TMI Blog2020 (8) TMI 383X X X X Extracts X X X X X X X X Extracts X X X X ..... te Debtor accepted loans from the individuals with an exorbitant rates of interest and the said advancement of loans by the individuals may be at the behest of Directors in collusion with the individuals. No reasonable person would agree to such transaction hence we say there appears to be collusion. It is admitted position that the Appellants No. 2,3,4,6,7 9 have purportedly advanced loans to the Corporate Debtor with exorbitant rates of interest on 04.07.2016, 22.08.2016, 23.08.2016, 10.10.2017, 02.08.2016 and 21.03.2017 which are within period of two years preceding insolvency commencement date i.e., 01.06.2018. Even as per submission of the learned Counsel for the Appellants, these transactions are considered to be Extortionate Credit Transactions and the same needs to be quashed and set aside. The transactions of the Appellants No. 1, 5 8 which are prior to two years preceding the insolvency commencement date. However, taking into consideration, the exorbitant rates of interest charged by the Appellants, the said transactions are unconscionable. Thus, keeping in view that the rates of interest which they charged are exorbitant, we are of the view that claim of exorb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at sub-para (ii) of paragraph-3, details of loan of Appellant No. 3 are given at sub-para (iii) of paragraph-3, details of loan of Appellant No. 4 are given at sub-para (iv) of paragraph-3, details of loan of Appellant No. 5 are given at sub-para (v) of paragraph-3, details of loan of Appellant No. 6 are given at sub-para (vi) of paragraph-3, details of loan of Appellant No. 7 are given at sub-para (vii) of paragraph-3, details of loan of Appellant No. 8 are given at sub-para (viii) of paragraph-3 and details of loan of Appellant No. 9 are given at subpara (ix) of paragraph-3 of the Appeal Paper Book. It is stated that the Appellants have advanced short terms loans and issued cheques to the extent of loans to the Corporate Debtor and in lieu of the said short term loans, the Corporate Debtor (Respondent No. 2) was paid interest per month. It is stated that the Respondent No. 2 failed to pay back said short term loans within the agreed period and as such, said short terms loans were extended with a condition that the interest on the said loans would be 5% per month. However, the interest on the short terms loans advanced by the Appellants varies from Appellant to Appellant. Some of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Insolvency and Bankruptcy Code, 2016 (in short IBC ) for invoking Corporate Insolvency Resolution Process (in short CIRP ) and not barred by Section 11 of IBC and therefore, they cannot be barred from being part of CoC as Financial Creditors. 5. Learned Counsel for the Appellants further submitted that the Adjudicating Authority dealt with the issue that whether the loans advanced by the Appellants to the Corporate Debtor are deposits within the purview of Section 73 of the Companies Act, 2013 and gave a categorical finding in the Impugned Order that the money advanced by the Appellants to the Corporate Debtor is not deposit but loans advanced to the Corporate Debtor. Learned Adjudicating Authority, however, termed the interest rates on the loan amounts to be exorbitant and therefore, considered to be extortionate transaction under Section 50 of IBC, 2016. On the other hand, the Interim Resolution Professional (in short IRP ) had considered the claims of the Appellants with respect to only the principle amount of loan but not the interest. Leave apart in accordance with Section 50 IBC, 2016 only liquidator or Resolution Professional (in short RP ) can make an application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact be manifestly arbitrary to omit allottees from the Committee of Creditors when they are vitally interested in the future of the corporate debtor as they have funded anywhere from 50% to 100% of the project in most cases. 6. He submits that in view of aforesaid Apex Court Judgment, the Appellants should have been treated as Financial Creditor and should be on the CoC. Further, learned Counsel for the Appellants on the point of extortionate transaction is concerned, submitted that as per Section 50 of IBC, only the transaction which have taken place two years preceding to the Insolvency commencement date could be declared extortionate transaction. However, in the present case, Insolvency commencement date of Corporate Debtor is 01.06.2018 but transactions of Appellants No. 1, 5 8 took place before the effective date i.e., 01.06.2016 which is two years preceding to the Insolvency commencement date. Therefore, the transactions of these three Appellants are clearly out of purview of Section 50 of IBC, 2016 and cannot be considered to be extortionate. Even otherwise, if these transactions are considered to be extortionate within the purview of Section 50 IBC, 2016 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Creditors illegally. It is not out of place to mention that Respondent No. 1 filed CA No. 88/2018 before the Adjudicating Authority bringing on record various illegalities that had been committed by the Respondent No. 3 herein in carrying out the Resolution Process pursuant to the 1st CoC meeting. Pursuant to the filing of above CA, the claim of this Respondent has been admitted in the reconstituted CoC, the voting percentage of the Respondent No. 1 herein shown as 14-9% and the said reconstitution of the CoC was intimated by the Respondent No. 3 herein, vide e-mail dated 04.12.2018. 