TMI Blog2020 (8) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... alicious or fraudulent intent, then also such a petition can be rejected by the Adjudicating Authority on the ground that the intent of the Applicant/Petitioner was not resolution for Corporate Insolvency Resolution Process. As the proceedings under IBC are summary in nature, it is difficult to determine the intent of the Applicant filing an application under Section 7, 9 or 10 of the Code unless shown explicitly by way of documentary evidence. This situation may arise in specific instances where a petition is filed under IBC specifically with a fraudulent or malicious intent. The Appeal deserves to be allowed - the Appellant/ Financial Creditor has proved that the Corporate Debtor has committed default of more than One lakh rupees, Application filed by the Appellant under Section 7 of the Code is complete and no disciplinary proceeding is pending against the proposed Resolution Professional. Therefore, the Application filed under Section 7 by the Appellant / Financial Creditor should have been admitted by the Adjudicating Authority. Appeal allowed. - [Justice Venugopal M.] Member (Judicial), [V. P. Singh] Member (Technical) And [Alok Srivastava] Member (Technical) F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is invalid because it was given as a security to the transaction. 5. The Adjudicating Authority has rejected the Application on the ground that the Adjudicating Authority cannot act as a Recovery Tribunal; the Financial Creditor could not produce the required documents to show that it received any Application from the Corporate Debtor for the loan; the Financial Creditor did not produce the certificate required from Information Utility as per provision of Section 7(3)(a) of the Code. The Adjudicating Authority further observed that the transaction by which the alleged loan was disbursed through RTGS was not in the name of Financial Creditor. 6. The Adjudicating Authority has further noted that the competent Civil Court having jurisdiction has found that there exists prima facie case in favour of Corporate Debtor and has issued interim prohibitory order against the Financial Creditor stating that they cannot recover the amount claimed therein. It is further observed by the Adjudicating Authority that the Financial Creditor could not produce adequate evidence to prove that the Corporate Debtor owed a financial debt to the Financial Creditor. It is further noted that the Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Only) in the Name of Corporate Debtor, PM Cold Storage Limited . However, the Adjudicating Authority has expressed doubt whether the statement stood in the name of Financial Creditor or not as the title name did not indicate the name of the Financial Creditor anywhere. 11. Appellant / Financial Creditor has also filed receipt of the inter-corporate loan which is at page No.79 of the paper book. Photostat copy of this receipt as under: On perusal of the above document, it is clear that the Corporate Debtor acknowledged the receipt of ₹ 25,00,000/- (Rupees Twenty Five Lakh Only) as an intercorporate deposit for 90 days, carrying interest @ 15% per annum. 12. The Financial Creditor has filed the copy of the cheque No.242228 dated 12th September 2017 which was issued by the Corporate Debtor for ₹ 25,00,000/- (Rupees Twenty Five Lakh Only) drawn on State Bank of India. It is seen that the alleged cheque was issued in the Name of Monotrone Leasing Private Limited dated 09th October 2018. The Adjudicating Authority has observed that; 11. The financial creditor relied the second document i.e. Annexure 7 is a letter dated 14.06.2017 allegedly issued by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheque No.242228 dated 12.09.2017 for a sum of ₹ 25 lakh drawn on State Bank of India in favour of the Appellant. But, even after 12.09.2017, the loan transaction between the parties was extended for a further period of one year and in order to secure the principal amount, the Respondent issued another post-dated cheque of the same bank being No.242294 dated 09th October, 2018. Further, in terms of such extension, the Respondent consented to pay the interest at an agreed rate on the principal amount. As such, the validity of cheque bearing No.242228 dated 12th September, 2017 expired. It is further submitted by the Appellant that no such dispute was referred by the Corporate Debtor in its pleading before the Adjudicating Authority. However, the Adjudicating Authority has failed to appreciate that issuance of cheque No.242294 dated 09th October, 2018 also gives an unconditional admission on behalf of the Respondent towards the debt of the Appellant/Financial Creditor. Thus, the adverse inference drawn by the Adjudicating Authority for not submitting any explanation regarding earlier cheque no.242228 dated 12th September, 2017 is without any basis. However, the Corporate Debto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly). In return, the Corporate Debtor issued a balance confirmation letter to acknowledge the receipt of ₹ 25,00,000/- (Rupees Twenty Five Lakh Only) and the payment of regular interest on the said loan. The Appellant filed a copy of Form 26AS, showing the payment of interest and deduction of TDS from the same. 17. However, the Adjudicating Authority has given a different finding and has observed that; 8. Admittedly the financial Creditor is a Non-Banking Financial Company. Hence, the transaction in dispute cannot be a transaction of simple corporate deposit in between two companies. Here in this case, Financial Creditor alleges to have given the loan to the Corporate Debtor. Obviously, when any NBFC gives loan to an individual or for that matter any corporate person, it may require to follow certain rules of business. 