TMI Blog2018 (7) TMI 1634X X X X Extracts X X X X X X X X Extracts X X X X ..... CIRP against the CD. Applicant miserably fails to show that as on 03-07-2015, the CD owed an amount to the tune of ₹ 38,88,745/- or that there was a default in payment of such debt on such a date and many other subsequent dates. Petition dismissed. - Diary No. 03(042) of 2018 - - - Dated:- 19-6-2018 - Mr. P. K. Saikia, Member (J) For The Financial Creditor : Mr. N. Jha, Ms. M. Sahoo And Mr. M. K. Rauth, Advocates For The Corporate Debtor : Mr. Kaushik Goswami, Mr. A. Sandilya And Ms. M. Kakoty, Advocates ORDER This application under Section 7 of the Insolvency Bankruptcy Code, 2016 (hereinafter referred to as the Code of 2016 ) read with Rule 4 of the Insolvency Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (hereinafter referred to as the Rules of 2016 ) has been preferred by Shri Rajesh Kumar Himatsingka, Financial Creditor (hereinafter referred to as the FC ) seeking initiation of Corporate Insolvency Resolution Process (in short CIRP ) against M/s. Himatsingka Resorts Pvt. Ltd. (hereinafter referred to as the CD ). 2. In this application, it has been alleged that the CD had obtained an unsecured loan to the tune of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basically for inept handling of the company by the persons who were then in the management of the company and they were none other than Shri Rajesh Kumar Himatsingka, his son Shri Kanishka Himatsingka and his daughter-in-law Smt. Neha Himatsingka who together held more than 94% shareholdings in and of the CD. 8. In such a scenario, the management in company again approached some private players with a begging bowl and managed to secure some private players unsecured loans from various private players. The FC herein alone with some other players aforesaid advanced a loan to the tune of ₹ 2,50,73,525/- during the period between 28-06-2012 and 24-09-2013 in as many as 15 (fifteen) instalments. 9. The amount, so claimed to have been infused by the FC, was to the tune of ₹ 37,00,000/- (Rupees thirty-seven lakhs only) and such amounts were paid during the period between 11.11.2011 an 18.10.2014 in as many as 5 (five) instalments. However, in spite of infusing such funds, the management of the company could not wriggle the company out of the mess which it was in. 10. In such a terrible situation in 2012, the management in the CD had again approached the SBI and was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h before disbursement of the Term Loan. iv. Obtaining of fresh satisfactory TIR in respect of the existing properties. v. Company to furnish an undertaking that any cost escalation in the project will be met from their own sources. vi. The company will furnish an undertaking and a CA certificate that none of the accounts of Group concerns are NPS in the books of account of any Bank/FI. vii. Approval of deviation with respect of CIBIL by the appropriate authority. 15. Unfortunately, despite the flow of such additional fund to the company, it could do no better than before for which the management in the company once again approached Sri Bhagya Kalita, (who is presently holding the post of MD of the CD) and requested him to bailout the company from its doldrums. After due consideration of the proposal from the side of the then management of the company, Sri Bhagya Kalita agreed to accept such proposal on certain terms and conditions which were, however, accepted by the then management of the company, vide agreement dated 15.12.2014. 16. For ready reference, the relevant part of the agreement dated 15.12.2014 is reproduced below: - The relevant part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be made as per Schedule A attached hereto. Schedule A To shareholder 3,71,68,000.00 Unsecured Loan 2,20,00,000.00 State Bank of India loan 6,68,47,077.00 Allahabad Bank loan 49,53,200.00 Statutory and Other Liability 1,60,51,723.00 For land 29,80,000.00 8. That, the Second Party will arrange for funds to invest in the repayment of unsecured loan amounting to ₹ 2,20,00,000.00 (Rupees two Crore twenty lakh) only and balance amount of unsecured loan if any will be arranged and repaid by party of the first part. Loan standing against Allahabad Bank amounting to ₹ 49, 53,200.00 (Rupees Forty-nine lakh fifty-three thousand two hundred) only, statutory and other liability amounting to ₹ 1,60,51,723/- (Rupees one crore Sixty lakh fifty-one thousand seven hundred twenty-three) only will be paid as settled by the 2nd party. 17. That, any existing liability on the date of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince Clause 3 of the agreement dated 30.07.2013 clearly states that the loans, obtained by CD from its unsecured creditors, cannot be repaid during the currency of the bank loan and since the bank loan aforesaid was admittedly liquidated only on 16-02-2018, it is wholly fallacious to contend that the CD committed default in repayment of loan with interest on -03-07-2015. 