TMI Blog2018 (12) TMI 887X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction? - Held that:- It is clearly established that the amount that has been advanced by lst and 2nd Financial Creditors to the Corporate Debtor for the space as mentioned above is for consideration for the time value of money and the said transactions have a commercial effect of borrowing. Subsequently, the project could not see the light of the day and the Corporate Debtor has time and again acknowledged the debt by providing Cheques, Promissory Notes and sending e-mail Communications from time to time on the demand raised by the Financial Creditors. Therefore, the debt in question falls within the purview of the definition of “Financial Debt” as defined under Section 5(8) of the I&B Code, 2016. Thus, the issue stands decided in favour of the Financial Creditors and against the Corporate Debtor. Whether the interest charged by the Financial Credits is exorbitant and barred by the Usurious Loans Act, 1918 and the Madras Debtor Protection (Amendment) Act, 1935? - Held that:- If at the time of advancement of the money, the rate of interest was not considered as exorbitant by the Corporate Debtor, subsequently it cannot object to the said rate of interest. It is otherwise cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Financial Creditors. The same is also fortified with the ruling given by the Hon’ble Apex Court in Life Insurance Corpn. of India v. Escorts Ltd. [1985 (12) TMI 289 - SUPREME COURT OF INDIA] wherein a similar issue has come up for consideration before their Lordships and after examination it was opined that “the Form cannot control the Act. Therefore, the plea taken by the learned Sr. Counsel for the Corporate Debtor stands rejected. Whether the Application fixed under Section 7 of the I&B Code, is maintainahle under law on the basis of the authorization given by the 2nd to 7th Financial Creditors through Power of Attorney? - Held that:- If a person is duly authorised by the Financial Creditors, even by way of Power of Attorney, is competent to file the Application under Section 7 of I&B Code, 2016. Thus, the submission made by learned Sr. Counsel for the Corporate Debtor stands overruled as the submission made by the learned Sr. Counsel for the Financial Creditors is found plausible, and backed by the ruling of the Hon’ble NCLAT given in Sumeet Ahuja’s case (supra). Whether the Corporate Debtor has borrowed the loan from the Financial Creditors against its Articles of As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Private Limited. However, the Power of Attorney filed on behalf of Applicant No.5 [Smt. V.Vakharia] is found to be general in nature, therefore, a fresh Power of Attorney was directed to be filed and the same has been filed, which is taken on record. 2. Heard the learned Senior Counsels for Financial Creditors and the Corporate Debtor, perused the pleadings and written submissions placed on the case file. 3. The Financial Creditors have claimed an amount to the tune of ₹ 4,46,08,990.28p as on 31.10.2017. The particulars of the outstanding debt owed to the Financial Creditors by the Corporate Debtor have been mentioned in the document placed at pages 250 to 253 of the typed set filed with the Application. 4. The case of the Financial Creditors is that they are in the business of providing financial assistance for the consideration of time value of money. In the course of business, the Financial Creditors have lent money to the Corporate Debtor through several transactions on the basis of several contractual documents right from the year 2005, and in return, the Corporate Debtor has been paying interest so accrued. 5. It is stated that after the year 2013, the Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Financial Debt owed by the Corporate Debtor to the Financial Creditors are as under:- Sl. No. Name of the Financial Creditor Financial Debt 1 Vijay R. Vakharia Rs.8,15,80,040.61 2 Vijay R. Vakharia and Ajay R.Vakharia Rs.17,93,55,210.84 3 Vijaykumar HUF Rs.1,89,96,437.71 4 Late Ramanlal N. Vakharia represented by his legai heir Vijay V. Vakharia Rs.54,84,575.25 5 Smt. V.Vakharia Rs.6,71,323.49 6 Aasman Financial Services Private Limited ₹ 14,48,856.06 7 Zeal Warehouse Private Limited Rs.1,48,27,755.91 Total Rs.30,23,64,199/- 10. The Corporate Debtor has filed the reply on 06.02.2018 wherein it has denied the claim of the Financial Creditors and has taken multiple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel has reluctantly replied that due to mutual trust and faith that the parties had on each other, the NDC was not necessitated. 14. The lst Financial Creditor s computation sheet placed at pages 273 to 276 of the typed set filed with the Application goes to show that on 09.12.2014 an amount of ₹ 1,00,00,000/- was received by the lst Financial Creditor and the balance amount is ₹ 3,40,78,177.03.03p. Thereafter, from 16.05.2015 to 30.05.2015, an amount of ₹ 1,00,00,000/- has been paid to the Corporate Debtor in four equal tranche? It also rellects from computation sheet at page 276 that on 24.03.2016, the lst Financial Creditor has received ₹ 2,35,20,000/- and the balance is ₹ 3,07,09,706.42p, whereas, on 31.10.2017, the total balance outstanding is shown as ₹ 4,46,08,990.28p in relation to the lst transaction. Similar are the facts relating to 2nd and 3rd transactions and the total outstanding is shown as ₹ 8,15,80,040/-. 