CIRP cannot be Initiated u/s 7 of IBC on Transfer Agreement for Purchase of Debentures from Financial Creditors: NCLT [Read Order]
The NCLT observed that the Corporate Insolvency Resolution Process (CIRP) cannot be initiated under Section 7 of IBC on transfer agreement for purchase of debentures from financial creditors
CIRP – Initiated – IBC – Transfer Agreement – Purchase of Debentures – Financial Creditors – NCLT – taxscan
CIRP – Initiated – IBC – Transfer Agreement – Purchase of Debentures – Financial Creditors – NCLT – taxscan
The Mumbai Bench of the National Company Law Appellate Tribunal ( NCLT ) observed that the Corporate Insolvency Resolution Process ( CIRP ) cannot be initiated under Section 7 of the Insolvency and Bankruptcy Code, 2016 ( IBC ) on transfer agreement for purchase of debentures from financial creditors.
The Company Petition filed under section 7 of the Insolvency and Bankruptcy Code, 2016 ( IBC ) filed by Edelweiss Asset Reconstruction Company Limited ( "the Financial Creditor" ), seeking to initiate Corporate Insolvency Resolution Process ( CIRP ) against Ajmera Realty and Infra India Limited ( "the Corporate Debtor " ).
The Petitioner submitted that the recitals of the Transfer Agreement and Financial Undertaking narrate the sequence of events in regard the issuance of NCDs by MDPL, execution of Debenture Trust Deed and default committed by MDPL and the Admission Order. The Transfer Agreement specifically provides that words not defined therein shall have the meaning attached to them under the Debenture Trust Deed. These agreements record the terms and conditions for purchase of NCDs by the Corporate Debtor.
It was further submitted that these agreements expressly provide that the liability of the Corporate Debtor to pay the aforesaid sum was absolute, unconditional, and irrevocable. It was agreed that out of the Rs. 31,66,00,000/-, the Corporate Debtor would make an upfront payment of Rs. 3,26,00,000/- and the balance sum of Rs. 28,40,00,000/- was to be paid by 31st December 2022.
The Respondent submitted that no money whatsoever has been lent to the Respondent by the Petitioner for 'temporary use' or otherwise, in other words there has been no borrowing by the Respondent whatsoever from the Petitioner. It was further submitted that any reliance on the 'Transfer Agreement and/or Financial Undertaking' is also misconceived as any purported obligation under the 'Transfer Agreement' and/ or 'Financial Undertaking' would not constitute a 'financial debt' under section 5(8) of the Code. The Respondent has not 'guaranteed any of the amounts payable by Meeti Developers Private Limited ( "MDPL" ) to the Petitioner.
A Two-Member Bench comprising Prabhat Kumar, Technical Member and Justice VG Bisht observed that “The Supreme Court has settled the position of law that the element of disbursal against the consideration of time value of money has to be traced in the genesis of debt. In the present matter, the transaction was for purchase of debentures for consideration and it is evident that the element of disbursal against the consideration for time value of money is absent. It appears that Petitioner has instituted the captioned Petition for recovery of money and seeks specific performance of the terms of the agreement.”
To Read the full text of the Order CLICK HERE
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