TMI Blog2022 (8) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... nst which the Corporate Debtor paid an amount of Rs.67,90,000/- vide a Demand Draft dated 09.09.2019 before the Trial Court to compound one of the cases. It is an admitted fact that the said payment led to the closure of Case No. 1505 of 2017 which was filed for the dishonour of the cheque of Rs.57,00,000/- - In Part IV of the Application, the debt amount is claimed to be Rs.87,50,000/-. It is pertinent to mention that the said Application was filed on 30.11.2018 while there were parallel proceedings for recovery of the amount under Section 138 of the NI Act, 1881 before the District Court, Gurgaon. The amounts claimed pertain to the period prior to the date of Notification. We also do not wish to delve into the other submissions of the Appellant regarding the nature of transactions, absence of Financial Contract, non-registration of debt with the information utility whether interest at 18% per annum was ever concluded between the parties except for reference in the legal Notice issued by the second Respondent. The Preamble of IBC is carefully worded to describe the spirit and objective of the Code to be Reorganisation and Insolvency Resolution , specifically omitting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing No.000222 dated 01.09.2016 amounting to Rs. 30,50,000 (Annexure-C (Colly)). It can be seen that aforesaid cheques were dishonoured due to Insufficient Balance as evident from cheque Return Memo dated 05.12.2016, 21.11.2016 and 30.11.2016 attached as Annexures D, E F respectively. The financial creditor has also issued a Legal notice dated 19.10.2018 (Annexure-G) through its counsel demanding full payment of pending amount. Original postal receipts and tracking report showing the delivery of Legal notice dated 19.10.2018 are found at Annexure-H (Page Nos. 31-36). The petitioner has attached bank statements showing an amount of Rs. 57,00,000/- transferred to the corporate debtor from the account of his Sole Proprietorship Firm i.e. M/s Ultracon International and Rs. 40,00,000/- from his own account as Annexure-l. (colly). It is evident from the contents of the petition that the corporate debtor has defaulted in the repayment of amount to the financial creditor. 2. Submissions of the Ld. Counsel appearing on behalf of the Appellant. It is submitted by the Ld. Counsel for the Appellant that the second Respondent has falsely represented himself to be a Financial Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest thereupon arising out of the said cheque amounting to Rs. 57,00,000/- is wholly mis-conceived. Even assuming the claim of the second Respondent is correct, the present amount due is only Rs. 30,50,000/-. It is submitted that in order to put an end to the dispute, without prejudice to its contentions, the Appellant had annexed a Demand Draft of Rs. 30,50,000/-, but the Respondent, with an intention to extract more money is now demanding interest at exorbitant rate of 18% p.a. The Ld. Counsel for the Appellant has placed reliance on the Judgment of Hon ble Supreme Court in Pioneer Urban Land Vs. UOI, (2019) 8 SCC 416 in support of his case that 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 Learned Counsel stressed that this Code should not be used for Recovery of money and that it is essentially meant for Resolution . The Ld. Counsel for the Appellant also placed reliance on the ratio of the Hon ble Supreme Court in UoI Vs. Watkins, AIR 1966 SC 275, wherein it was held as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er replied to, disputed or objected to by the Corporate Debtor. Hence, adverse inference ought to be drawn against the Corporate Debtor. In the reply dated 06.08.2019, the Corporate Debtor had not challenged the maintainability of the Section 7 Application nor disputed the financial debt. Hence, the Adjudicating Authority has rightly held that there is a debt and default in payment of the financial debt and is more than Rs. 1,00,000/-, as admitted the application. Ld. Counsel for the second Respondent placed reliance on the Judgments of the Hon ble Supreme Court in Orator Marketing Pvt. Ltd. Vs. Samtex Desinz Pvt. Ltd. (MANU/SC/0487/2021), wherein the Apex Court has held that even a person who gives a term loan to a Corporate Debtor, free of interest, falls within the ambit of Financial Creditor, is defined under the Code . The Learned Sr. Counsel also relied on Metropolis Travels Resorts (I) Pvt. Ltd. Vs. Sumit Kalra and Ors. 98 (2002) DLT 573, ICRI Research Pvt. Ltd. Vs. Bon Lon Securities Ltd. , MANU/DE/4833/2018, Rangappa Vs. Mohan , AIR 2010 SC 1898, Madhusudan Tanita Vs. Amit Chorarira MANU/NL/0374/2020, Innoventive Industries Ltd. Vs. IC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eque amount, does the initiation of Insolvency Proceedings fall within the ambit of the scope, objective and spirit of the Code which is Resolution and not Recovery ? Whether the Adjudicating Authority while admitting a Section 7 Application, as in this case, examine only if there is a Debt and Default but also assess if the intent of the Applicant is primarily only Recovery of the dues ? 5. For better understanding of the case on hand, a few dates are important: It is the case of the second Respondent that an amount of Rs.97,00,000/- was lent to the Corporate Debtor as Short-Term Loan in December 2015, to be repaid within a period of one month. On 11.05.2016, an amount of Rs.9,50,000/- was paid towards part-payment of the loan. On 01.09.2016, the Corporate Debtor issued two post-dated cheques for Rs.57,00,000/- and Rs.30,50,000/-, which had being presented, were returned unpaid on 21.11.2016 and 05.12.2016 respectively. In 2017, the second Respondent filed two separate cases under Section 138 of the NI Act, 1881 before the District Court, Gurgaon, Haryana. On 30.11.2018, a Section 7 Petition was filed being CP (IB) No. 70/CHD/HP/2019 befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, the issue with respect to Admission of Section 7 Petition is required to be decided on the touchstone of the ratio of the Hon ble Supreme Court in Vidarbha Industries Power Limited Vs. Axis Bank Limited , 2022 SCC OnLine SC 841, wherein the Hon ble Apex Court has observed as follows: 55. When an application is filed under Section 7(2) of the IBC, the Adjudicating Authority (NCLT) is required to ascertain the existence of a default from the records of the information utility or any other evidence furnished by the financial creditor under sub-section (3) of Section 7 of the IBC, within 14 days of the date of receipt of the application. 