15. The Corporate Debtor, on the one hand is questioning the Financial Creditors computation sheet and on the other hand, relying upon the said document for proving the payments which it has made to the lst Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the consideration for time value of money which has the commercial effect of borrowing. 17. Similar are the terms and conditions contained in the Memorandum of Agreement dated 01.12.2010 entered into between the 2nd Financial Creditor with the Corporate Debtor which is placed at pages 318 to 324 of the typed set filed with the Application. 18. The transactions that took place between the 2nd Financial Creditor and the Corporate Debtor are reflecting from the computation sheet placed at pages 326 and 327 and the balance outstanding as on 31.10.2017 is shown as ₹ 1/79,355,210.84. 19. It has been noted that a letter dated 01.06.2015 has been written by the Corporate Debtor to the 2nd Financial Creditor, copy of which is placed at page 325 of the typed set filed with the Application which reveals that the Corporate Debtor has failed to fulfil the obligations as per the Memorandum of Agreements dated 01.11.2010 and 01.12.2010 and assured the 2nd Financial Creditor that the Corporate Debtor expect the mortgage to be released in next 6/8 months time and there after, it will make arrangement for registration of its area in terms of the said agreement. In other words, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Creditor, then, there was no requirement on the part of the Corporate Debtor to renew the Promissory Note in favour of the 3rd Financial Creditor and to pay ₹ 1.15 crores to the 3rd Financial Creditor. The Corporate Debtor has not placed any document on record pertaining to the OTS and the instructions which it claims to have been received from the other Financial Creditors to pay ₹ 1.15 crores to 3rd Financial Creditor. The plea taken by the Corporate Debtor that it has not received any advance from the 3rd Financial Creditor is per se contradictory and devoid of merits. 22. The Corporate Debtor in its reply at page 33 has admitted that the renewed Promissory Note dated 15.05.2015 would show that the Promissory Note is for the outstanding principal amount of ₹ 20 lakhs and there is no interest quantified and added in the renewed Promissory Note. The Corporate Debtor further states that it has paid a sum of ₹ 20 lakhs vide cheque No. 029433 dated 23.03.2016 drawn on Bank of India in favour of 4th Financial Creditor which has not been reflected in the 4th Financial Creditor s computation sheet placed at pages 358 to 360 of the typed set f led with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be paid with interest @ 24% per annum. The interest which is calculated @ 21% per annum on the said amount, is not shown to have been paid by the Corporate Debtor to the 5th Financial Creditor as per the Computation Sheet and the plea taken by the Corporate Debtor that in terms of the OTS of interest, it has paid to the Financial Creditors a sum of ₹ 1.15 crores in favour of the 3rd Financial Creditor viz., Vijaykumar (HUF). But this assertion of the Corporate Debtor is not being supported with any documentary evidence. Therefore, the plea taken by the Corporate Debtor has no legs to stand. 25. Another plea that has been taken by the Corporate Debtor is that the Power of Attorney dated 05.08.2013 executed by 5th Financial Creditor in favour of lst Financial Creditor is not specifically authorizing for filing the Application under Section 7 of the I B Code, 2016. Therefore, this Authority has given notice to the 5th Financial Creditor to execute fresh Power of Attorney specifically authorizing lst Financial Creditor for filing Application under Section 7 of the I B Code, 2016, on behalf of the 5th Financial Creditor. Accordingly, the Power of Attorney dated 21.09.2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the plea taken by the Corporate Debtor is contrary to the contents of the Promissory Note placed on record. The Computation Sheet of 7th Financial Creditor placed at pages 374 and 375 of the typed set f led with the Application reflects that ₹ 1,00,00,000/- has been paid on 28.03.2016 and as on 31.10.2017, the outstanding balance against the Corporate Debtor is ₹ 1,48,27,755.9lp. 28. The above noted factual matrix are specifically evidencing the existence of default on the part of the Corporate Debtor in making payment of the outstanding debt claimed by the Financial Creditors. However, it is necessary to deal with other legai issues raised by the parties in their pleadings and at the time of final submissions, the issues can be framed as follows:- i. Whether the claim of the Financial