Corporate Debtor Cannot Be Dragged Into CIRP Mala Fide For Any Purpose Other Than Resolution Of Insolvency: NCLT Mumbai

The National Company Law Tribunal ("NCLT"), Mumbai Bench, comprising of Justice P. N. Deshmukh (Judicial Member) and Mr. Kapal Kumar Vohra (Technical Member), while adjudicating an application filed in Gateway Offshore Private Limited and Anr. v Runwal Realtors Pvt. Ltd., has held that a written contract cannot be treated as a pre- requisite to prove the existence of a financial debt and the Adjudicating Authority must be satisfied that the Corporate Debtor is not being dragged into Corporate Insolvency Resolution Process ("CIRP") mala fide for any purpose other than the resolution of the Insolvency. The order was passed on 10.06.2022. Background Facts Gateway Offshore Pvt. Ltd. and Goodhope Software Pvt. Ltd. ("Applicants") had jointly provided financial facility to Runwal Realtors Pvt. Ltd. ("Respondent") to the tune of Rs.4,43,00,000/- and the Respondent had defaulted in the repayment of the same. Therefore, the Applicants filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) before the NCLT Mumbai Bench ("Adjudicating Authority"), seeking initiation of CIRP against the Respondent. Contentions Of The Applicants The Applicants contended 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. to be repaid on or before June 2018, which the Respondent failed to do. Contentions Of The Respondent The Respondent challenged the application on the issue of maintainability by submitting that the transaction between the parties did not classify as a Financial Debt. There existed no loan agreement, no communication in the form of letters or emails for substantiating the claim and the Applicants do not possess any license to operate as Non-Banking Finance Companies. Reliance was placed on the Supreme Court judgment in Swiss Ribbons v Union of India, (2019) 4 SCC 17, to support the proposition that in the absence of documentary evidence or loan agreement the claim cannot lie. Decision Of The Adjudicating Authority The Adjudicating Authority relied on the NCLAT judgment in Narendra Kumar Agarwal and Ors. v Monotrone Leasing Private Limited and Ors., Company Appeal (AT) (Insolvency) No. 549 of 2020, wherein it was held that the written contract cannot be treated as an essential element or prerequisite to prove the existence of Financial Debt. The Bench observed that the Applicants had failed to bring on record any other evidence in the form of a loan agreement, promissory note, contract or any document to substantiate their claim that there was a financial debt and a default of the same. Accordingly, the Bench held as follows: "However, in absence of any written document indicating the purpose of the said transactions, it cannot be assumed to have been towards a loan as claimed by the Financial Creditor. In light of the above facts and circumstances, we hold that while a written contract cannot be treated as a pre- requisite to proving the existence of financial debt, 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 Application was dismissed by the Bench. Case Title: Gateway Offshore Private Limited and Anr. v Runwal Realtors Private Limited, CP (IB) 954/MB/C-I/2019 Counsel For the Applicant: Mr. Umair A. Ansari. Counsel For the Respondent: Mr. Anit Soni. Submitted by: Pallavi Mishra Click Here To Read/Download Order

Corporate Debtor Cannot Be Dragged Into CIRP Mala Fide For Any Purpose Other Than Resolution Of Insolvency: NCLT Mumbai

Pallavi Mishra

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