Default-Record/Evidence of default

Vijay Kumar Singhania Vs. Bank of Baroda and Anr. – Supreme Court

Hon’ble Supreme Court has affirmed the decision of the NCLAT where NCLAT held that IU Regulation 20 although has been amended w.e.f 14.06.2022 but there is no amendment either in Section 7 of the IBC which empowers Financial Creditor to file record of the default recorded in the information utility or such other record and default as may be specified or in Rules 2016 or CIRP Regulations 2016. The statutory scheme, thus, contemplates furnishing record of default by the financial creditor as recorded with the information utility or such other record or evidence of default as may be specified.
The record of default for purposes of Section 7(3)(a) has been specified by Regulation 2A of the CIRP Regulations, 2016. Thus, record of default recorded with the information utility is not the only document which has to be furnished by financial creditor. Financial creditor is at liberty to submit such other record of default as may be specified which is a statutory provision contained in Section 7. Even after amendment of IU Regulation 20 by insertion of Regulation 20(1A) w.e.f 14.06.2022, Financial Creditor is entitled to file evidence of record of default as contemplated by CIRP Regulation 2A r/w Rule 4 of the AAA Rules, 2016.

Vijay Kumar Singhania Vs. Bank of Baroda and Anr. – Supreme Court Read Post »

Filing of default information with Information Utility in compliance of Rule 20(1A) of IBBI (Information Utilities) Regulations 2017 is not mandatory compliance | Whether simultaneous CIRP can be initiated against Principal Borrower and its Corporate Guarantor – State Bank of India Vs. Anupriya Management Pvt. Ltd. – NCLT Kolkata Bench

Hon’ble NCLT Kolkata Bench hold that:
(i) Financial Creditor can also prove default with own records as provided in Sec 7(3) of the Code which says that the Financial Creditor shall, along with the application furnish the record of the default recorded with the information utility or such other record or evidence of default as may be specified.
(ii) The Financial Creditor can produce certified copies of the entries in the relevant account in the banker’s book as defined in clause (3) of Section 2 of the Bankers Book Evidence Act 1891, in this Financial Creditor has furnished the same and thus no fault can be attributed.
(iii) The Corporate Debtor has built a few apartments on the very same land as a Joint venture Partner and is in the process of seeking Liquidation. When the Corporate Debtor himself could not seek any resolution plan as a builder, the question of the Corporate Guarantor getting Resolution Plan does not arise.

Filing of default information with Information Utility in compliance of Rule 20(1A) of IBBI (Information Utilities) Regulations 2017 is not mandatory compliance | Whether simultaneous CIRP can be initiated against Principal Borrower and its Corporate Guarantor – State Bank of India Vs. Anupriya Management Pvt. Ltd. – NCLT Kolkata Bench Read Post »

Mere filing of record of Financial Information in Form-C with the Information Utility (NeSL) does not constitute the record of default – Mr. Sarish Kumar Chaudhry Vs. Elegant It Solutions Pvt. Ltd. – NCLT New Delhi Bench

Hon’ble NCLT New Delhi Bench holds that on perusal of the Financial Information in Form-C of the Corporate Debtor maintained by the Information Utility namely National E-Governance Services Limited (NESL) dated 01.06.2023, we find that the mere filing of record of Financial Information in Form-C with the Information Utility (NeSL) does not constitute the record of default. Therefore, we are satisfied that there exists no debt and there is no default on the part of the Corporate Debtor.