Creditors is barred by limitation? ii. Whether the claim made by the Financial Creditors relates to Financial Debt and thereby being afinancial transaction? iii. Whether the interest charged by the Financial Credits is exorbitant and barred by the Usurious Loans Act, 1918 and the Madras Debtor Protection (Amendment) Act, 1935? iv. Whether the documents placed on record b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence is accepted, then, the burden to prove shifts to the claimant. But, in this case, the Corporate Debtor has not produced any documentary evidence to rebut presumption which is in favour of the Promissory Notes (including renewed) executed by the Corporate Debtor in favour of Financial Creditors. This view is supported by the ruling given in Kundan Lai Rallaram v. Custodian, Evacuee Property AIR 1961 SC 1316 , which is relied upon by the Learned Sr. Counsel for the Corporate Debtor. However, the above ruling is not beneficiai to the Corporate Debtor in the facts and circumstances of the case on hand, because the Corporate Debtor has acknowledged the liability continually by executing documents, sending letters, and e-mail Communications to the Financial Creditors. 31. It is worthwhile to mention that the Hont le NCLAT in Speculum Plast Pvt. Ltd. and Ors., MANU/NL/0163/2017, has held that the Limitation Act, 1963, is not applicatile for initiation of Corporate Insolvency Resolution Process . The Hon ble NCLAT in Neelkanth Township Construction (P.) Ltd. vs Urban Infrastructure Trustees Ltd., MANU/NL/0063/2017 has held that for initiation Corporate Insolvency Resoluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,- (a) (b) (d) financial contract means a contract between a corporate debtor and a financial creditor setting out the terms of the financial debt, including the tenure of the debt, interest payable and date of repayment; ( e) . Based on the above definition, the learned Sr. Counsel for the Corporate Debtor has submitted that there is no Financial Contract between the Financial Creditors and the Corporate Debtor, and in the absence of any Financial Contract, the Application filed under Section 7 of I B Code, 2016, is not maintainable. 35. The plea taken by the learned Sr. Counsel for the Corporate Debtor cannot only be the requirement of a valid contract, because a contract can be oral; based on exchange of Communications which may or may not be signed and it may be single document signed by both the parties. Therefore, even an oral agreement can be a valid and enforceable contract. Thus, it is not essential that a contract must be in writing for the purpose of advancing loan, repayment of the same and the interest, if any, agreed between the two parties. In this connection, reliance has been placed on the ruling given by the Hon ble High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the day and the Corporate Debtor has time and again acknowledged the debt by providing Cheques, Promissory Notes and sending e-mail Communications from time to time on the demand raised by the Financial Creditors. Therefore, the debt in question falls within the purview of the definition of Financial Debt as defined under Section 5(8) of the I B Code, 2016. Thus, the issue stands decided in favour of the Financial Creditors and against the Corporate Debtor. Issue No. iii 39. The third issue is pertaining to the charging of interest @ 24% per annum which as per the Corporate Debtor is exorbitant and violates the provisions of Section 3 of the Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003 (the Act). The Act provides that no person shall charge exorbitant interest on any loan advanced by him. In reply to the objection raised by the Corporate Debtor, the learned Sr. Counsel for the Financial Creditors has relied upon the order of the Hon ble High Court of Andhra Pradesh passed in Konakalla Venkata Satyanarayana v. State Bank of India AIR 1975 AP 113,wherein the Hon ble High Court while discussing the issue has referred to the judgment passed in Manladina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor Protection (Amendment) Act, 1935, is barring the charging of exorbitant interest is devoid of merits and stands rejected. This view is also fortif ed by the reasoning that 24% compound interest in modem business exigencies is common and as such, is an accepted arm s length rate of interest for commercial loans. It is otherwise not the case of the Corporate Debtor that fes is in any way willing to pay the outstanding debt on the terms of the lesser rate of interest. Issue No. iv 41. The 4th issue raised by the Corporate Debtor is as to whether the documents filed by the Financial Creditors are sufficient in nature to ascertain the existence of a default in the absence of the record of Information Utility and Financial Contract. The learned Sr. Counsel for the Corporate Debtor has submitted that the Mortgage Deed, Memorandum of Agreements, Promissory Notes, e-mail Communications and Cheques along with computation sheets are not admissible in evidence for being considered for