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Judgment
ORDER
Per: Cmde, Siddharth Mishra, Member (Technical):
The Court congregated through hybrid mode.
Heard the Learned Counsels for both the parties.
Factual matrix: The instant company petition has been filed under Section 7 of the Insolvency and Bankruptcy Code, for brevity I&B Code, read with Rule 4 of the Insolvency and Bankruptcy (Application to the Adjudicating Authority) Rules, 2016, by “Abhishek Agarwal ”, hereinafter referred to as “Financial Creditor”/ “Applicant” against “Shree Dwarkadhish Udyog Private Limited”, hereinafter referred to as “Corporate Debtor”/ “Respondent” seeking direction to initiate Corporate Insolvency Resolution Process (for brevity “CIRP”) in respect of the Corporate Debtor due to a default in repayment of a financial debt amounting to Rs.1,54,82,623/-.
Submissions of the Ld. Counsel for the Applicant:
It is submitted that the Corporate Debtor approached the Applicant in May 2017 seeking urgent financial assistance to keep its business afloat and to repay its existing creditors.
It is submitted that pursuant to negotiations, the Applicant agreed to lend up to Rs. 1,25,00,000/-, and amounts were disbursed from time to time based on the demands of the Corporate Debtor.
It is claimed that a total sum of Rs. 81,69,039/- was disbursed between 22.05.2017 and 28.02.2018, details whereof have been substantiated by bank statements annexed with the application.
It is further submitted that the parties executed an Unsecured Loan Agreement dated 01.04.2018 at Ranchi, which expressly records that the loan carried interest at the rate of 9% per annum, acknowledges that a sum of Rs. 81,69,039/- had already been disbursed by the Financial Creditor, specifies that the said amount was advanced for the purpose of enabling the Corporate Debtor to repay its creditors, and stipulates that the entire outstanding amount along with interest was repayable within a period of five years, i.e., on or before 01.04.2023.
It is submitted that no repayments were made by the Corporate Debtor, and the entire amount along with interest became due and payable upon expiry of the agreed tenure.
It is submitted that the Corporate Debtor acknowledged its liability in its books of account for the period 01.04.2017 to 31.03.2018, reflecting an outstanding sum of Rs. 1,30,64,919/-, which constitutes a clear admission of debt.
It is further submitted that a legal notice dated 02.06.2023 was issued, pursuant to which the Corporate Debtor, by letter dated 05.07.2023, admitted the “legitimate dues” and sought time to repay, which constitutes an acknowledgment of debt under Section 18 of the Limitation Act, 1963.
It is contended that despite repeated demands, the Corporate Debtor failed to repay the dues, and default occurred on 02.04.2023.
It is submitted that the debt satisfies the definition of “financial debt” under Section 5(8) of the IBC, being disbursed against consideration for the time value of money, and the application deserves admission.
Submissions on behalf of the Respondent / Corporate Debtor
It is submitted that the Applicant is not a Financial Creditor within the meaning of the IBC and that the alleged disbursements do not qualify as “financial debt”.
It is contended that mere disbursement of money, even if interest-bearing, does not ipso facto constitute a financial debt unless it is shown to be against consideration for the time value of money.
It is further submitted that the Applicant has failed to demonstrate that the alleged amounts were disbursed as a structured loan transaction in the nature contemplated under Section 5(8) of the IBC.
It is contended that the Unsecured Loan Agreement dated 01.04.2018 does not convert the prior disbursements into a financial debt for the purpose of insolvency proceedings.
It is submitted that the application is a recovery proceeding in disguise and the IBC cannot be invoked as a substitute for civil recovery.
It is contended that the letter dated 05.07.2023 was issued in good faith and cannot be construed as an acknowledgment of debt under Section 18 of the Limitation Act.
It is further submitted that the Corporate Debtor is a solvent company and initiation of CIRP is unwarranted.
It is contended that the application has been filed maliciously and deserves dismissal with costs, invoking Section 65 of the IBC.
Analysis and Findings
We have heard the Learned Counsel appearing for the Financial Creditor and the Learned Counsel appearing for the Corporate Debtor and have carefully perused the records placed before this Adjudicating Authority.
At the outset, it is pertinent to note that the scope of enquiry under Section 7 of the Insolvency and Bankruptcy Code, 2016 is limited to ascertaining the existence of a financial debt and the occurrence of default. The solvency of the Corporate Debtor or the feasibility of recovery are not determinative factors at the stage of admission.
It is the case of the Financial Creditor that pursuant to requests made by the Corporate Debtor, financial assistance was extended from time to time between May 2017 and February 2018, aggregating to a sum of Rs. 81,69,039/-. The said disbursements are supported by bank statements, which have been placed on record.
