"CIRP cannot be initiated against Corporate Debtor for any reason other than Resolution of Insolvency": NCLT A written contract is not a pre-requisite to proving the existence of financial debt. The National Company Law Tribunal of Mumbai recently rejected the Company Petition filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 on the grounds that a Corporate Debtor cannot...
Access the exclusive LEGAL ERAStories,Editorial and Expert Opinion
"CIRP cannot be initiated against Corporate Debtor for any reason other than Resolution of Insolvency": NCLT
A written contract is not a pre-requisite to proving the existence of financial debt.
The National Company Law Tribunal of Mumbai recently rejected the Company Petition filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 on the grounds that a Corporate Debtor cannot be dragged into a Corporate Insolvency Resolution Process for any purpose other than Resolution of Insolvency.
The present petition was filed by Gateway Offshore Pvt Its against Runway Realtors Pvt towards a loan of Rs. 4,43,00,000 plus interest at 9% p.a.
The total amount claimed by the Financial Creditor was Rs. 5,02,80,500/- and the date of default was 03 July 2022.
It was also noted by the Tribunal that the Financial Creditor failed to furnish any evidence indicating the present transaction, it cannot be assumed towards the loan as claimed by the Financial Creditor.
The Financial Creditor contended that the Corporate Debtor approached them for financial assistance for a short period for business expansion in 2017. Having an acquaintance with the Corporate Debtor, the Financial Creditor agreed to disburse the said loan.
Upon the failure to repay the loan within the stipulated timeline, the Financial Creditor addressed a legal notice dated 12 September 2018 calling upon the Corporate Debtor to repay the loan amount. Replying to the legal notice, the Corporate Debtor disputed the debt.
It was further submitted that the Financial Creditor did not enter into a Joint Venture Agreement with the Corporate Debtor because it is not in the business of the real estate.
In response to the aforementioned submissions, the Corporate Debtor contended the maintainability of the petition. It was further contended that the transaction between the parties does not qualify as financial debt.
A counterclaim was raised by the Corporate Debtor, wherein it was stated that the said amount was made by the Financial Creditor towards the joint development of the land. The Financial Creditors were liable to contribute Rs.17 Crore out of which only Rs.4,43,00,000/- has been paid to the Corporate Debtor.
Further, the Corporate Debtor stated that the Financial Creditor does not have a license to grant loans as a non-financial entity, additionally, the Financial Creditor has not entered into a loan agreement or communication in the form of a letter to substantiate the claim.
Relying on the case, Swiss Ribbons vs Union of India and Carnoustie Management India Pvt. Ltd. vs CBS International Projects Private Limited, it was stated that in the present case the debt is not financial debt.
In light of the submissions and contentions made by the Parties, the Tribunal was of the view that a written contract is not a pre-requisite to proving the existence of financial debt. However, there was no written document indicating the nature of the present transaction. Additionally the Creditor had failed to bring on record any other evidence in the form of a loan agreement, promissory note, contract or any document to substantiate its claim that there was a financial debt and a default of the same.
Finally, the tribunal held that there is no evidence to allow or admit the present Application.