20. The further case of the CD was that on a quick look, the agreement dated 15-12-2014 appears to be an agreement between Sri Bhagya Kalita and CD being represented by it's the then MD (Shri Rajesh Kumar Himatsingka). However, a careful reading of the same would reveal that such an agreement is actually an agreement between Shri Bhagya Kalita on one side and Shri Rajesh Kumar Himatsingka on the other side. More importantly, his son and daughter-in-law (who happened to be the other directors of the company at that point of time) had also approved of such a deal. 21. A deeper and closure look of the same would further reveal that the basic purpose of the agreement dated 15-12-2014 was to facilitate the exit of major shareholders of the company, they being Shri Rajesh Kumar Himatsingka, Shri Kaniska Himatsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons there under including the liability of repaying ₹ 2,05,69,476 crores towards the satisfaction of unsecured debt of the CD as on 15-12-2014. 26. It has also been stated that the agreement dated 15-12-2014 was designed in such a way that all the genuine unsecured creditors could get their loans back either from Sri Bhagya Kalita or from Shri Rajesh Kumar Himatsingka, the main part therein. While Sri Bhagya Kalita had almost discharged such liability, there is nothing on record to show that Shri Rajesh Kumar Himatsingka had ever discharged his liability thereunder as far as liquidation of unsecured loans which he needs to liquidate under the agreement aforesaid is concerned. 27. What is quite surprising is that instead of discharging his liability under the agreement dated 15-12-2014 thereby liquidating the dues to all the genuine unsecured creditors, he has initiated the present proceeding though he had in the meantime had extracted a enormous amount of money from Sri Bhagya Kalita and although, he had already caused the latter to repay the various dues which the CD had as on 15-12-2014 as a consideration for his exit from the CD, the total amounts of sums being ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was laid down by Sanborn, J. and cited since then as the law, is that 'when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. The same can be seen in various European jurisdictions . [(1990) 53 MLR 338]. Indeed, as far back 1912, another American Professor L. Maurice Wormser examined the American decisions on the subject in a brilliantly written article Piercing the veil of corporate entity (published in (1912) 12 CLR 496) and summarized their central holding in the following words. The various classes of cases where the concept of corporate entity should be ignored and veil drawn aside have now been briefly reviewed. What general rule, if any, can be laid down? The nearest approximation to generalization which the present state of the authorities would warrant is this: When the conception of corporate entity is employed to defraud creditors, to evade an existing obligation, to circumvent a statute, to achieve or perpetuate monopoly, or to protect knavery or crime, the courts will draw aside the web of entity, will regard the corporate company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and Family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and/or to defraud people. 30. Mr. N. Jha, the learned counsel appearing for the applicant controverted the above contentions contending that the argument, canvased from the side of the CD is wholly untenable in law and facts. In support of such contentions, it has been submitted that in a proceeding under Section 7 of the Code, the Adjudicating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same is otherwise found untenable. 34. But then, in the case in hand, it is not correct to say that the CD did not question the authenticity of the averments made in the application. Rather, the CD through its reply had projected a case which is wholly incompatible with the story projected through the application under consideration. More importantly, there are enough materials on record which rallied behind the story projected through the reply which CD has submitted before this Authority. Being so, it is not correct to contend that the CD did not question the veracity of the statements made in the application. 35. I have considered the rival submissions having regard to the materials on record, as well as the decisions, relied upon by the parties. Before proceeding further, it needs to be stated here that the story, projected through the application, stood contradicted in view of the averments, made in the reply, since, the story which was projected through the reply, runs completely counter to the story so stated in the application. Therefore, I find reason to conclude that the averments made in the application stand controverted by the story in the reply. 