CORPORATE DEBTOR CANNOT BE DRAGGED INTO CIRP MALA FIDE FOR PURPOSE OTHER THAN RESOLUTION OF INSOLVENCY: NCLT MUMBAI

The Mumbai bench of National Company Law Tribunal (NCLT) in the case Gateway Offshore Private Limited and Anr. v Runwal Realtors Private Limited, comprising of the bench of Justice P. N. Deshmukh (Judicial Member) and the technical member, Mr. Kapal Kumar Vohra, while adjudicating an application filled where it has held that that a written contract cannot be treated as a pre- requisite to prove the existence of a financial debt and it must satisfy the adjudicating authority that for mala fide or any other purpose, the Corporate debtor is not being dragged into Corporate Insolvency Resolution Process (CIRP), other than the resolution of the Insolvency. on 10.06.2022, the order was passed. FACTS OF THE CASE The Applicants, Gateway Offshore Pvt. Ltd. and Goodhope Software Pvt. Ltd had jointly provided the facility to the Respondent, Runwal Realtors Pvt. Ltd to the tune of Rs.4,43,00,000/- and the Respondent had defaulted in the repayment of the same. An application under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) was filled by the applicant before the Mumbai National Company Law Tribunal (NCLT) bench i.e., adjudicating authority for seeking initiation of Corporate Insolvency Resolution Process against the Respondent.

APPLICANT’S CONTENTIONS

It was contended by the applicant that the amount of Rs.4,43,00,000/- was disbursed as a loan to the Respondent along with interest at the rate of 9 % p.a. which is to be repaid on or before June 2018, which the Respondent failed to do.

RESPONDENT’S CONTENTIONS

The application was challenged by the respondent on the issue of maintainability by submitting that the transaction between the parties did not classify as a Financial Debt. As no loan agreement existed there and no communication in the form of letters or emails for substantiating the claim and the Applicants do not possess any license to operate as NonBanking Finance Companies. In the Supreme Court judgement in Swiss Ribbons v Union of India, (2019) 4 SCC 17, reliance was placed on to support the proposition that in the absence of any loan agreement or the documentary evidence the claim cannot lie.

THE ADJUDICATING AUTHORITY DECISION

It was observed that the adjudicating authority relied on the judgement of the National Company Appellate Tribunal (NCLAT) in Narendra Kumar Agarwal and Ors. v Monotrone Leasing Private Limited and Ors, wherein it was held that the written contract cannot be treated as an essential element or prerequisite to prove the existence of Financial Debt. It was observed by the bench that the applicant had failed to bring on record any other evidence in the form of a loan agreement, promissory note, contract or any document to substantiate that a default is done of the same and their claim that there was a financial debt. The bench remarked that it cannot be assumed to have been towards a loan as claimed by the Financial Creditor, in absence of any written document indicating the purpose of the said transactions. The bench observed while considering the above facts and circumstances that we hold that while a written contract cannot be treated as a prerequisite to proving the existence of financial debt. However, the Adjudicating Authority must be satisfied that the Corporate Debtor is not being dragged into Corporate Insolvency Resolution Process mala fide for any purpose other than the resolution of the Insolvency. The bench dismissed the application.