2025 (6) TMI 459 - AT - IBC

Debt or disbursement made to the Corporate Debtor - EMIs were not payable before 48 months of the first disbursement of money - no default could have taken place before 30.07.2021 - Corporate Debtor under Section 65 75 of IBC has not properly been adjudicated by the Adjudicating Authority. Whether there was any debt or disbursement made to the Corporate Debtor? - HELD THAT - The money was credited in the accounts of the Corporate Debtor as reflected by the bank account maintained by the Axis Bank (who incidentally is not Financial Creditor or the assignee of the debt in the present case) and the fact that money was transferred to other accounts - such facts have got no bearing of the disbursal of money by the original Financial Creditor to the Corporate Debtor. The Appellant could not give any concrete evidence to establish that the money was illegible or wrongly or malafidly withdrawn by the original Financial Creditor - there are no merits in the arguments of the Appellant on this account as such it is not in a position to accept the contentions of the Appellant on this ground and the same is rejected. Whether the EMIs were not payable before 48 months of the first disbursement of money i.e. 31.07.2017 and therefore no default could have taken place before 30.07.2021? - HELD THAT - In Clause 3.1 it has been agreed between the parties that borrower shall repay the said loan together with interest accrued as stipulated in the Schedule-I of the loan agreement by 15th of each month in advance for respective months. It has also mentioned in Clause 3.1 that interest will be payable monthly from the date of first disbursement. Thus it has been clearly stipulated that the interest is payable monthly from the date of first disbursement which is different condition then of EMI wherein EMI is required to be paid only after 48 months of the first disbursement. In Clause 3.4 of the loan agreement it has once again been stipulated that PEMI shall be paid from the date of first disbursement till commencement of repayment through EMI. It has also mentioned in the loan agreement that if there is a default in repayment of interest of principal for two consecutive months it shall be constituted as an event of default or violation of terms conditions of the sanction and the financial creditor may recall the entire loan - the concept of PEMI is regarding regular payment of interest which is to begin immediately on the first disbursement of loan. It is already noted that the first disbursement was made on 31.07.2017 thus the pre-equated monthly instalment (PEMI) was to being immediately thereafter and not after 48 months as pleaded by the Appellant. In view of above detailed analysis there are no merit in the contentions of the Appellant and the same is rejected. Whether the IA. No. 260/2023 filed by the Corporate Debtor under Section 65 75 of the Code has not properly been adjudicated by the Adjudicating Authority and whether the Impugned Order could have been passed? - HELD THAT - To satisfy the Section 7 application the basic ingredients as stipulated in the Code and as elaborated in great details by Hon ble Supreme Court of India in various judgements including in matter of Innoventive Industries Ltd. v/s. ICICI Bank 2017 (9) TMI 58 - SUPREME COURT that there should be debt there should be default and threshold should be more than Rs. 1 Crore for allowing application filed under Section 7 of the Code by the Adjudicating Authority. All ingredients have been met and as such the Adjudicating Authority has correctly allowed the application under Section 7 of the Code filed by the Respondent. Conclusion - i) The loan agreement clearly distinguishes between EMI and PEMI with PEMI being interest payable monthly from the date of disbursement until EMI commencement. Default can arise from non-payment of PEMI even during the moratorium period. ii) An application under Sections 65 and 75 of the Code alleging malicious initiation or furnishing false information must be supported by specific and cogent evidence. Mere general averments without particulars do not impede the continuation of a valid Section 7 application. iii) The essential ingredients for admission of a Section 7 application-existence of debt default and threshold amount-were satisfied in the present case and the Adjudicating Authority rightly admitted the petition. There are no error in the Impugned Order. The Appeal devoid of any merit stand rejected.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following core legal questions arising from the appeals:

(i) Whether there was any debt or disbursement made by the original Financial Creditor to the Corporate Debtor;

(ii) Whether the Equated Monthly Installments (EMIs) were payable only after a moratorium period of 48 months from the first disbursement date, and consequently, whether any default could have occurred prior to the expiry of this period;

(iii) Whether the Interim Application (IA) No. 260/2023 filed under Sections 65 and 75 of the Insolvency and Bankruptcy Code (Code), alleging malicious initiation of proceedings and furnishing of false information, was properly adjudicated by the Adjudicating Authority, and whether the Impugned Order could be validly passed without its consideration.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (I): Whether there was any debt or disbursement made to the Corporate Debtor

Relevant legal framework and precedents: The admissibility of a Section 7 application under the Code requires the existence of a debt and default. The Supreme Court has emphasized in various judgments that the financial creditor must establish the existence of a debt and default for initiation of Corporate Insolvency Resolution Process (CIRP).

Court's interpretation and reasoning: The Tribunal examined the bank statements relied upon by both parties. The original Financial Creditor disbursed four tranches amounting to Rs. 90.50 Crores to the Corporate Debtor's accounts on specified dates, including Rs. 80 Crores on 31.07.2017. Although the Appellant contended that the money was immediately transferred out of the Corporate Debtor's accounts to other accounts, the Tribunal held that such transfers did not negate the fact of disbursement. The money credited to the Corporate Debtor's accounts constituted effective disbursement, irrespective of subsequent transfers.

