The NCLAT, New Delhi expounded that the trigger for Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) is the occurrence of default by the Corporate Debtor. The Bench expounded that it is a basic requirement of the Section that there must be a financial debt owed by the Corporate Debtor to the financial creditor.
In the present case, the Appellant failed to prove any direct disbursement of money to the Corporate Debtor. Further, the Corporate Debtor did not admit the debt even once. There was no proof for existence of a debt.
Further, it was noted that there was no case made for piercing the corporate veil as the Appellant could not even prove any direct transactions with the Corporate Debtor.
Brief Facts:
The present appeal has been preferred against the order of the NCLT vide which the Section 7 Application under the IBC was dismissed.
Contentions of the Appellant:
It was submitted that Appellant provided loan to Corporate Debtor for construction of the hospital. There were legitimate loan transactions between the parties.
It was asserted that there was no legal requirement for proving existence of any written contract to establish that the Corporate Debtor owed a financial debt.
The need to pierce the corporate veil was asserted as shareholders were one and the same.
It was further alleged that the Corporate Debtor was using the Noble Bank to cheat and defraud tax authorities.
Contentions of the Respondent:
It was contended that the loans were not given to the Corporate Debtor. The loans were transferred to the personal accounts and cannot be treated as the sum given to the Corporate Debtor.
It was argued that no debt was proved, hence the question of default does not arise.
Observations of the Tribunal:
It was noted that the trigger for Section 7 is the occurrence of default by the Corporate Debtor. The Bench expounded that it is a basic requirement of the Section that there must be a financial debt owed by the Corporate Debtor to the financial creditor.
In the present case, the Appellant failed to prove any direct disbursement of money to the Corporate Debtor. Further, the Corporate Debtor did not admit the debt even once. There was no proof for existence of a debt.
Further, it was noted that there was no case made for piercing the corporate veil as the Appellant could not even prove any direct transactions with the Corporate Debtor.
The decision of the Tribunal:
Based on the aforementioned analysis, the Tribunal dismissed the appeal and upheld the order of the NCLT.
Case Title: Gp. Capt Atul Jain (Retd.) v. Tripathi Hospital Pvt. Ltd. & Ors.
Case No.: Company Appeal (AT)(Ins) No. 655 of 2020
Coram: Justice Ashok Bhushan, Mr. Barun Mitra (Technical Member)
Advocates for Respondents: Advs. Mr. Ashok Kumar Singh, Mr. Vikram Singh Baid, Mr. Adarsh Tripathi, Ms. Meghna, Mr. Kunal, Ms. Ekta Choudhary, Mr. Dinyank Dutt Dwivedi
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