Mere filing of record of Financial Information in Form-C with the Information Utility (NeSL) does not constitute the record of default – Mr. Sarish Kumar Chaudhry Vs. Elegant It Solutions Pvt. Ltd. – NCLT New Delhi Bench Read Post »

Merely because Corporate Debtor did not pay Sales Tax collected from the Applicant to Sales Tax Authorities, such amount will by no means qualify as Operational Debt owed to Applicant | A mere bald claim that entries of unpaid debt and interest have been recorded in the books of account will be of no help to Operational Creditor because mere unilateral entries in one’s books of account unsupported by any legal justification will not qualify as Operational Debt within the meaning of Section 5 (21) of IBC – Transtec Overseas Pvt. Ltd. Vs. Dheeraj Aviation Ground Equipments Pvt. Ltd. – NCLT Mumbai Bench

In this important judgment, NCLT Mumbai Bench holds that:
(i) An application under Section 9 of the Code, inter alia, requires strict proof of debt and default.
(ii) A mere bald claim that entries of unpaid debt and interest have been recorded in the books of account of the Applicant will be of no help to the Applicant, because mere unilateral entries in one’s books of account unsupported by any legal justification will not qualify as ‘operational debt’ within the meaning of Section 5 (21) of the Code.
(iii) Merely because the Corporate Debtor did not pay sales tax collected from the Applicant to the Sales Tax Authorities in 2008-09, such amount will by no means qualify as ‘operational debt’ owed to the Applicant because this amount is actually owed by the Corporate Debtor to the Sales Tax Authorities and does not represent the price or consideration for supply of equipment to the Applicant.
(iv) It is well-established that statutory dues like income tax, VAT etc. fall within the meaning of ‘operational debt’ under Section 5(21) of the Code only when these are payable to the relevant statutory authority (rather than a private party) which qualifies as “Operational Creditor” under the Code.

Merely because Corporate Debtor did not pay Sales Tax collected from the Applicant to Sales Tax Authorities, such amount will by no means qualify as Operational Debt owed to Applicant | A mere bald claim that entries of unpaid debt and interest have been recorded in the books of account will be of no help to Operational Creditor because mere unilateral entries in one’s books of account unsupported by any legal justification will not qualify as Operational Debt within the meaning of Section 5 (21) of IBC – Transtec Overseas Pvt. Ltd. Vs. Dheeraj Aviation Ground Equipments Pvt. Ltd. – NCLT Mumbai Bench Read Post »

While a written contract is not an absolute prerequisite for establishing the existence of a Financial Debt, Adjudicating Authority must ascertain that the initiation of CIRP is not done in mala fide and is genuinely aimed at resolving insolvency | Mere admission of receipt of money by Corporate Debtor does not qualify as a Financial Debt under Sec. 5(8) of IBC | It is the duty of Financial Creditor to plead and produce evidence as to the existence of any debt, that is due and payable and not paid to constitute the requirements to file an application under Sec. 7 of the IBC – Meghna Devang Juthani Vs. Ambe Secruities Pvt. Ltd. – NCLT Mumbai Bench

Hon’ble NCLT Mumbai Bench held that:
(i) Written contract may not be necessary to prove a financial debt; however, the nature of the transaction is relevant to constitute financial debt within the meaning of section 5(8) of the IBC
(ii) In order to constitute a “debt”, there must be a liability or obligation on the part of a person in respect of a claim which is due from any person.
(iii) In the absence of any proof as to the nature of the transaction, mere admission of receipt of money by the CD does not qualify as a financial debt within the meaning of Section 5(8) of the IBC.
(iv) While a written contract is not an absolute prerequisite for establishing the existence of a financial debt, the Adjudicating Authority must ascertain that the initiation of CIRP is not done in mala fide and is genuinely aimed at resolving insolvency.
(v) It is the duty of the FC/Applicant to plead and produce evidence as to the existence of any debt, that is due and payable and not paid to constitute the requirements to file an application under Section 7 of the IBC.
(vi) The funds if at all extended by the FC to the CD were exclusively intended for investment purposes, which does not warrant initiation of CIRP in respect of the CD.