It is not in dispute that the parties thereafter executed an Unsecured Loan Agreement dated 01.04.2018, wherein the earlier disbursements were acknowledged and the terms governing repayment were reduced into writing. The agreement records the rate of interest at 9% per annum and stipulates repayment within a period of five years.
The agreement further records that the effective date of the transaction shall be 22.05.2017, being the date of first disbursement. The execution of the said agreement and the acknowledgment of the disbursed amount therein have not been denied by the Corporate Debtor.
The contention of the Corporate Debtor that the disbursements do not constitute a financial debt on the ground that they are not against consideration for time value of money cannot be accepted. The presence of a stipulated rate of interest, defined tenure, and obligation to repay clearly establish that the disbursements were made against the consideration for time value of money within the meaning of Section 5(8) of the Code.
Further, the ledger account shared by the Corporate Debtor itself for the period ending 31.03.2018 reflects an outstanding liability of Rs. 1,30,64,919/-, which amounts to an acknowledgment of subsisting liability.
In view of the aforesaid documentary evidence, this Adjudicating Authority is satisfied that the Financial Creditor has established the existence of a financial debt.
As per the terms of the Unsecured Loan Agreement, the outstanding amount along with interest was repayable on or before 01.04.2023. It is an admitted position that no repayment has been made by the Corporate Debtor within the stipulated period.
The Financial Creditor issued a legal notice dated 02.06.2023 demanding repayment of the outstanding dues. In response thereto, the Corporate Debtor, by its letter dated 05.07.2023, admitted the “legitimate dues” and sought time to repay the same.
The said communication clearly acknowledges the liability and satisfies the requirements of Section 18 of the Limitation Act, 1963. Despite such acknowledgment, no payment was made by the Corporate Debtor.
Accordingly, default stands established with effect from 02.04.2023, being the date immediately following the expiry of the repayment period.
It is further noted that the Corporate Debtor has outstanding statutory dues towards Income Tax, and the principal Income Tax liability amounts to Rs. 3,02,60,867/-. This Adjudicating Authority directs that the Resolution Professional shall take due consideration of the said principal statutory liability in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016, and the applicable regulations, while collating claims and placing the same before the Committee of Creditors. The said statutory dues shall be dealt with strictly in accordance with law during the Corporate Insolvency Resolution Process.
Once the “debt’ and “default” is admitted or established the petition must be admitted.
We are fortified in our view with the decisions of Hon’ble Apex Court which define “Financial Debt” and to initiate Corporate Insolvency Resolution process as under:
Pioneer Urban Land and Infrastructure Ltd. v. Union of India reported in (2019) 8 SCC 416:
“any debt to be treated as financial debt, there must happen disbursal of money to the borrower for utilization by the borrower and that the disbursal must be against consideration for time value of money.”
(Emphasis added)
Anuj Jain, Interim Resolution Professional for Jaypee Infratech Ltd. v. Axis Bank Limited reported in (2020) 8 SCC 401:
“the essential condition of financial debt is disbursement against the consideration for time value of money.”
(Emphasis added)
Indus Biotech Private Limited v. Kotak India Venture (Offshore) Fund reported in (2021) 6 SCC 436: MANU/SC/0231/2021 (para 14) that:
“14.… in order to trigger an application, there should be in existence four factors: (i) there should be a 'debt' (ii) 'default' should have occurred (iii) debt should be due to 'financial creditor' and (iv) such default which has occurred should be by a 'corporate debtor…”
(Emphasis added)
Innoventive Industries Ltd. v. ICICI Bank reported in (2018) 1 SCC 407: MANU/SC/1063/2017 has laid down that:
“27.The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. ...’
“28.… the corporate debtor is entitled to point out that a default has not occurred in the sense that the "debt", which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, ...” xxx xxx xxx xxx
“30.On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is "due" i.e., payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise.”
(Emphasis added)
In terms of the foregoing discussion, we ALLOW the application bearing Company Petition (IB) No. 177/KB/2025 filed under Section 7 of the I&B Code, and accordingly, we order the initiation of Corporate Insolvency Resolution Process (CIR Process) in respect of the Corporate Debtor by the following Orders:
The Application filed by Abhishek Agarwal (Financial Creditors), under Section 7 of the Insolvency & Bankruptcy Code, 2016, is hereby, ADMITTED for initiating the Corporate Insolvency Resolution Process in respect of Shree Dwarkadhish Udyog Private Limited (Corporate Debtor).
As a consequence of this Application being admitted in terms of Section 7 of the I&B Code, moratorium as envisaged under the provisions of Section 14(1) of the Code, shall follow in relation to the Respondent/(CD) as per clauses (a) to (d) of Section 14(1) of the Code. However, during the pendency of the moratorium period, terms of Section 14(2) to 14(3) of the Code shall come into force.