56. Section 7(5)(a) of the IBC, on which much emphasis has been placed both by Mr. Gupta and Mr. Mehta, provides that where the Adjudicating Authority (NCLT) is satisfied that a default has occurred and the application under sub-Section (2) of the IBC is complete and there is no disciplinary proceeding against the proposed Resolution Professional, it may by order, admit such application. If default has not occurred, or the application is incomplete, or any disciplinary proceeding is pending against the proposed Resolution Professional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate Debtor, can completely be disregarded by the Adjudicating Authority (NCLT), when it is claimed that, in terms of the Award, a sum of Rs. 1,730 crores, that is, an amount far exceeding the claim of the Financial Creditor, is realisable by the Corporate Debtor. The answer, in our view, is necessarily in the negative. 62. In our view, the Appellate Authority (NCLAT) erred in holding that the Adjudicating Authority (NCLT) was only required to see whether there had been a debt and the Corporate Debtor had defaulted in making repayment of the debt, and that these two aspects, if satisfied, would trigger the CIRP. The existence of a financial debt and default in payment thereof only gave the financial creditor the right to apply for initiation of CIRP. The Adjudicating Authority (NCLT) was require to apply its mind to relevant factors including the feasibility of initiation of CIRP, against an electricity generating company operated under statutory control, the impact of MERC's appeal, pending in this Court, order of APTEL referred to above and the over all financial health and viability of the Corporate Debtor under its existing management. 63. As pointed out by Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate debtor, making it clear that once triggered, the resolution process under the Code is a collective proceeding in rem which seeks, in the first instance, to rehabilitate the corporate debtor. Under Section 7(4), the adjudicating authority shall, within the prescribed period, ascertain the existence of a default on the basis of evidence furnished by the financial creditor; and under Section 7(5), the adjudicating authority has to be satisfied that a default has occurred, when it may, by order, admit the application, or dismiss the application if such default has not occurred. On the other hand, under Sections 8 and 9, an operational creditor may, on the occurrence of a default, deliver a demand notice which must then be replied to within the specified period. What is important is that at this stage, if an application is filed before the adjudicating authority for initiating the corporate insolvency resolution process, the corporate debtor can prove that the debt is disputed. When the debt is so disputed, such application would be rejected. 85. The judgment of this Court Swiss Ribbons (supra), which was rendered in the context of a challenge to the vires of the IBC, do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inent to mention that the second Respondent in para 14 of their Reply and in para 40 of their objections have never refuted the submission of the Appellant that the Corporate Debtor is a going concern and a viable unit and has great commercial prospects and that the Corporate Debtor in their Reply dated 07.08.2019 have clearly stated that they had the bona fide intention of returning the pending amount . The case of the Second Respondent is that despite being a viable unit, the Appellant has defaulted in paying these amounts. Having accepted interest at 6% per annum, it is the case of the Appellant that the second Respondent is now claiming an interest at 18% per annum. Be that as it may, the Adjudicating Authority, is not a debt collection forum . The Hon ble Supreme Court in a catena of Judgements has held that IBC tackles Insolvency and Bankruptcy and that it is not the objective of the IBC that CIRP should be initiated to penalise a Solvent Company for non-payment of dues. The scope and objective of IBC is to bring about Resolution of an Insolvent Debtor and is definitely not a Recovery Proceeding . 14. The Preamble of IBC is carefully worded to describe the sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than resolution of insolvency.. , keeping in view the factual occurrence of the events of this particular matter, we hold that the intent may not be a malafide intent , but is nevertheless a fundamental attempt to obtain an edge/ advantage / an upper hand in recovering their dues . At this juncture we place reliance on the judgment of The Hon ble Madras High Court in S.T. Sahib Vs. Hasan Ghani Sahib , 1956 SCC OnLine Mad 344 , wherein the Hon ble High Court has examined the word malice and observed that malice would mean inappropriate and wrongful motive to use the law in a manner other than its legally appointed and appropriate purpose . The Hon ble Madras High Court has further observed that a wrongful motive need not be a mala fide intent, it could simply be an attempt to attain an advantage. 17. This Tribunal is of the ernest view that seeking to initiate CIRP, in the factual matrix of the attendant case, is only with an intention for Recovery of their dues and opposes the very spirit, point and purpose of the Code. We hold that A Recovery Proceeding of this nature does fall within the scope and ambit of the words for any purpose other than Resolution , as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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