While a written contract is not an absolute prerequisite for establishing the existence of a Financial Debt, Adjudicating Authority must ascertain that the initiation of CIRP is not done in mala fide and is genuinely aimed at resolving insolvency | Mere admission of receipt of money by Corporate Debtor does not qualify as a Financial Debt under Sec. 5(8) of IBC | It is the duty of Financial Creditor to plead and produce evidence as to the existence of any debt, that is due and payable and not paid to constitute the requirements to file an application under Sec. 7 of the IBC – Meghna Devang Juthani Vs. Ambe Secruities Pvt. Ltd. – NCLT Mumbai Bench Read Post »

Non-stamping of document does not render CIRP application filed to be non-maintainable when there exists other material on record to prove existence of default in the payment of debt – Hiren Meghji Bharani v. Shankheshwar Properties Pvt. Ltd. and Anr. – NCLAT New Delhi

Hon’ble NCLAT refers seven judge bench of the Apex Court’s latest Judgement, reported in (2023) ibclaw.in 153 SC and holds that it has been clearly brought out that Agreements which are not stamped or are inadequately stamped are inadmissible in evidence under Section 35 of the Stamp Act and such agreements are not rendered void or void ab initio or unenforceable and further Non-stamping or inadequate stamping is a curable defect and therefore as claimed by the Appellant unstamped “confirmation and undertaking” doesn’t make the whole process illegal if this document is not even relied upon as an evidence.

Non-stamping of document does not render CIRP application filed to be non-maintainable when there exists other material on record to prove existence of default in the payment of debt – Hiren Meghji Bharani v. Shankheshwar Properties Pvt. Ltd. and Anr. – NCLAT New Delhi Read Post »

Whether filing of Record of Default(RoD) of Information Utility is mandatory? and without obtaining an Authentication of Default(AoD) as per IU Regulation 21, no application under Sec. 7 can be filed by Financial Creditor? – Vijay Kumar Singhania Vs. Bank of Baroda and Anr. – NCLAT New Delhi

In this landmark judgment, Hon’ble NCLAT, bench comprising of three members, held that:
(i) IU Regulation 20 although has been amended w.e.f 14.06.2022 but there is no amendment either in Section 7 of the IBC which empowers Financial Creditor to file record of the default recorded in the information utility or such other record and default as may be specified or in Rules 2016 or CIRP Regulations 2016.
(ii) The statutory scheme contemplates furnishing record of default by the financial creditor as recorded with the information utility or such other record or evidence of default as may be specified.
(iii) Record of default recorded with the information utility is not the only document which has to be furnished by financial creditor.
(iv) Regulations framed by the Board as per Section 240(1) has to be consistent with provisions of the Code and the Rules. When Section 240 itself provides that regulations have to be consistent with provision of Code and Rules, no regulation can be implemented or enforced which is not in consonance with the Code and the Rules.
(v) If IU Regulation 20(1A) is to be read as Regulation now mandating the Financial Creditor to file only the record of default in the information utility, the said Regulation will not be consistent with provision of Section 7(3) of the Code and AAA Rule 4 which provides that what documents have to be filed by the Financial Creditor.
(vi) IU Regulation 20(1A) cannot be read to mean that after the said amendment brought in regulation w.e.f 14.06.2022 an application filed under Section 7 which is not supported by information of default from an information utility is to be rejected and if the Financial Creditor has filed other evidence to prove default which is contemplated by the AAA Rules, 2016 and the CIRP Regulations, 2016, the said application has not to be considered.
(v) Filing of counter claim or money suit shall not absolve the Appellant from its liability to discharge its debt and if there is a financial debt which is due and default is committed by the Corporate Debtor proceedings under Section 7 can be initiated. Mere filing of the counter claim or money suit cannot lead to dismissal of Section 7.

Whether filing of Record of Default(RoD) of Information Utility is mandatory? and without obtaining an Authentication of Default(AoD) as per IU Regulation 21, no application under Sec. 7 can be filed by Financial Creditor? – Vijay Kumar Singhania Vs. Bank of Baroda and Anr. – NCLAT New Delhi Read Post »

For the purpose of Section 7 and 9 of the Code, 2016, the first default in repayment is to be taken into account for the purposes of initiating proceedings u/s 7 or 9 of the Code, 2016 and in case of incorrect date of default in NeSL Certificate, the same cannot be relied upon – SREI Equipment Finance Ltd. Vs. R S Kamthe Infrastructure Developers Pvt. Ltd. – NCLT Mumbai Bench

In application u/s 7 of IBC, NCLT Mumbai Bench held that:

(i) It is a well settled proposition of law that for the purpose of Section 7 and 9 of the Code, 2016, the first default in repayment is to be taken into account for the purposes of initiating proceedings u/s 7 or 9 of the Code, 2016. This proposition of law cannot be bypassed by claiming that the default is of continuing nature one.
(ii) The date of default in the NeSL report is not correctly stated nor the same can be relied upon.
(iii) This Petition is barred u/s 10A of the Code and is dismissed.