36. Now, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CD. 41. I have already found that the loan aforesaid was non-interest bearing and applicant herein was quite aware of the same. But then, the application reveals that the FC had demanded not only the principal amount but also interest allegedly accrued thereon, which is, however, not permissible under the aforesaid loan agreement. However, claiming interest on the principal amount, despite there being a bar on the part of the FC to claim interest on the principal amount, the FC gave a very inaccurate picture about the quantum of debt as on 03-07-2015. This, in turn, shows that this proceeding is required to be rejected on this ground also. 42. In Nikhil Mehta Sons (HUF) v. AMR Infrastructure Ltd. in company appeal (AT) (Insolvency) No. 7/2017, dated 21-7-2017 the Hon'ble NCLAT had the occasion to examine the term of financial debt as has been used in section 5(8) of the Code, 2016. Having examined the same from various angles, it concluded that a sum to be a financial debt must fulfil certain requirements. The relevant part of the judgment is reproduced below: - 17. The first question arises for consideration is as to who is a 'Financial Creditor'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. It is pertinent to point out that the concept 'Financial Debt' as envisaged under Section 5(8) of the IBC is distinctly different than the one prevalent in England as provided in its Insolvency Act, 1986 and the 'Rules' framed thereunder. It appears that in England there is no exclusive element of disbursement of debt laced with the consideration for the time value of money. However, forward sale or purchase agreement as contemplated by Section-5(8)(f) may or may not be regarded as a financial transaction. A forward contract to sell product at the end of a specified period is not a financial contract. It is essentially a contract for sale of specified goods. It is true that some time financial transactions seemingly restructured as sale and repurchase. Any repurchase and reverse repo transaction are sometimes used as devices for raising money. In a transaction of this nature an entity may 13 require liquidity against an asset and the financer in return sell it back by way of a forward contract. The difference between the two prices would imply the rate of return to the financer. (See Taxman's Law Relating to IBC, 2016 by Vinod Kothari Sikha Barisal). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solutely nothing on record to show that Himatsingka Group had ever discharged any of the liabilities which stood imposed on him under the agreement dated 15-12-2014. Instead, it had come up with the present application seeking initiation of CIRP alleging default in repayment of aforesaid debt from the side of CD. This smacks of gross dishonesty on the part of the applicant. 48. Such conduct on the part of the FC is also tell-tale testimony of his resorting to huge fraud in preferring the application under consideration and same was employed by him to gain something which he was not legally entitled to. Equally importantly, the application in hand is also a design to create a false impression in the mind of genuine unsecured creditors that they could legally initiate proceedings against the CD seeking realization of their dues although under agreement dated 15-12-2014, Himatsingka Group alone are to discharge such liabilities. 49. In my opinion, the case in hand is one where this Authority needs to lift the corporate veil to know exactly what was the purpose of the application filed under section 7 of the Code, 2016 having regard to the agreement dated 30-07-2013 between the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st bearing and that unsecured loans could not be repaid during the currency of the bank loans are void since it imposed a clear restriction on trade and business in violation of Section 27 of the Contract Act and as such, said conditions cannot come in the way of present proceeding seeking initiation of CIRP . 55. In support of such a contention, the applicant has drawn my attention to the decision of Hon'ble Delhi High Court in the case of Union of India v. N.K Garg Co. 224 [2015] DLT 668. In Union of India (Supra), the question before Hon'ble Delhi High Court was: - Should this Court hold that when there is illegal/wrongful withholding of principal amounts by a person, such withholding of money continues beyond even a reasonable point of time still can such action be said to be moral and not immoral, i.e., is it not immoral to hold on to moneys of another without payment of interest although the period of wrongful/illegal retention of monies may run into years and years spanning into decades so to say . 55A. On considering various aspects of the matter having regard to the decision of Apex Court on the subject, such question was answered in the following man ..... X X X X Extracts X X X X X X X X Extracts X X X X
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