9. In this case, financial Creditor did not disclose in its Application, more particular in Part V of the Application, by giving details as to when the Corporate Debtor made Application for loan, when it was granted. The Financial Creditor did not produce on record the document to show that loan was really granted as per the request of the Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 5(8) to mean a debt which is disbursed against consideration for the time value of money. As opposed to this, an operational creditor means a person to whom an operational debt is owed and an operational debt under Section 5(21) means a claim in respect of provision of goods or services. 28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the Explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor - it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the Application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due. A debt may not be due if it is not payable in law or in fact. The moment the Adjudicating Authority is satisfied that a default has occurred, the Application must be admitted unless it is incomplete. 20. Therefore, it is clear that financial debt of ₹ 25,00,000/- (Rupees Twenty Five Lakh Only) was owed by the Corporate Debtor, which was payable with interest @ 15% and the Corporate Debtor defaulted in making the payment. The application filed by the Appellant / Financial Creditor under Section 7 of the Insolvency Bankruptcy Code, read with Rule 4 of the Adjudicating Authority Rules, is complete. In the circumstances, it is clear that the observation of the Adjudicating Authority is sans any evidence. 21. One of the grounds of rejection taken by the Adjudicating Authority is that the Corporate Debtor, being a solvent company, will not take risk to enter into insolvency proceedings under IBC as the financial statement of the Corporate Debtor in Financial Year ending March 2017 depicts revenue from operation, in the Corporate Debtors account as ₹ 34,13,351/- and a balance of more than ₹ 25,00,000/- (Rupees Twenty Five Lakh Only). 22. We are bound to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in approach has been brought about. Legislative policy now is to move away from the concept of inability to pay debts to determination of default . The said shift enables the financial Creditor to prove, based upon solid documentary evidence, that there was an obligation to pay the debt and that the debtor has failed in such obligation. Four policy reasons have been stated by the learned Solicitor General for this shift in legislative policy: 64.1. First is predictability and certainty. 64.2. Secondly, the paramount interest to be safeguarded is that of the corporate debtor and admission into the insolvency resolution process does not prejudice such interest but, in fact, protects it. 64.3. Thirdly, in a situation of financial stress, the cause of default is not relevant; protecting the economic interest of the corporate debtor is more relevant. 64.4. Fourthly, the trigger that would lead to liquidation can only be upon failure of the resolution process. 65. In this context, it is important to differentiate between claim , debt and default . Each of these terms is separately defined as follows: 3. Definitions.-In this Code, unless the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of alleged transaction. We do not say that their contention in the suit may be correct but competent Civil Court having felt that there exists prima facie case in favour of the Corporate Debtor have issued and an interim prohibitory order against financial creditor and others stating they cannot recover the amount claimed herein. It is observed by the Adjudicating Authority that the civil court has issued an interim prohibitory order against the Financial Creditor and others stating that they cannot recover the amount claimed herein. The Respondent has failed to file any such order of the civil court prohibiting realization of the said amount. However, it is to be clarified that Section 238 of the IBC has an overriding effect over any other law that is inconsistent with the provisions of IBC. Therefore, the Civil Court was not competent to issue an injunction order for a case pending before this Tribunal under IBC. The Adjudicating Authority has erred in rejecting the application based on the pendency of civil suit between the parties. 27 The Adjudicating Authority has also rejected the application on the ground that it is not a forum for recovery of amount. The Adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakh rupees, but may extend to one crore rupees. (2) If, any person initiates voluntary liquidation proceedings with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees but may extend to one crore rupees. 29 Section 65 of the Code provides for penal action for initiating Insolvency Resolution Process with a fraudulent or malicious intent or for any purpose other than the resolution. However, the same cannot be construed to mean that if a petition is filed under Section 7, 9 or 10 of the Code without any malicious or fraudulent intent, then also such a petition can be rejected by the Adjudicating Authority on the ground that the intent of the Applicant/Petitioner was not resolution for Corporate Insolvency Resolution Process. As the proceedings under IBC are summary in nature, it is difficult to determine the intent of the Applicant filing an application under Section 7, 9 or 10 of the Code unless shown explicitly by way of documentary evidence. This situation may arise in specific instances where a petition is filed under IBC specifically with a fraudulent or malicious intent. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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