Key evidence and findings: The bank account statements from Axis Bank showed clear credit entries corresponding to the loan disbursements. The Appellant failed to provide concrete evidence that the disbursed funds were illegitimately withdrawn or manipulated by the Financial Creditor. The Tribunal noted the improbability of the Financial Creditor controlling the Corporate Debtor's bank transactions to reverse the disbursal.

Application of law to facts: The Tribunal applied the principle that the existence of debt is established by the disbursement of loan amounts to the borrower's account. Subsequent internal transfers by the Corporate Debtor do not invalidate the fact of disbursement or the existence of debt.

Treatment of competing arguments: The Appellant's argument that the loan was never effectively disbursed was rejected due to lack of evidence and logical inconsistencies. The Respondent's position that the debt crystallized upon disbursement was accepted.

Conclusion: The Tribunal concluded that there was a valid debt and disbursement made to the Corporate Debtor by the original Financial Creditor.

Issue (II): Whether the EMIs were not payable before 48 months of the first disbursement and thus no default could have occurred before 30.07.2021

Relevant legal framework and precedents: The loan agreement's terms govern the repayment schedule. The distinction between Equated Monthly Installments (EMI) and Pre-Equated Monthly Installments (PEMI) is critical. The Code requires proof of default, which depends on the contractual repayment obligations.

Court's interpretation and reasoning: The Tribunal scrutinized the loan agreement clauses. While the EMI was payable after a moratorium of 48 months, the loan agreement expressly provided for PEMI, which represented interest payable monthly from the date of each disbursement until the commencement of EMI payments. Clause 3.1 stipulated monthly payment of interest in advance from the date of first disbursement. Clause 3.4 reiterated that PEMI was payable from the disbursement date until EMI commencement.

Key evidence and findings: The loan agreement clearly differentiated EMI and PEMI. The default could arise from non-payment of PEMI, which was due immediately post-disbursement. The Tribunal also noted that failure to pay interest for two consecutive months constituted an event of default, enabling the Financial Creditor to recall the entire loan.

Application of law to facts: The Tribunal applied the contractual provisions to determine that the Corporate Debtor was obliged to pay PEMI (interest) monthly from the date of disbursement, notwithstanding the moratorium on EMI payments. Hence, default could occur before the 48-month period if PEMI payments were missed.

Treatment of competing arguments: The Appellant's argument that no default could occur before EMI commencement was rejected as it ignored the contractual obligation to pay PEMI. The Respondent's interpretation was upheld as consistent with the loan agreement.

Conclusion: The Tribunal held that default could have occurred prior to 30.07.2021 on account of non-payment of PEMI, and therefore the Section 7 application was maintainable.

Issue (III): Whether IA No. 260/2023 filed under Sections 65 and 75 of the Code was properly adjudicated and whether the Impugned Order could be passed without its consideration

Relevant legal framework and precedents: Section 65 of the Code addresses fraudulent or malicious initiation of insolvency proceedings, and Section 75 penalizes furnishing false information in applications. The Adjudicating Authority must consider such applications before passing orders under Section 7.

Court's interpretation and reasoning: The Tribunal observed that IA No. 260/2023 contained only general averments without specific details or substantiation. The Adjudicating Authority had dismissed the IA after due consideration, finding no merit in the allegations. The Tribunal noted that such an IA does not alter the fundamental requirements for a Section 7 application, which were satisfied in this case.

Key evidence and findings: The IA did not provide concrete proof of malafide or false information. The Adjudicating Authority's dismissal of the IA was not shown to be perverse or contrary to law.

Application of law to facts: The Tribunal applied the principle that an IA under Sections 65 and 75 cannot derail a valid Section 7 application unless proven with cogent evidence. The dismissal of the IA did not invalidate the Section 7 proceedings.

Treatment of competing arguments: The Appellant's contention that the IA was not adjudicated properly was rejected due to lack of specificity and evidence. The Respondent's submission that the IA was baseless and rightly dismissed was accepted.

Conclusion: The Tribunal held that the Impugned Order could be validly passed notwithstanding the dismissal of IA No. 260/2023.

3. SIGNIFICANT HOLDINGS

The Tribunal made the following crucial legal determinations:

"The money was credited in the accounts of the Corporate Debtor as reflected by the bank account maintained by the Axis Bank and the fact that money was transferred to other accounts does not negate the disbursal of money by the original Financial Creditor."

"The loan agreement clearly distinguishes between EMI and PEMI, with PEMI being interest payable monthly from the date of disbursement until EMI commencement. Default can arise from non-payment of PEMI even during the moratorium period."

"Failure to pay interest or principal for two consecutive months constitutes an event of default, entitling the Financial Creditor to recall the entire loan and initiate proceedings under Section 7 of the Code."

"An application under Sections 65 and 75 of the Code alleging malicious initiation or furnishing false information must be supported by specific and cogent evidence. Mere general averments without particulars do not impede the continuation of a valid Section 7 application."

"The Adjudicating Authority's dismissal of IA No. 260/2023 was not perverse and did not vitiate the Impugned Order admitting the Section 7 application."

"The essential ingredients for admission of a Section 7 application-existence of debt, default, and threshold amount-were satisfied in the present case, and the Adjudicating Authority rightly admitted the petition."

Accordingly, the Tribunal rejected the appeals as devoid of merit and upheld the Impugned Order admitting the Section 7 applications filed by the Financial Creditor.