NCLAT dismisses insolvency proceedings after doubts over financial creditor

An insolvency application under Section 7 of the Insolvency and Bankruptcy Code (IBC) admitted by the National Company Law Tribunal (NCLT) gets junked by the appellate tribunal because of doubts if the creditor who filed the application indeed was a financial creditor and if the outstanding amount claimed qualifies as financial debt.

Dismissing the New Delhi bench of the NCLT to admit insolvency application of financial creditor Sai Precious Traexim Pvt Ltd, the National Company Law Appellate Tribunal (NCLAT) raised doubts over the credentials of the financial creditor, and raised the question how a third party payment became a Financial Debt.

The appeal was filed by corporate debtor Pine View Portfolio Consultants Pvt Ltd against the admission of insolvency application by NCLT. The corporate debtor that there is no debt by the ‘financial creditor’ and that there is no privity of contract between them. It further said that the debt alleged to be due and payable was purportedly paid by a third party, who is not even part of the proceeding before the Tribunal. Besides this, there is no contract’ with that third party and the single document attached with the application in regard to alleged debt is bank statement’ and that too is of third party.

According to the corporate debtor, the bank statement attached as a proof of the debt actually belongs to a third party — Taj Consultancy — which is not even a party to the proceeding before the tribunal. It further alleged that the said an amount of Rs 25 lakh was transferred to the corporate debtor under instructions from one Rajeev Aggarwal, who had financial dealings with ‘financial creditor’ Sai Precious Traexim through its authorised financial services provider Taj Consultancy.

According to the corporate debtor Rajeev Aggarwal is neither a director nor a shareholder of the company and that the Corporate Insolvency Resolution Process was initiated against it by Sai Precious Traexim with an intention to extort money from it by filing frivolous proceedings.

It also contended there was no independent finding arrived at by the NCLT as to how a third party’ payment become a ‘financial debt’ or how ‘financial creditor’ had become again ‘financial creditor’ in the absence of any ‘financial debt’ and the NCLT order is silent in this regard.

Satisfied with the corporate debtor’s arguments the appellate tribunal noted in its order that it cannot be brushed aside that the third party — Taj Consultancy — was not a party to the proceeding before the NCLT and that Rajeev Aggarwal, according to the appellant, is neither a director nor a shareholder of the corporate debtor.

“The impugned order is conspicuously silent about this vital aspect. On this score, the impugned order of the NCLT suffers from legal infirmity,” it concluded.