Explore the insightful legal analysis by the court concerning the interpretation of ‘financial debt’ under the IBC. The case addresses the key criteria for determining financial creditor eligibility in corporate insolvency matters. Understanding the legislative intent and statutory provisions is essential in unraveling complex legal issues related to financial obligations within the insolvency framework.
Facts
- The appeal under Section 62 of the Insolvency and Bankruptcy Code is against the final judgment and order of the NCLAT in Company Application (AT)(Insolvency) No 1064 of 2020.
- The NCLAT dismissed the appeal of the Appellant and confirmed the order of the NCLT dismissing the petition CP(IB) No 908/ND/2020 filed under Section 7 of the IBC.
- The NCLT found that the Appellant is not a financial creditor of the Respondent.
- M/s Sameer Sales Private Limited provided a term loan of Rs.1.60 crores to the Corporate Debtor for working capital.
- The loan was to be repaid in full by the Corporate Debtor by 01.02.2020.
- Rs.1.56 crores still remain outstanding from the loan amount.
- The Original Lender assigned the outstanding loan to the Appellant.
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Issue
- The issue in this Appeal is whether a person providing a term loan to a Corporate Person without interest for working capital needs qualifies as a Financial Creditor under the IBC.
- The specific question is whether such a person can initiate the Corporate Resolution Process under Section 7 of the IBC.
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Analysis
- The eligibility of a person to initiate the Corporate Insolvency Resolution Process must be adjudicated by considering key words and expressions in Section 7 of the IBC.
- The Corporate Resolution Process is triggered by default committed by a Corporate Debtor.
- The definition of ‘financial debt’ in Section 5(8) of the IBC is crucial and includes interest if any, disbursed against the consideration of the time value of money.
- The NCLAT and NCLT overlooked the clause(f) of Section 5(8) which includes any amount raised under transactions having the commercial effect of borrowing.
- The definition of ‘financial debt’ should be read in the context of the entire statute and not in isolation.
- The legislative intent of the statute must be considered while interpreting any statutory provision.
- The word ‘include’ in interpretation clauses is used to enlarge the meaning.
- The expression ‘includes’ may have to be construed as restrictive and exhaustive depending on the context.
- The words used in an inclusive definition denote extension and cannot be treated as restricted.
- Each word, phrase, or sentence in the statute must be construed in the light of the general purpose of the Act.
- When interpreting a provision in a statute, it must be read in its context.
- The golden rule is that the words of a statute must be given their ordinary meaning unless explicitly specified otherwise.
- The definition of ‘debt’ in the IBC is expansive and includes financial debt.
- Previous state of the law, general scope of the statute, and the intended remedy must be considered.
- Individuals who are debenture holders and fixed deposit holders can also be financial creditors under the IBC.
- The definition of ‘Financial Debt’ in Section 5(8) of IBC does not explicitly exclude interest-free loans.
- Financial Debt must be interpreted to include interest-free loans provided to support the business operations of a corporate entity.
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Decision
- The petition under Section 7 has been revived and may be decided again in accordance with the law
- The judgment and order being challenged has been set aside
- The order of the Adjudicating Authority dismissing the petition under Section 7 has also been set aside
- The appeal has been allowed
- Pending applications, if any, have been disposed of accordingly
Case Title: M/S ORATOR MARKETING PVT. LTD. Vs. M/S SAMTEX DESINZ PVT. LTD. (2021 INSC 359)
Case Number: C.A. No.-002231 / 2021
