outstanding dues between Rs. 1 Lakh and Rs. 3 Crores. The Tribunal noted that this approval explicitly authorized the Liquidator to initiate CIRP against entities like Respondent No. 1. The Tribunal also referred to relevant provisions of the IBBI (Liquidation Process) Regulations, 2016, including Regulation 37A (assignment of not readily realizable assets), Regulation 38 (distribution of unsold assets), Regulation 39 (recovery of monies due), and Regulation 44 (completion of liquidation). Regulation 39 mandates the Liquidator to endeavor to recover all dues in a time-bound manner for maximization of value for stakeholders. In light of the above, the Tribunal held that the Liquidator was within his rights and indeed obligated to take legal recourse, including filing a Section 7 application, to recover dues from defaulting corporate debtors. The Tribunal rejected the Appellant's contention that the Liquidator should have resorted only to auction or assignment of book debts and not initiated CIRP. The Tribunal further noted precedent decisions of this Appellate Tribunal upholding the Liquidator's power to file Section 7 applications for recovery, including a recent judgment affirming the Adjudicating Authority's approval for such actions. Treatment of Competing Arguments and Application of Law to Facts The Tribunal carefully considered the Appellant's arguments that the Code's objective is resolution and revival of corporate debtors, and that using CIRP as a recovery tool by a liquidator of another company is a misuse of the Code. It balanced these arguments against the statutory scheme, regulatory provisions, and the prior approval granted by the Adjudicating Authority. The Tribunal emphasized that the Liquidator's actions were in accordance with the law and the specific approval granted, and that the financial debt and default were adequately established by documentary evidence. It found no merit in the Appellant's challenge to the nature of the debt, default date, evidentiary value of the Information Utility record, or the Liquidator's authority to initiate CIRP. Conclusions The Tribunal concluded that:
Significant Holdings: "There is no law or provisions in the Code which requires that there has to be written contract or documentation to establish the loan. The reflection of the same in audited financial statements as well reflection in information utility i.e., National E-Governance Services Ltd., is good enough proof of financial debt." "The Liquidator is directed to take all steps in accordance with the provision of law." (Order dated 21.02.2022 granting prior approval to Liquidator to institute suits/legal proceedings including filing Section 7 applications.) "The Respondent No. 2 / Liquidator was within his right and was rather obligated under the Code and relevant regulations to do so." "The record of the Information Utility is only as additional evidence of debt and default. In fact, the additional information as evident by the record of the information utility establishes the claims of the Financial Creditor." "The default date as reflected in Part IV of the Section 7 application is 31.01.2019, which is not covered under the exempted period in terms of Section 10A of the Code." The appeal was dismissed as devoid of merit, affirming the Impugned Order admitting CIRP against the Corporate Debtor.
|
