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SUPREME COURT OF INDIA
INDIRA BANERJEE, V. RAMASUBRAMANIAN, JJ.
M/s Orator Marketing Pvt. Ltd. – Appellant
Versus
M/s Samtex Desinz Pvt. Ltd. – Respondent
Civil Appeal No. 2231 of 2021
Decided On : 26-07-2021
(A) Insolvency and Bankruptcy Code, 2016 – Sections 5(8) and 7 – Financial debt – Scope and ambit – Definition of ‘Financial Debt’ in Section 5(8) of IBC does not expressly exclude an interest free loan – ‘Financial Debt’ would have to be construed to include interest free loans advanced to finance business operations of a corporate body – Definition of ‘financial debt’ in Section 5(8) of IBC cannot be read in isolation – Corporate Resolution Process gets triggered when a Corporate Debtor commits a default – Having regard to Aims, Objects and Scheme of IBC, there is no discernible reason why a term loan to meet financial requirements of a Corporate Debtor for its operation, which has commercial effect of borrowing, should be excluded from purview of a financial debt – Judgment and order impugned set aside – Order of Adjudicating Authority, dismissing petition of Appellant under Section 7 of IBC also set aside – Petition under Section 7 stands revived and may be decided afresh, in accordance with law. (Paras 15, 16, 19, 29, 31 and 32)
(B) Interpretation of Statute – Legislative Intent – In construing and/or interpreting any statutory provision, one must look into legislative intent of statute – Intention of statute has to be found in words used by legislature itself – In case of doubt, it is always safe to look into object and purpose of statute or reason and spirit behind it – Each word, phrase or sentence has to be construed in light of general purpose of the Act itself – When a question arises as to meaning of a certain provision in a statute, provision has to be read in its context – Statute has to be read as a whole – Previous state of law, general scope and ambit of statute and mischief that it was intended to remedy are relevant factors. (Paras 9 and 10)
Facts of the case:
Present appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 is against the final judgment and order of the National Company Law Appellate Tribunal (NCLAT), New Delhi in Company Application (AT)(Insolvency) No. 1064 of 2020 dated 08-03-2021, whereby the NCLAT has been pleased to dismiss the appeal of the Appellant and confirmed the order dated 23.10.2020 of Adjudicating Authority, i.e., the National Company Law Tribunal (NCLT), New Delhi, dismissing the petition being CP(IB) No. 908/ND/2020, filed by the Appellant under Section 7 of the IBC with the finding that the Appellant is not a financial creditor of the Respondent. The Appellant is an assignee of the debt in question. Short question involved in this Appeal is, whether a person who gives a term loan to a Corporate Person, free of interest, on account of its working capital requirements is not a Financial Creditor, and therefore, incompetent to initiate the Corporate Resolution Process under Section 7 of IBC.
Findings of Court:
Judgment and order of the NCLAT, affirming the judgment and order of the Adjudicating Authority (NCLT) and dismissing the appeal is patently flawed. Both the NCLAT and NCLT have misconstrued the definition of ‘financial debt’ in Section 5(8) of the IBC, by reading the same in isolation and out of context.
Result : Appeal allowed.
JUDGMENT :
INDIRA BANERJEE, J.
1. This appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the IBC) is against the final judgment and order of the National Company Law Appellate Tribunal (NCLAT), New Delhi in Company Application (AT) (Insolvency) No. 1064 of 2020 dated 08-03-2021, whereby the NCLAT has been pleased to dismiss the appeal of the Appellant and confirmed the order dated 23.10.2020 of the Adjudicating Authority, i.e. the National Company Law Tribunal (NCLT), New Delhi, dismissing the petition being CP(IB) No. 908/ND/2020, filed by the Appellant under Section 7 of the IBC with the finding that the Appellant is not a financial creditor of the Respondent. The Appellant is an assignee of the debt in question.
2. The short question involved in this Appeal is, whether a person who gives a term loan to a Corporate Person, free of interest, on account of its working capital requirements is not a Financial Creditor, and therefore, incompetent to initiate the Corporate Resolution Process under Section 7 of the IBC.
3. M/s Sameer Sales Private Limited, hereinafter referred to as to “Original Lender” advanced a term loan of Rs. 1.60 crores to the Corporate Debtor for a period of two years, to enable the Corporate Debtor to meet its working capital requirement. The Original Lender has assigned the outstanding loan to the Appellant.
4. According to the Appellant the loan was due to be repaid by the Corporate Debtor in full within 01.02.2020. The Appellant claims that the Corporate Debtor made some payments, but Rs. 1.56 crores still remain outstanding.
5. The Appellant filed a Petition under Section 7 of the IBC in the NCLT for initiation of the Corporate Resolution Process. The petition was, however, rejected by a judgment and order dated 23.10.2020. The Adjudicating Authority (NCLT) held:
“11. Heard the parties and perused the case records.
12. There is no dispute that the applicant initially had disbursed the amount interest free to the respondent company. A perusal of the application it is clear that the loan was given interest free.
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15. Mere grant of loan and admission of taking loan will ipso fact not treat the applicant as ‘Financial Creditor’ within the meaning of Section 5(8) of the Code.
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17. In the application the applicant himself has submitted that the loan was interest free....
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20. It is well settled that the onus lies on the applicant to establish that the loan was given against the consideration for time value of money. Onus to prove also lies on the applicant to establish that the debt claimed in the application comes within the purview of ‘financial debt’ and that the applicant is a financial creditor’ in respect of the present claim in question. Applicant has miserably failed to substantiate with supporting documentary evidence that interest, as claimed at Part-V of the application, is payable as per the agreed loan covenants.
21. Hon’ble NCLT in the matter of Dr. B.V.S. Lakshmi vs. Geometrix Laser Solutions Private Limited has observed that coming within the definition of ‘Financial Debt’ as defined under sub-section (8) of Section 5 the Claimant is required to show that (I) there is a debt along with interest, if any, which has been disbursed and (ii) such disbursement has been made against the “consideration for the time value of money.”
22. It is reiterated that in the present case neither the loan agreement has any provision regarding the payment of interest not there is any supporting evidence/document to establish applicable rate of interest to be paid on the said loan. The applicant has failed to prove that the loan was disbursed against consideration for time value of money, particularly when respondent company has affirmed that no interest has been paid not payable at any point of time.
23. Similarly, in the matter of Shreyans Realtors Private Limited and Another vs. Saroj Realtors and Developers Private Limited, Company Appeal (AT) (Ins
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