Skip to main content

The Adjudicating Authority is not a Civil Court to decide the breach of the contract between the parties

In Saregama India Limited Vs. Home Movie Makers Private Limited, Company Appeal (AT) (Insolvency) No. 359 of 2019, the Appellant had filed application before the Adjudicating Authority under Section 7 of IB Code, 2016  against the Corporate Debtor – M/s Home Movie Makers Private Limited  for initiation of Corporate Insolvency Resolution Process. The Adjudicating Authority, after hearing the parties, dismissed the Application holding that the claim made by the Appellant (Financial Creditor) is not a ‘financial debt’ against which the appeal was filed before the NCLAT.

The Appellant in support of their grounds argued that the transaction between the parties clearly establishes it is a financial debt. Per contra, the Respondent (Corporate Debtor) denied the stand of the Appellant and states that it is not a financial debt in terms of Section 5(8) of the IBC and there was no Time Value of Money as consideration therefore the application of the Appellant was rightly rejected by the Adjudicating Authority.

The NCLAT observed that from perusal of the document and notice issued by the Appellant in Form -3 dated 15.11.2018, the Appellant relied upon the Marketing Agreement dated 09.12.2016 and corresponding letters as mentioned therein. However, in Form-1, i.e., Application under section 7 of IBC, the Appellant relied upon the Marketing Agreement dated 28.09.2013 and 09.12.2016 and claimed an amount of Rs. 57,55,799/- which was shown as default. 

The NCLAT decided that to determine the issue whether the claim of the Appellant falls under the category of ‘financial debt’ and whether the debt is due which has been disbursed against the consideration for Time Value of Money. From an in depth perusal of the agreement dated 28.09.2013 entered between the Appellant and the Respondent, the NCLAT decided that there is no clause with respect to payment of interest in case of default. From the aforesaid agreement it is clear that the Appellant had not disbursed the money against the consideration for the time value of money and the Respondent has not received the money as a financial debt. Under the IBC, the Adjudicating Authority or this Appellate Tribunal will not go into the aspects of the veracity of the agreement, its breach, void, voidable etc. The Adjudicating Authority is not a Civil Court to decide the breach of the contract between the parties. The IBC is a code by itself and will have to go strictly by the provisions of the Code, whether a claim is made under Section 9 by the Operation Creditor and under Section 7 by Financial Creditor and under Section 10 by a Corporate Applicant. 

The Appellant, who claims to be a Financial Creditor, however, claims made by it, is not a Financial Debt. It is reiterated that in the marketing agreements and subsequent correspondence exchanged between the Appellant and the Respondent, no way it is mentioned that the amount paid by the Appellant to be repayable along with interest over a period of time in a single or series of payments in future. However, the Appellant has not disbursed money against the consideration for the time value. Accordingly, it is held that the claim of the Appellant is not a Financial Debt within the meaning of Section 5(8) of IBC. 


Comments

Post a Comment

Most viewed this month

One Sided Clauses In Builder-Buyer Agreements Is An Unfair Trade Practice

In CIVIL APPEAL NO. 12238 OF 2018, Pioneer Urban Land & Infrastructure Ltd. vs Govindan Raghavan, an appeal was filed before the Supreme Court  by the builder against the order of the National Consumer Forum. The builder had relied upon various clauses of the Apartment Buyer’s Agreement to refute the claim of the respondent but was rejected by the commission which found the said clauses as wholly one-sided, unfair and unreasonable, and could not be relied upon. The Supreme Court on perusal of the Apartment Buyer’s Agreement found stark incongruities between the remedies available to both the parties. For example, Clause 6.4 (ii) of the Agreement entitles the Appellant – Builder to charge Interest @18% p.a. on account of any delay in payment of installments from the Respondent – Flat Purchaser. Clause 6.4 (iii) of the Agreement entitles the Appellant – Builder to cancel the allotment and terminate the Agreement, if any installment remains in arrears for more than 30 da...
Post a Comment
Read more

Inherited property of childless hindu woman devolve onto heirs of her parents

In Tarabai Dagdu Nitanware vs Narayan Keru Nitanware, quashing an order passed by a joint civil judge junior division, Pune, the Bombay High Court has held that under Section 15 of the Hindu Succession Act, any property inherited by a female Hindu from her father or mother, will devolve upon the heirs of her father/mother, if she dies without any children of her own, and not upon her husband. Justice Shalini Phansalkar Joshi was hearing a writ petition filed by relatives of one Sundarabai, who died issueless more than 45 years ago on June 18, 1962. Article referred:http://www.livelaw.in/property-inherited-female-hindu-parents-shall-devolve-upon-heirs-father-not-husband-dies-childless-bombay-hc-read-judgment/
Post a Comment
Read more

Court approached in the early stages of arbitration will prevail in all other subsequent proceedings

In National Highway Authority of India v. Hindustan Steelworks Construction Limited, the Hon'ble Delhi High Court opined that once the parties have approached a certain court for relief under Act at earlier stages of disputes then it is same court that, parties must return to for all other subsequent proceedings. Language of Section 42 of Act is categorical and brooks no exception. In fact, the language used has the effect of jurisdiction of all courts since it states that once an application has been made in Part I of the Act then ―that Court alone shall have jurisdiction over arbitral proceedings and all subsequent applications arising out of that agreement and arbitral proceedings shall be made in that Court and in no other Court. Court holds that NHAI in present case cannot take advantage of Section 14 of the Limitation Act, 1963 for explaining inordinate delay in filing present petition under Section 34 of this Act in this Court.
Post a Comment
Read more