Prayag Polytech Pvt. Ltd vs Hind Tradex Ltd

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI Company Appeal(AT)(Insolvency) No. 535 of 2019 IN THE MATTER OF: Prayag Polytech Pvt. Ltd. ...Appellant Vs Hind Tradex Ltd. ....Respondent Present: For Appellant: Mr. Virender Ganda, Senior Advocate along with Mr. Vipul Ganda and Ms. Shreya Jain, Advocates

For Respondent: Mr. Ankul Raj, Ms. Nikita Raj and Priscilla, Advocates

ORDER

16.08.2019 The Appellant - Prayag Polytech Pvt. Ltd. has filed an

application under Section 7 of Insolvency and Bankruptcy Code, 2016 (In short

'IBC') on 12.02.2019 pursuant to which, on notice, Hind Tradex Ltd ('Corporate

Debtor') appeared. However, instead of argument on the question of

maintainability for admission of application under Section 7 of IBC, six

Directors-Applicants of the 'Financial Creditor' sought impleadment as party

Respondent.

2. The Adjudicating Authority (National Company Law Tribunal) Principal

Bench, New Delhi, by impugned order dated 29.04.2019 allowed the prayer for

intervention by the Directors of the 'Financial Creditor' and to address

arguments at the time of admission without impleading them as party.

3. We have heard the learned Counsels for the Appellant/'Financial Creditor'

and Respondent. Objection has been raised as to how the Application under

Section 7 of IBC is to be dealt with. How the Adjudicating Authority should

Company Appeal (AT)(Insolvency) No. 535 of 2019 Page 1 of 6 consider the matter at the stage of admission fell for consideration of Hon'ble

Supreme Court in "Innoventive Industries Ltd. Vs. ICICI Bank and Anr." - (2018)1

SCC 407, when the Hon'ble Supreme Court observed:

......

"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 nonpayment 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 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

Company Appeal (AT)(Insolvency) No. 535 of 2019 Page 2 of 6 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 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

Company Appeal (AT)(Insolvency) No. 535 of 2019 Page 3 of 6 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 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

subsection (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.

29. The scheme of Section 7 stands in contrast

with the scheme under Section 8 where an operational

Company Appeal (AT)(Insolvency) No. 535 of 2019 Page 4 of 6 creditor is, on the occurrence of a default, to first deliver

a demand notice of the unpaid debt to the operational

debtor in the manner provided in Section 8(1) of the Code.

Under Section 8(2), the corporate debtor can, within a

period of 10 days of receipt of the demand notice or copy

of the invoice mentioned in subsection (1), bring to the

notice of the operational creditor the existence of a

dispute or the record of the pendency of a suit or

arbitration proceedings, which is pre-existing - i.e. before

such notice or invoice was received by the corporate

debtor. The moment there is existence of such a dispute,

the operational creditor gets out of the clutches of the

Code.

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 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

Company Appeal (AT)(Insolvency) No. 535 of 2019 Page 5 of 6 authority that the adjudicating authority may reject an

application and not otherwise."

....

4. From the plain reading of Section 7 of IBC it is clear that the Adjudicating

Authority, on being satisfied and if the application is complete, after notice and

hearing the 'Corporate Debtor', may either admit the application or reject it. The

Hon'ble Supreme Court also noticed the aforesaid mandate of law. In that view

of the matter, we are of the view that there is no requirement for intervention of

any Directors or shareholders of the 'Financial Creditor' or any other party before

admission of Application under Section 7 of IBC. If the application is admitted,

it would be open to any aggrieved party to move before this Appellate Tribunal.

5. For the aforesaid reasons, we set aside the impugned order dated

29.04.2019. We direct the 'Financial Creditor' & 'Corporate Debtor' to appear

before the Adjudicating Authority and the Adjudicating Authority on hearing the

parties will pass appropriate order on merit of the case on the next date or within

a reasonable time.

The appeal is allowed with the aforesaid observations.

[Justice S.J. Mukhopadhaya] Chairperson

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

(Kanthi Narahari) Member(Technical) Akc/Sk

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