ascertaining the existence of default on the part of the Corporate Debtor. The learned Sr. Counsel for the Corporate Debtor has specifically stated that the e-mail Communications relied upon by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 65B (h) is not always mandatory. The Corporate Debtor has raised an issue in its reply that Mr. Gulam with whom the Financial Creditors had the Communications including e-mails regarding outstanding dues, is not the authorized representative of the Corporate Debtor whereas in the letter dated 06.03.2009 placed at page 39 of the typed set filed with the Rejoinder, the Corporate Debtor itself has admitted that Mr. Gulam who is CFO of the Corporate Debtor had discussions regarding the reduction in interest rate on the mortgage loan with the lst Financial Creditor. This goes to show that Mr. Gulam is the authorised person to handle the transactions on behalf of the Corporate Debtor with the Financial Creditors. Therefore, the plea taken by the Corporate Debtor is per se contradictory and misleading, so stands rejected. 44. In relation to the issue of blank Promissory Notes which as per the submission of the Corporate Debtor were kept with the Financial Creditors are stated to have been filled at a later date. But, this assertion of the Corporate Debtor is contradictory to the averments made in the reply statement filed by the Corporate Debtor. The Corporate Debtor at page(s) 4, 38, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n only be filed by the Corporate Persons and not by the individuals, to which the learned Sr. Counsel for the Financial Creditors has referred to the def nition of the Financial Creditor given under Section 5(7) of the I B Code, 2016 that provides as follows:- Financial Creditor means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. Further, the learned Sr. Counsel for the Financial Creditors has referred to Sub-Section (23) of Section 3 of the I B Code, 2016 which provides the def nition of person as follows :- 3. In this Code, unless the context otherwise requires:- (1) . . (23) person includes:- (a) an individuai; (b) a Hindu Undivided Family; (c) a company; (d) a trust; (e) a partnership; (f) a limited liability partnership; and (g) any other entity established under a statute and includes a person resident outside India. Based on the above mentioned provisions, the learned Sr. Counsel for the Financial Creditors has submitted that the interpretation with regard to the entries of Form-I given by the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is an order of Authorisation. In view ofsuch position of law the submission made by the Counsel for the Appellant cannot be accepted. 48. From the above, it can safely be concluded that if a person is duly authorised by the Financial Creditors, even by way of Power of Attorney, is competent to file the Application under Section 7 of I B Code, 2016. Thus, the submission made by learned Sr. Counsel for the Corporate Debtor stands overruled as the submission made by the learned Sr. Counsel for the Financial Creditors is found plausible, and backed by the ruling of the Hon ble NCLAT given in Sumeet Ahuja s case (supra). Issue No. vii 49. In relation to this issue the learned Sr. Counsel for the Corporate Debtor has submitted that the Corporate Debtor has borrowed the loan from the Financial Creditors against its Articles of Association and thereby is ultra vires and does not bind the Corporate Debtor. This objection has been controverted by the learned Sr. Counsel for the Financial Creditors by making reference to the ruling given by the Hon ble Apex Court in Oil and Naturai Gas Corpon. Ltd. v. Modern Construction and Co. (2014) 1 Supreme Court Cases 648, wherein un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te in ali respect. The Financial Creditors have also proposed the name of IRP after seeking his consent in Form 2, which is placed at pages 222 to 223 of the typed set filed with the Application. Therefore, this Authority has ascertained the existence of a default on the basis of the documents produced by the Financial Creditors, and the Corporate Debtor has failed to pay the amount of loan borrowed from the Financial Creditors even after renewing the promissory notes on 15.05.2015 and executing other documents in favour of the Financial Creditors. The Financial Creditors have fulfilled ali the requirements of law. Therefore, CP/62/(IB)/CB/2017 is admitted and the commencement of the Corporate Insolvency Resolution Process is ordered which ordinarily shall get completed within 180 days, reckoning from the day this order is passed. 52. Mr. P. Sriram is hereby appointed as IRP, as has been proposed by the Financial Creditors. There is no disciplinary proceeding pending against the IRP as evidenced from Form-2. The IRP is directed to take charge of the Respondent Corporate Debtor s management immediately. He is also directed to cause public announcement as prescribed under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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