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2024 Supreme(Online)(NCLAT) 708
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Hon'ble Justice Rakesh Kumar Jain (Member(Judicial)) , Hon'ble Mr. Indevar Pandey (Member (Technical)) , Hon'ble Mr. Naresh Salecha (Member (Technical)) ,
IMDADALI M MOMIN & ORS – Appellant
Versus
PELLUCID LIFESCIENCES PRIVATE LIMITED – Respondent
1145/ND/2024 COMPANY APPEAL(AT)(INS)
Mr. Pavan Godiawala, Mr. M.S. Vishnu Sankar, Mr. Aditya Santosh, Ms. Athira G. Nair, Ms. Anjali Singh, Ms. Isha Singh, Mr. Navin Pahwa, Mr. Himanshu Satija, Ms. Neha Mehta, Mr. Harsh Saxena, Mr. Shevaaz Khan
The absence of a formal loan agreement and clear repayment terms negates the classification of loans as financial debt under the IBC, making the application for CIRP inappropriate.
Headnote:(A) Insolvency & Bankruptcy Code, 2016 - Section 7 - Corporate Insolvency Resolution Process (CIRP) - Appeal against rejection of application for initiation of CIRP - AA found no clear agreement on loan terms, thus rejecting the application - The IBC is not a recovery mechanism for disputed debts - The Corporate Debtor repaid a significant portion of the loan, leading to the conclusion that the application was inappropriate. (Paras 3, 4, 16, 20)
(B) Financial Debt - Definition and requirements - Absence of a formal loan agreement and clear terms of repayment led to the conclusion that the loans did not qualify as financial debt under the IBC - The absence of a contractual obligation to pay interest negated the claim for default. (Paras 8, 13, 20)
Facts of the case:
The appeal arises from the rejection of a petition for CIRP against a Corporate Debtor by the AA, where financial creditors claimed a debt of ₹1,25,44,997.25. The AA found no clear loan agreement or terms of repayment, leading to the dismissal of the application. (Paras 1, 2)
Findings of Court:
The AA correctly determined that the loans did not qualify as financial debt due to the absence of a formal agreement and that the IBC is not a forum for debt recovery. (Paras 20, 21)
Issues: Whether the loans qualify as financial debt under Section 7 of the IBC and whether a default occurred. (Paras 8, 20)
Ratio Decidendi: The court ruled that without a formal loan agreement and clear terms of repayment, the loans could not be classified as financial debt, and the IBC is not intended for recovery of disputed debts. (Paras 20, 21)
Result: Appeal dismissed.
J U D G M E N T
(9th September, 2024)
INDEVAR PANDEY, MEMBER (T)
This appeal arises from the order passed by the National Company Law Tribunal, Ahmedabad Bench, the Adjudicating Authority (AA), in CP (IB) No. 74 (AHM) 2023 in the matter of Imdadali M Momin & Ors. (Financial Creditor) Vs. Pellucid Lifesciences Pvt. Ltd. (Corporate Debtor) for initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor under Section 7 of the Insolvency & Bankruptcy Code (IBC), 2016 (in short ‘Code’). AA vide its order dated 25.04.2024 had rejected the prayer of the Petitioners to initiate the CIRP against the Corporate Debtor/ Respondent. The financial creditors have filed this appeal under Section 61 of the Code, challenging the order by AA.
2. The order passed by AA in brief is given below- Six financial creditors filed an application against the CD, claiming a debt of ₹1,25,44,997.25 with interest @ 12% per annum. The date of default is mentioned as 30.11.2022. However, no record of the default was filed with the Information Utility. The Corporate Debtor argued that the application was not maintainable due to non-compliance with IBBI regulations and claimed the loan was an unsecured advance from the applicants, who were also the promoters, with no agreement on repayment or interest. After the application was filed, the Corporate Debtor repaid Rs.99,07,375.48, but the petitioners insisted that the petition should proceed since the full amount was unpaid.
3. The AA rejected the application, because it found that there was no clear agreement between the creditors and the Corporate Debtor regarding the loan terms, including the repayment schedule and the interest rate. Without such an agreement, it was unclear, whether interest was payable and at what rate. The AA emphasized that the Insolvency and Bankruptcy Code (IBC), 2016, is meant for insolvency resolution and not for recovering disputed debts. Since the Corporate Debtor had already repaid a significant portion of the loan and raised a valid dispute regarding the interest, the AA determined that the application was not appropriate for the IBC process and rejected it.
4. The brief facts of the case are as follows:
(i) The CD was incorporated on August 30, 2013, with an authorized capital of Rs.3 crore and a paid-up share capital of Rs. 2.1 crore. The Appellant No. 1 was one of the Promoter Director of the CD.
(ii) Between 2013 and 2022, the Corporate Debtor (CD) approached the appellants for financial assistance, resulting in the appellants advancing loans over this period. The cumulative amount of the loans provided by the appellants totaled Rs. 1,25,44,997.25. The specific details of each loan disbursement are given in the demand notice under Section 7 of the Code dated November 12, 2022. The notice also highlighted that for the financial year ending March 31, 2022, the CD paid Rs. 6,53,661.30 as interest and TDS was also deducted in respect of Appellant 1 and 3 in compliance with the Income Tax Act. Despite these payments, the CD failed to pay interest to Appellant 4 to 6 from April 1, 2019, onwards, leading to an outstanding interest liability of Rs. 20,36,880.79 by October 30, 2022.
(iii)There is no formal loan agreement giving the amount of principal, rate of interest per annum and frequency of interest payable, if any.
(iv) The demand notice under section 7 of the Code was received by the CD on
15.11.2022. The appellants claimed the date of default as 30.11.2022, 15 days after the receipt of the demand. The ledgers of the CD had acknowledged that it had availed loans from the appellants, with the ledgers also reflecting the interest calculations for the period between April 1, 2021, and March 31, 2022. On March 7, 2023, the appellants filed an application under Section 7 of the Code to initiate insolvency proceedings against the CD.
(v) During the pendency of CIRP proceedings on January 17, 2024, the CD made partial repayments totaling Rs.99,07,375.48 through RTGS and
