26 May 2020



Saregama India Limited Vs. Home Movie Makers Private Limited




Application to initiate insolvency proceedings is maintainable only when Applicant is a financial creditor under Insolvency and Bankruptcy Code (IBC).

The Appellant filed the present appeal aggrieved by the order of the Adjudicating Authority National Company Law Tribunal, whereby the Adjudicating Authority dismissed the application of the Appellant. The Appellant filed application before the Adjudicating Authority (National Company Law Tribunal, Division Bench, Chennai) under Section 7 of Insolvency and Bankruptcy Code, 2016 ('IBC') against the Corporate Debtor - Home Movie Makers Private Limited (Respondent) 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'. The only point for consideration is whether the claim of the Appellant falls under the category of financial debt or not.

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. On the other hand, it is a contract between the Appellant and the Respondent for utilisation of FCT which was available to the Respondent (Producer) while telecasting their serials. However, it is the case of the Respondent that, the Appellant has to pay the consideration for utilisation of FCT.

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.

From the records and from Form-1, the Appellant claims to be a Financial Creditor which means Respondent owe a debt to the Appellant. Admittedly, the Appellant has not given any debt to the Respondent. Apart from the above, the terms and conditions and the clauses in the Marketing Agreement speaks 'Self' and no interpretation is required. The payments as made under the terms of Agreements cannot be termed as Financial Debt. To define it as a Financial Debt, the criteria as required under law need to be fulfilled. As per Section 5(8) of IBC, supra, a Financial Debt means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes (a) to (i).

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. Present Tribunal is inclined to interfere with the impugned order passed by the Adjudicating Authority and the appeal is dismissed.

Tags : Nature of claim Application Maintainability

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