NCLAT, in Monotrone Leasing Pvt. Ltd vs Pm Cold Storage Pvt. Ltd stated that, if someone is solvent doesn't mean that he won’t commit a default. The tribunal also ruled that rather than the "inability to pay debts", it is the "determination of default" that is relevant for allowing or disallowing an Application filed under Section 7, 9, or 10 of IBC.
Facts
The petitioner filed an application under Section 7 of the Insolvency and Bankruptcy Code against PM Cold Storage Company for Corporate Insolvency Resolution Process as they were unable to pay the debt of Rs.27,19,110/- (Rs. 25,00,000+interest). After receiving the amount, however, a post-dated cheque of 9th October 2018 was given which was dishonoured and a notice under Section 138 of Negotiable Instrument Act,1881 was served.
NCLT's decision
The corporate debtor(CD) claimed that there was no debt due to the financial creditor(FC) and the earlier ones were cleared by large no. of transactions between the parties and said that transaction was not inter-corporate deposit and petitioner can’t be FC. Also, the cheque was the security to deposit and hence can not be claimed in the present case. NCLT rejected the petition stating it cannot act as a recovery tribunal. Also, FC couldn't produce the required documents to show the proof regarding the loan given to CD. The case was in favor of CD and FC couldn't claim and recover the amount due to lack of evidence. Also, the transaction by which the alleged loan was disbursed through RTGS was not in the name of FC. Also, CD had a balance of 25L in their financial statement, and hence they can be called the solvent. The petitioners however made an appeal to the NCLAT.
NCLAT's Findings
The counsel reiterated that Rs. 25,00,000 were lent on 15% interest and a post-dated cheque was also given to the FC. Relevant documents along with paper books were submitted to the court. Upon looking at the financial statement of 14th June 2017 it was observed, at 3:43 pm FC received 25lakh from Agrotech and at 3:46 pm 25 lakh was given to CD. The Adjudicating Authority has expressed doubt whether the statement stood in the name of Financial Creditor or not as the title name did not indicate the name of the Financial Creditor anywhere. Further, FC showed a receipt of an inter-corporate loan. FC also had filed a copy of cheque no.242228 dated 12/09/17. The dishonoured cheque no. was 242294 dated 9/10/18, and the CD claimed that no debt was due, so the question arose as to what happened to the Cheque no. 242228, whether it was encashed or returned.
CD never claimed that repayment was made to FC, in fact, cheque given in Sept 2017 was never cashed and the loan period was extended by one year. Thus, the validity of Sept 2017 cheque's validity has expired. Appellant submitted that no such dispute was referred to by CD before NCLT, however, NCLT failed to appreciate that issuance of cheque No.242294 also gives an unconditional admission on behalf of the Respondent towards the debt of the FC. Regarding inter-corporate loan, it was evident from the ledger statement that the FC received interest of Rs.65,650/- . The FC even filed the Form26 IT dept. That shows FC was paid interest and TDS was deducted. Thus it became very clear that an inter-corporate loan was given. Additionally, the FC did not produce evidence to prove that the loan was granted as per the request of CD. The adverse inference was drawn from such non-submission for obtaining a loan from NBFC.
NCLAT’s RULING
For the acceptance of application under Section 7 it has to be accepted by the Adjudicating Authority that a default has occurred and in the present case, it was clear that there was a debt of Rs. 25,00,000. The reasoning for rejection by NCLT was given as CD being a solvent cannot commit any default. NCLAT rejected this and said that inability to pay the debt has no relevance for admitting or rejecting an application for initiation of CIRP under the IBC.
The court referred to the Swiss Ribbon case where it was said that rather than the "inability to pay debts", it is the "determination of default" that is relevant for allowing or disallowing an Application filed under Section 7, 9 or 10 of IBC.
NCLAT also held, “The Civil Court was not competent to issue an injunction order for a case pending before this Tribunal under IBC. The Adjudicating Authority has erred in rejecting the application based on the pendency of civil suit between the parties.
NCLAT also rejected NCLT’s decision to reject the application on the ground that it is not a forum for recovery of amount while stating Section 65 of IBC.
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