The National Company Law Appellate Tribunal NCLAT), New Delhi Bench comprising Justice Ashok Bhushan, Chairperson, Dr. Alok Srivastava and Barun Mitra, Technical Members was hearing an Appeal on Tuesday and held that the Judgment-decree provides a fresh cause of action to the Appellant to move the Application under section 7 of IBC.
The present Appeal has been filed under section 61 of the Insolvency and Bankruptcy Code, 2016 by the Appellant aggrieved by an order dated 20.6.2022 passed by the Adjudicating Authority, by which the Adjudicating Authority has dismissed the application filed under section 7 of the IBC on the ground that a decree holder does not come within the definition of ’Financial Creditor’. The Adjudicating Authority has further held that in view of the facts and circumstances of the instant case, the debt in question which is included in the section 7 application does not come under the purview of ‘financial debt’.
The Appellate Authority of NCLAT observed that the two loan agreements in question made it clear that the loans were interest bearing and the interest rate is also clearly specified in the respective loan agreements. The time period of the loans was also specified in the loan agreements and security towards timely repayment of the loan has also been specified in clause 3 of both the loan agreements. Further clause 5 of both the loan agreements made it clear that the borrower shall execute post-dated cheques for repayment in favour of lenders. All these features of the two loan agreements very clearly showed that the amounts advanced by the Appellant to Respondent were in the nature of financial debt which carries the time value of money.
The NCLAT noted that a plain reading of the judgment of a Single Judge of the Hon’ble High Court of Delhi of 11.1.2018 made it clear that the Hon’ble High Court has passed a decree against the defendants for an amount of Rs.4,38,00617 along with interest @ 24% p.a. from 1.2.2016 along with pendente lite till the date of actual payment of the full amount after deducting Rs.25 lakhs paid by the plaintiff. It appears that the interest rates mentioned in loan agreements have not been noticed by the Adjudicating Authority and the interest rate of 24% p.a., which was included in the decree by the Hon’ble Delhi High Court, has been taken as the first instance when interest was levied on the amount of debt. The Appellate Authority did not think this was the correct reading of the loan agreements as loan amounts have associated interest rates and time periods. The jural relationship between the parties was also clearly established in the loan agreements and thus the amounts advanced by the Appellant were covered in the definition of ‘financial debt’ under sub-section (8) of section 5 of the IBC. The Appellate Tribunal were also of the clear opinion that no fraud has been played by the operational creditor in obtaining the decree from the Hon’ble High Court of Delhi. Moreover, the corporate debtor had not taken any action on the order of the Division Bench of Hon’ble Delhi High Court claiming that the decree was obtained by fraud.
The Appellate Authority noted that the ratio cited in the judgment of Dena Bank, REED 2021 SC 08512, made it clear that the judgment or decree of money in favour of the financial creditor passed by DRT or any other tribunal or court would give rise to a fresh cause of action for the financial creditor, to initiate proceedings under the section of the IBC. In the present case, the judgment-decree dated 11.1.2018 of the Hon’ble High Court of Delhi in favour of the Appellant thus provides a fresh cause of action to the Appellant to move the application under section 7 of IBC.
The Appellate Tribunal also noted the judgment of Three Judge Bench of Hon’ble Apex Court in the matter of Kotak Mahindra Bank Limited v. A. Balakrishnan and Another, REED 2022 SC 05561, wherein it was held that the view taken by Two Judges’ Bench of the Supreme Court in case of Dena Bank, REED 2021 SC 08512, was correct in law.
In the light of the detailed discussion, the Appellate Authority held the view that the Adjudicating Authority had erred grossly by not considering that the two loan agreements and the features therein were in fact relating to financial debts which were due and payable to the Appellant by the Respondent.
As a result, the Appellate Tribunal set aside the Impugned Order and directed the admission of the section 7 Application.