Phoenix Arc Pvt. Ltd vs Shri Vishal M. Poonater & Anr

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI Company Appeal (AT)(Insolvency) No.184 of 2019 IN THE MATTER OF: M/s. Phoenix ARC Pvt. Ltd. .....Appellant Vs. Shri Vishal M.Poonater & Anr. ......Respondents Present : For Appellant: Mr. Om Prakash, Senior Advocate with Ms. Sonakshi Dhiman, Advocates

For Respondents: Mr. Gaurav Gupta, A.R. for Respondent

22.04.2019 - The Appellant has filed an application u/s 7 of the Insolvency

& Bankruptcy Code ('I&B Code'), 2016 against M/s. Sovereign Developers and

Infrastructure Limited ('Corporate Debtor') which is yet to be admitted. In the

said application, the Respondent Shri Vishal M.Poonater who claims to be the

allottee of Infrastructure Project filed an 'Impleadment Application' which has

been allowed by impugned order dated 17.12.2018 by the Adjudicating

Authority(National Company Law Tribunal), Bengaluru Bench. Thus, the

present appeal has been filed.

Learned counsel for the Appellant submits that no third party can

intervene in the application if the Respondent Shri Vishal M.Poonater can claim

himself to be the 'Financial Creditor', he may join along with the Appellant for

initiation of 'Corporate Insolvency Resolution Process' against M/s. Sovereign

Company Appeal (AT)(Insolvency) No.184 of 2019 ....contd. 2

Developers and Infrastructure Limited ('Corporate Debtor') or he may file his

claim before the 'Resolution Professional' if Section 7 application is admitted.

Mr. Gaurav Gupta, who claims to be the 'Authorised Representative' (in

short A/R) of Shri Vishal M.Poonater submits that Poonater being one of the

allottee has right to oppose the prayer, however, such submission cannot be

accepted as person other than the 'Corporate Debtor' has no role to play at the

stage of application u/s 7.

The Hon'ble Supreme Court in "Innoventive Industries Ltd. Vs. ICICI Bank

(2018) 1 SCC 407]" has observed as under:-

"27. The scheme of the Code is to ensure that when a

default takes place, in the sense that a debt becomes due

and is not paid, the insolvency resolution process begins.

Default is defined in Section 3(12) in very wide terms as

meaning non-payment of a debt once it becomes due and

payable, which includes non-payment of even part thereof

or an instalment amount. For the meaning of "debt", we

have to go to Section 3(11), which in turn tells us that a

debt means a liability of obligation in respect of a "claim"

and for the meaning of "claim", we have to go back to

Company Appeal (AT)(Insolvency) No.184 of 2019 ....contd. 3

Section 3(6) which defines "claim" to mean a right to

payment even if it is disputed. The Code gets triggered the

moment default is of rupees one lakh or more (Section 4).

The corporate insolvency resolution process may be

triggered by the corporate debtor itself or a financial

creditor or operational creditor. A distinction is made by

the Code between debts owed to financial creditors and

operational creditors. A financial creditor has been defined

under Section 5(7) as a person to whom a financial debt is

owed and a financial debt is defined in Section 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

Company Appeal (AT)(Insolvency) No.184 of 2019 ....contd. 4

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 documents, records and

evidence of default in Part V. Under Rule 4(3), the applicant

is to dispatch a copy of the application filed with the

adjudicating authority by registered post or speed post to

the registered office of the corporate debtor. The speed,

within which the adjudicating authority is to ascertain the

existence of a default from the records of the information

Company Appeal (AT)(Insolvency) No.184 of 2019 ....contd. 5

utility or on the basis of evidence furnished by the financial

creditor, is important. This it must do within 14 days of the

receipt of the application. It is at the stage of Section 7(5),

where the adjudicating authority is to be satisfied that a

default has occurred, that the corporate debtor is entitled to

point out that a default has not occurred in the sense that

the "debt", which may also include a disputed claim, is not

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, in which case it may give notice to

the applicant to rectify the defect within 7 days of receipt of

a notice from the adjudicating authority. Under sub-section

(7), the adjudicating authority shall then communicate the

order passed to the financial creditor and corporate debtor

within 7 days of admission or rejection of such application,

as the case may be.

30. On the other hand, as we have seen, in the case of a

corporate debtor who commits a default of a financial debt,

the adjudicating authority has merely to see the records of

Company Appeal (AT)(Insolvency) No.184 of 2019 ....contd. 6

the information utility or other evidence produced by the

financial creditor to satisfy itself that a default has

occurred. It is of no matter that the debt is disputed so long

as the debt is "due" i.e. payable unless interdicted by some

law or has not yet become due in the sense that it is

payable at some future date. It is only when this is proved

to the satisfaction of the adjudicating authority that the

adjudicating authority may reject an application and not

otherwise."

In view of such observations and findings of the Hon'ble Supreme Court,

we are of the view that Adjudicating Authority is to notice whether there is

financial debt and default and if the matter is complete or not.

Learned Counsel for the Respondent Shri Vishal M.Poonater submits that

in terms of the decision of the Hon'ble Supreme Court, no debt is payable. If no

debt is payable as per the law, the application may get rejected. Such claim

cannot be made by another 'Financial Creditor' though it is open to the

'Corporate Debtor' to resolve the dispute.

Company Appeal (AT)(Insolvency) No.184 of 2019 ....contd. 7

For the reason aforesaid, we set aside the impugned order passed by the

Adjudicating Authority and remit the case to the Adjudicating with direction to

decide the application after hearing the Appellant and 'Corporate Debtor' in

accordance with law. No other person should be given liberty at this stage.

However, we make it clear that if the application u/s 7 is admitted, it will be

open to the aggrieved person to move before this Appellate Tribunal.

[Justice S. J. Mukhopadhaya] Chairperson

[Justice A. I. S. Cheema] Member (Judicial)

[Kanthi Narahari] Member (Technical)

ss/gc

Company Appeal (AT)(Insolvency) No.184 of 2019