Moratorium under Section 14 of the Insolvency & Bankruptcy Code, 2016, prohibits the following, as:
a)The institution of suits or continuation of pending suits or proceedings against the Corporate Debtor including execution of any judgment decree or order in any court of law, Tribunal, arbitration panel or other authority;
b)Transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its asset or any legal right or beneficial interest therein;
c)Any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);
d)The recovery of any property by an owner or lessor where such property is occupied by or in possession of the Corporate Debtor.
[Explanation.--For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period;]
The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during the moratorium period.
The provisions of sub-section (1) of the Section 14 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.
The Applicant has proposed the name of “Mr. Umesh Kumar”, Address: Satyabhama Grand, Flat no- 4D, D block, Kusai Doranda, Ranchi, Jharkhand, 834002. Registration no. IBBI/IPA-001/IP-P-01978/2020-21/13152 Email umeshkr62@yahoo.com , as the “IRP”. We have perused that there is a written communication and consent of IRP in Form 2 with Affidavit, annexed as letter 1-C-1 to the petition, as per the requirement of Rule 9(l) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. There is a declaration made by him that there are no disciplinary proceedings pending against him with the Board or IIIP of ICAI. In addition, further necessary disclosures have been made by “Mr. Umesh Kumar” as per the requirement of the IBBI Regulations. Accordingly, he satisfies the requirement of Section 7(3)(b) of the code. Hence, we appoint ‘Mr. Umesh Kumar” as the Interim Resolution Professional (IRP) of the Corporate Debtor to carry out the functions as per the I&B Code subject to submission of a valid Authorisation of Assignment in terms of regulation 7A of the Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulations, 2016. The fee payable to IRP or the RP, as the case may be, shall be compliant with such Regulations, Circulars and Directions as may be issued by the Insolvency & Bankruptcy Board of India (IBBI). The IRP shall carry out his functions as contemplated by sections 15, 17, 18, 19, 20 and 21 of the I&B Code.
In pursuance of Section 13 (2) of the Code, we direct the IRP or the RP, as the case shall cause a public announcement immediately with regard to the admission of this application under Section 7 of the Code and call for the submission of claims under Section 15 of the Code. The public announcement referred to in Clause (b) of sub-section (1) of Section 15 of the Insolvency & Bankruptcy Code, 2016, shall be made immediately. The expression immediately means within three days as clarified by Explanation to Regulation 6 (1) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
During the CIR Process period, the management of affairs of the Corporate Debtor shall vest in the IRP or the RP, as the case may be, in terms of Section 17 of the I&B Code. The officers and managers of the Corporate Debtor shall provide all documents in their possession and furnish every information in their knowledge to the IRP within one week from the date of receipt of this Order, in default of which coercive steps will follow. There shall be no future opportunities in this regard.
The Interim Resolution Professional is also free to take police assistance to take full charge of the Corporate Debtor, its assets and its documents without any delay, and this Court hereby directs the concerned Police Authorities and/or the Officer-in-Charge of Local Police Station(s) to render all assistance as may be required by the Interim Resolution Professional in this regard.
The IRP or the RP, as the case may be, shall submit to this Adjudicating Authority periodical report with regard to the progress of the CIR Process in respect of the Corporate Debtor.
The Financial Creditors shall be liable to pay to IRP a sum of Rs. 3,00,000/- (Rupees Three Lakh Only) as payment of his fees as advance, as per Regulation 33(3) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which amount shall be adjusted at the time of final payment. The expenses relating to the CIRP are subject to the approval of the Committee of Creditors (CoC).
In terms of sections 7(5) and 7(7) of the Code, the Registry of this Adjudicating Authority is hereby directed to communicate this Order to the Financial Creditor, the Corporate Debtor and the Interim Resolution Professional by Speed Post and through email immediately, and in any case, not later than two days from the date of this Order.
Additionally, the Registry of this Adjudicating Authority shall serve a copy of this Order upon the Insolvency and Bankruptcy Board of India (IBBI) for their record and also upon the Registrar of Companies (RoC), to whom the company is registered with, by all available means for updating the Master Data of the Corporate Debtor. The said Registrar of Companies shall send a compliance report in this regard to the Registry of this Court within seven days from the date of receipt of a copy of this order.
The Resolution Professional shall conduct CIRP in a time-bound manner as per Regulation 40A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016.
The IRP/RP shall be liable to submit the periodical report including the minutes of the CoC of the Corporate Debtor, with regard to the progress of the CIR Process in respect of the Corporate Debtor to this Adjudicating Authority from time to time.
The order of moratorium shall cease to have effect as per Section 14(4) of the I&B Code.
Certified copies of this order, if applied for with the Registry of this Adjudicating Authority, be supplied to the parties upon compliance with all requisite formalities.
Post the Company Petition on 11/05/2026 for filing the Periodical Progress Report by the IRP/RP as appointed herein.