For the purpose of Section 7 and 9 of the Code, 2016, the first default in repayment is to be taken into account for the purposes of initiating proceedings u/s 7 or 9 of the Code, 2016 and in case of incorrect date of default in NeSL Certificate, the same cannot be relied upon – SREI Equipment Finance Ltd. Vs. R S Kamthe Infrastructure Developers Pvt. Ltd. – NCLT Mumbai Bench Read Post »

Whether to prove a Financial Debt a Financial Creditor has to enter into a ‘written’ Financial Contract? – Agarwal Polysacks Ltd. Vs. K. K. Agro Foods and Storage Ltd. – NCLAT New Delhi

In this landmark judgment, Hon’ble NCLAT held that:
(i) A bare perusal of Part V of Form-1 indicates that particulars of financial debt, several documents, records and evidence of default has been referred to which documents are contemplated to be particulars of financial debt.
(ii) Use of word “or” in Regulation 8(2)(a) indicate by any of the document referred to in Sub-regulation (2) existence of debt can be proved.
(iii) A financial contract supported by financial statements as evidence of the debt is one of the documents contemplated in Regulation 8(2) but that is not exclusive requirement for proving existence of debt.
(iv) When we look into the statutory scheme as reflected in the Application to Adjudicating Authority Rules, 2016 and CIRP Regulations, 2016, it is clear that financial debt can be proved from other relevant documents and it is not mandatory that written financial contract can be only basis for proving the financial debt.

Whether to prove a Financial Debt a Financial Creditor has to enter into a ‘written’ Financial Contract? – Agarwal Polysacks Ltd. Vs. K. K. Agro Foods and Storage Ltd. – NCLAT New Delhi Read Post »

Financial Creditor is required in the first place to establish himself as a Financial Creditor before being allowed to take advantage of the explanation to Section 7 to establish default owed not only to himself as a Financial Creditor but to any other Financial Creditor on the basis of NeSL data – GP. Capt Atul Jain (Retd.) Vs. Tripathi Hospital Pvt. Ltd. – NCLAT New Delhi

NCLAT held that:
(i) The basic requirement of existence of financial debt being owed by the Corporate Debtor to the Financial Creditor has to be first satisfied and cannot be overlooked.
(ii) under the statutory scheme of IBC, record of information utility which falls in the category of “deemed to be authenticated” even if not sacrosanct but still is relevant to establish default in terms of Section 3(12) of the IBC. Be that as it may, the Appellant is however required, in the first place, to establish himself as a Financial Creditor of the Corporate Debtor in terms of Section 5(7) of IBC before being allowed to take advantage of the explanation clause to Section 7 to establish default owed not only to himself as a financial creditor but to any other financial creditor of the corporate debtor on the basis of NeSL data for initiation of CIRP against the Corporate Debtor.
(iii) Given the fact that the Appellant has failed to establish that he had given any loan to the Corporate Debtor directly, it does not stand to reason for him to press for piercing the corporate veil to alleviate the burdens of his financial misadventure. We do not countenance the urge expressed by the Appellant to pierce the corporate veil.

Financial Creditor is required in the first place to establish himself as a Financial Creditor before being allowed to take advantage of the explanation to Section 7 to establish default owed not only to himself as a Financial Creditor but to any other Financial Creditor on the basis of NeSL data – GP. Capt Atul Jain (Retd.) Vs. Tripathi Hospital Pvt. Ltd. – NCLAT New Delhi Read Post »

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