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2023 (7) TMI 267 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - financial creditor and the corporate debtor are related parties and family owned companies or not - existence of debt and dispute or not - Appellant is entitled for an opportunity by the Adjudicating Authority especially in view of the fact that MoU dated 27.09.2017 could not be brought on record before the Adjudicating Authority or not? - HELD THAT - The Corporate Debtor having not filed any Reply in spite of ample opportunity being granted by the Adjudicating Authority and the Application to recall the order proceeding ex-parte having also been dismissed Appellant cannot be allowed to contend that one more opportunity be given to the Appellant - It is relevant to notice that amounts which was advanced by the Financial Creditor to the Corporate Debtor were amounts advanced from the year December 2013 to December 2017. The reasons by the Corporate Debtor not filing the Reply and placing any reliance on the MoU before the Adjudicating Authority are not forthcoming. Whether the Adjudicating Authority committed any error in accepting the Financial Debt and Default on the part of the Corporate Debtor? - HELD THAT - The Adjudicating Authority has rightly placed reliance on the financial statement of the Corporate Debtor as well as those of Respondent No. 1 both reflecting the amount as short term loan. When balance sheet and financial statement as on 31st March 2017 and 31st March 2018 was filed along with Section 7 Application which statements were prepared in due course and are not subject of any dispute we are of the view that acknowledgment as contained in the Financial Statements cannot be wished away by the Appellant relying on unregistered MoU dated 27.09.2017 which was never brought on record before the Adjudicating Authority. It is well settled preposition that balance sheets and financial statement of the Corporate Debtor can be looked into for finding any acknowledgement - This Tribunal in Shailesh Sangani v. Joel Cardso 2019 (3) TMI 1192 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI laid down that when promoter director or shareholder of the Corporate Debtor as a stakeholder to improve financial health of the company and to boost its economic prospects advance an amount the same would have the commercial effect of borrowing on the part of the corporate debtor notwithstanding the fact that no provision is made for interest thereon. The findings recorded by the Adjudicating Authority that financial debt and default is proved is supported by the financial statements and balance sheets of the Corporate Debtor and Financial Creditor which were brought on record along with Section 7 Application. There is no infirmity in the findings of the Adjudicating Authority that debt and default is proved. The Liquidator filed Section 7 Application after obtaining order by the Adjudicating Authority permitting the Liquidator to file Section 7 Application. Section 7 Application was filed by the Respondent No. 1 and the Corporate Debtor failed to discharge its financial debt due to the Financial Creditor. The allegations of the Appellant that in collusion with current stakeholders Section 7 Application was filed by Respondent No. 1/Liquidator is rejected. Thus Adjudicating Authority has rightly come to the conclusion that financial creditor has successfully proved the financial debt and default on the part of the Corporate Debtor in initiation of Section 7 Application - there are no error in the order impugned passed by the Adjudicating Authority admitting Section 7 Application there is no merit in the Appeal the Appeal is dismissed.
Issues Involved:
1. Admission of Section 7 Application under Insolvency and Bankruptcy Code, 2016. 2. Opportunity for the Corporate Debtor to file a reply. 3. Consideration of MoU dated 27.09.2017. 4. Financial debt and default determination. 5. Alleged collusion in filing the Section 7 Application. Summary: Issue 1: Admission of Section 7 Application under Insolvency and Bankruptcy Code, 2016 The appeal was filed by a shareholder and suspended director of the Corporate Debtor challenging the order dated 03.01.2023 by the National Company Law Tribunal (NCLT), New Delhi Bench, admitting the Section 7 Application filed by the Financial Creditor under the Insolvency and Bankruptcy Code, 2016. The Financial Creditor had advanced various amounts to the Corporate Debtor from December 2013 to December 2017. The NCLT admitted the Section 7 Application based on the financial debt and default demonstrated by the Financial Creditor's records, including balance sheets and financial statements. Issue 2: Opportunity for the Corporate Debtor to file a reply The Appellant contended that the Corporate Debtor was not given adequate opportunity to file a reply. However, the Tribunal noted that the Corporate Debtor was granted multiple opportunities to file a reply, including orders dated 11.03.2021 and 02.11.2021. Despite these opportunities, the Corporate Debtor failed to file a reply, leading the NCLT to proceed ex-parte on 02.12.2021. The Corporate Debtor's application to recall the ex-parte order was later withdrawn on 29.08.2022. Thus, the Tribunal found no merit in the argument that the Corporate Debtor was denied a fair opportunity. Issue 3: Consideration of MoU dated 27.09.2017 The Appellant introduced an MoU dated 27.09.2017, claiming it demonstrated that the amount advanced was an investment and not a financial debt. However, this MoU was not presented before the NCLT. The Tribunal emphasized that the MoU was not part of the records of the Financial Creditor and could not be considered. The Tribunal also noted that the financial statements of both the Corporate Debtor and Financial Creditor reflected the amounts as short-term loans, thus supporting the NCLT's findings. Issue 4: Financial debt and default determination The Tribunal upheld the NCLT's finding that the financial debt and default were established based on the balance sheets and financial statements of the Corporate Debtor and Financial Creditor. The records indicated that the Corporate Debtor owed Rs. 27,69,02,500/- to the Financial Creditor. The Tribunal also referenced the Supreme Court's judgment in Asset Reconstruction Company (India) Ltd. vs. Bishal Jaiswal, which allows financial statements to be used to acknowledge debt. The Tribunal found no error in the NCLT's conclusion that the debt and default were proven. Issue 5: Alleged collusion in filing the Section 7 Application The Appellant alleged that the Section 7 Application was filed in collusion with the current stakeholders of the Financial Creditor. The Tribunal dismissed this allegation, noting that the IRP/RP of the Financial Creditor had issued several letters in 2019 and 2020 demanding repayment, which were not responded to by the Corporate Debtor. The Liquidator filed the Section 7 Application with the NCLT's permission, and the Corporate Debtor failed to discharge its financial debt. Thus, the Tribunal found no substance in the collusion allegation. Conclusion: The Tribunal concluded that the NCLT rightly admitted the Section 7 Application, finding that the financial debt and default were proven. The appeal was dismissed, affirming the NCLT's order.
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