Raghav Sharma vs Ivl Finance Pvt. Ltd. & Anr

Raghav Sharma ...Appellant

Vs

IVL Finance Pvt. Ltd. & Anr. ....Respondents

Present:

For Appellant: Mr. Sangram Patnaik, Ms. Tania Sharma and Ms. Rukmini, Advocates.

For Respondents:

ORDER

22.04.2019: 'IVL Finance Pvt. Ltd.' (Financial Creditor) filed application

under Section 7 against 'Incom Cables Private Limited' (Corporate Debtor), which

was admitted by the Adjudicating Authority by impugned order dated 8th April,

2019. The Appellant, shareholder of the Corporate Debtor has challenged the

same mainly on the ground that there is no default.

2. Learned counsel appearing on behalf of the Appellant submits that in

terms of the agreement the total amount is to be paid by 5th June, 2020. There

were three times defaults for which the Respondent issued notice, pursuant to

which the default amount has been paid, therefore, according to him there is no

default and in absence of default the application under Section 7 is not

maintainable and the Adjudicating Authority had no jurisdiction to entertain the

application.

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3. He further submitted that there was mismatch in the amount which

according to the Adjudicating Authority is to be determined by the Resolution

Professional or the Committee of Creditors. According to him, it is against the

provisions of the I&B Code and also against the decision of Hon'ble Supreme

Court in "Innoventive Industries Ltd. Vs. ICICI Bank and Ors. reported in (2018)1

SCC 407", and "Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors., Writ

Petition (Civil) No. 99/2018, reported in 2019 SCC OnLine SC 73".

4. Admittedly, the loan agreement was executed between the parties on 27th

July, 2017, in the said agreement the Directors of the Corporate Debtor namely

Mr. Raghav Sharma and Ms. Rupa Rani Sharma were the co-borrowers. The

clause dealing with the 'event of default' committed by the Corporate Debtor in

the agreement reads as under:-

"12. EVENTS OF DEFAULT

12.1 Each of the events or circumstances set out herein is

an Event of Default.

(a) Non-payment

The Borrower(s) do not pay by the Due Date(s) the

Borrower's Dues (or part thereof) and /or any amount

payable pursuant to a Loan Document.

(b) ...........

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(c) ...........

(d) ...........

(e) ...........

(f) ...........

(g) ...........

(h) ...........

(i) ...........

12.2 On an at any time after the occurrence of an Event of

Default, Lender may, with or without any notice to any of the

Obligor(s) and with or without the intervention of the

court/arbitrator (i) cancel/recall the Loan whereupon the

Borrower's Dues shall become immediately repayable/

payable by the Obligator(s); and/or (ii) initiative/ exercise any

or all of its rights, actions, remedies and powers under the

Loan Documents and/or applicable laws (including issuance

of show-cause notice(s) to the Obligator(s) and for making

submissions before the relevant committee of the Lender).,

and/or (iii) enforce, sell, invoke, deliver, deal with, take

possession, convey, transfer, assign, lease, sub-lease,

encumber and/or dispose of in any manner ................"

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5. From the aforesaid terms of agreement it is clear that the moment there is

a default it is open to the Financial Creditor to recall the total loan amount. It

is not in dispute that the Financial Creditor in view of the three defaults recalled

the loan amount though amounts payable as per three defaults were made good.

6. In the case of "Innoventive Industries Ltd. Vs. ICICI Bank and Ors. reported

in (2018)1 SCC 407", 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 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 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

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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 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

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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 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

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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.

...x...x...x..

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

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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."

6. From the aforesaid fact it will be evident that even if debt is disputed, there

being a default of payment of more than Rupees One Lakh, on recall of loan

amount, the application under Section 7 was maintainable. So far as the

mismatch of the claim is concerned, the Respondent is required to file the claim

before the Resolution Professional. The Resolution Professional is to collate the

claim, though he has no right to decide the claim as decided by Hon'ble Supreme

Court in "Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors., Writ Petition

(Civil) No. 99/2018, reported in 2019 SCC OnLine SC 73". The Resolution

Professional has right to collate the claim and on verification of the claim,

determines the claim payable or part of it in terms with the resolution plan.

7. In view of the aforesaid fact and position of the law, we are not inclined to

interfere with the impugned order. In absence of any merit, appeal is dismissed.

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No costs. However, this order will not come in the way of the Appellant to settle

the claim in terms of the provisions of the I&B Code including Section 12A.

[Justice S. J. Mukhopadhaya] Chairperson

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

(Kanthi Narahari) Member (Technical)

am/gc

Company Appeal (AT) (Insolvency) No. 427 of 2019