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2020 (2) TMI 633

..... trying to claim that the amount received by the Corporate Debtor from the Financial Creditor was only an advance for future supply of goods, and for the satisfaction of the Financial Creditor, the Agreement dated 4th April, 2017 and Promissory Notes were executed, we are unable to travel beyond the documents executed between the parties. The "Share Pledge/Financial Facility Agreement" dated 4th April, 2017 clearly referred to the Corporate Debtor as "borrower" and to the Financial Creditor as "lender". There is no substance in the argument of the Appellant that the subsequent Promissory Note cannot be looked into for considering the relationship. When the Financial Creditor gave advance to keep the Corporate Debtor running, to ensure that its raw material becomes available to the Financial Creditor, it was clearly a case of borrowing/lending for time value of money for the loan which the Financial Creditor was advancing. On the basis of the amounts advanced in 2016 - 2017 itself, considering the fact that the Corporate Debtor has not paid the amounts claimed, which are clearly more than ₹ 1 Lakh, we find there is debt and default and that no erro .....

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..... 07 - Diary No.11325). 3. Before the Adjudicating Authority, the Financial Creditor claimed that there was default on the part of the Corporate Debtor and a Notice dated 23rd February, 2018 was issued. The Corporate Debtor confirmed that a sum of ₹ 1,13,46,653/- was also due to the Financial Creditor payable on account of release of 18.761 MT of Graphite Electrodes from the Vizag Port which was paid by the Financial Creditor on behalf of the Corporate Debtor. The Corporate Debtor issued 4 cheques in response to the legal Notice but the same bounced. Thus, the Financial Creditor claimed there were two loans as above. 4. The Corporate Debtor for whom the present Appeal has been filed took a stand before the Adjudicating Authority that it had trade relations with the Financial Creditor and the Financial Creditor had been purchasing Carbon Ferro Chrome which is produced by the Corporate Debtor. According to Corporate Debtor, the money received from the Financial Creditor was with regard to supplies of future material and there was no disbursement of amount against time value of money to qualify as financial debt under the IBC. It is claimed that the Corporate Debtor was in financi .....

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..... nts claimed by the Respondent No.1 - Financial Creditor could not be said to be financial debt under Section 5(8) of the IBC as the amount given was not against consideration for time value of money. What is stated to be Loan 2, it is claimed by the Appellant was only amount towards demurrage and cannot be said to be financial debt. The argument is that only because amount is advanced, does not make it a financial debt. There was no stipulation of interest of 24% per annum. It is claimed that subsequent agreement to make the advance payment a financial debt would go against the principal of amount being disbursed against time value of money. Argument is that the subsequent Promissory Note dated 17.04.2017 (Page - 30) with a penalty of 14% per annum would make no effect to the initial amount advanced. The Appellant claims that the real reason behind the Agreement dated 4th April, 2017 was that the Corporate Debtor was producing Low Carbon Ferro Chrome for which the Financial Creditor was the buyer and subsequent seller in the open market and for which the Corporate Debtor was to get margin. The Corporate Debtor was required to pay commission to the Financial Creditor at 3 - 5 percen .....

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..... ointing out the Financial Facility Agreement and the amounts due to which the Corporate Debtor gave Reply dated 5th March, 2018 (Page 113 of the Reply) where Corporate Debtor without denying the liability only sought time and accommodation. The Financial Creditor - Respondent No.1 has submitted that the transaction was clearly a transaction of financial debt and the Section 7 Application was rightly admitted. 8. We have gone through the matter. Although the Corporate Debtor is trying to claim that the amount received by the Corporate Debtor from the Financial Creditor was only an advance for future supply of goods, and for the satisfaction of the Financial Creditor, the Agreement dated 4th April, 2017 and Promissory Notes were executed, we are unable to travel beyond the documents executed between the parties. The "Share Pledge/Financial Facility Agreement" dated 4th April, 2017 clearly referred to the Corporate Debtor as "borrower" and to the Financial Creditor as "lender". It is mentioned in the document (relevant portions of which are) as under:- 'WHEREAS the Borrower has approached the Lender for a financial assistance in the form of a loan of .....

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..... the end customers of the lender whose orders have been placed or are placed with the Borrower's production facility with due focus on the timely delivery. Any failure on this count shall be regarded as material breach entitling the Lender to recover penalties/damages/losses as per the terms of Purchase Orders. Any failure on the part of borrower to pay/compensate the Lender on this count shall be entitling the Lender to invoke their rights under the agreement. In case sales are billed directly to Third Parties, Borrower will take prior consent of Lender for direct billing, Borrower will pay Commission to Lender @ 3% to 5% of the billed amount, as mutually agreed on transaction to transaction basis. Commission will be payable on monthly basis. Borrower has assured the Lender that its plant will produce minimum 500 MT of Low Carbon Ferro Chrome per month. In case, actual production is less than 500 MT in a month, Lender will have the right to review this agreement and invoke other rights under the agreement." 9. The above Agreement dated 4th April, 2017 is followed by the Promissory Note executed on behalf of the Corporate Debtor acknowledging the "short term urgent una .....

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..... ed to in sub-clauses (a) to (h) of this clause" It is apparent from the definition that there could be financial debt along with interest or even without, if the words "if any" are seen. Again the definition is only inclusive of what is mentioned at Clauses (a) to (i). Sub-Section (g) makes it clear that there can be transactions in which money may not be involved. In the present matter, if the defence of the Corporate Debtor is seen and portions of the Agreement dated 4th April, 2017 as reproduced above are considered, it is apparent that the Financial Creditor for raw material was relying on the Corporate Debtor and when it was noticed that the Corporate Debtor is in difficulty, the Financial Creditor advanced loan to the Corporate Debtor and in the process, assured that future raw material is available to itself. The Agreement does not show that it was advance to be adjusted against price of future goods to be supplied (as is being tried to be claimed by the Corporate Debtor). The Agreement dated 4th April, 2017 read with the Promissory Note dated 17.04.2017 showed that interest was also payable. There is no substance in the argument of the Appellant that the subs .....

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