10. Learned Counsel for the Respondent No. 1 further submitted that in view of inclusion of the Appellants as Financial Creditors of the Respondent No. 2 herein, the Respondent No. 1 filed CA No. 184/2018 before the Adjudicating Authority challenging the inclusion of the Appellants as Financial Creditors and also seeking declaration that the 2nd to 5th meetings of CoC and the resolution passed therein be declared as nonest. Learned Adjudicating Authority allowed their Applications by passing the order which is impugned. It is submitted that the rates of interest charged by the Appellants are exorbi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain communications exchanged between the Appellants which do not clearly establish the conditions of loan. However, there are no loan agreement or Board Resolution passed by the Corporate Debtor authorising the Suspended Board of Director of the Corporate Debtor to enter into such communication. Further the claims of the Appellants No. 5 to 9 are on the basis of loan agreements entered into between the Appellants and the Corporate Debtor. However, there are no supporting Board Resolutions passed by the Corporate Debtor authorising Suspended Board of Directors of the Corporate Debtor to enter into such loan agreements. The Hon ble Adjudicating Authority in the Impugned Order held that the monies advanced by the Appellants are not in pursuance to any loan agreement but merely on the letters advanced by the Corporate Debtor. Learned Counsel further submitted that the interests charged by the Appellants are ranging between 42 to 60 % per month which is higher than the prevailing market rates. The Hon ble Adjudicating Authority also held in Paragraph-22 of the impugned order that the agreed rates of interest are 65% in cases of loan given by the Appellants, which leads to consider t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are Financial Creditors as defined under Section 5(7) while considering the money advanced by them, and/or, will fall under the category of Financial Debt under Section 5(8)(a). .. 15. Admittedly, above application filed by the Respondent No. 1 challenging the status of the Appellants herein as Financial Creditors of the Corporate Debtor. Upon adjudicating the matter, the Adjudicating Authority held that the monies advanced by the Appellants to the Corporate Debtor as loan, and held that Section 73(2) of the Companies Act, 2013 will not apply. However, after examining Section 50 of IBC, the Adjudicating Authority held that the transaction as Extortionate Credit Transaction on the ground that the rate of interest is 65% which is exorbitant. Further, learned Adjudicating Authority held that the Appellants are declared as unsecured creditors. 16. The main issue fell for our consideration is whether the loans advanced by the Appellants are legal in the eye of law and whether they can be treated as unsecured creditors. Before adverting to our finding, we would like to deal with the relevant facts of the case. 17. The Appellants from their pleadings contend that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Corporate Debtor for the business purposes. The Appellants failed to provide any evidence showing that the Corporate Debtor required the loans and Board of the Corporate Debtor decided and resolved in its Board Meetings to take loans @ 3.3%,4% 5% rates of interest that too from the individuals. In normal course of business, the Company takes loans from the Public Sector Bank or the Private Banks at the rate of interest charged by the Banks or Private institutions. But in the present case, Respondent-Corporate Debtor accepted loans from the individuals with an exorbitant rates of interest and the said advancement of loans by the individuals may be at the behest of Directors in collusion with the individuals. No reasonable person would agree to such transaction hence we say there appears to be collusion. After initiation of CIRP of the Respondent No. 2-Corporate Debtor, the IRP constituted for 1st CoC meeting on 25.07.2018 in which Respondent No. 1 was shown as only Financial Creditor with 100% voting rights. 19. In the 2nd CoC meeting dated 13.08.2018, the Appellants were shown as Financial Creditors thereby the CoC was reconstituted in the 2nd CoC meeting and Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 04.07.2016, 22.08.2016, 23.08.2016, 10.10.2017, 02.08.2016 and 21.03.2017 which are within period of two years preceding insolvency commencement date i.e., 01.06.2018. Even as per submission of the learned Counsel for the Appellants, these transactions are considered to be Extortionate Credit Transactions and the same needs to be quashed and set aside. The transactions of the Appellants No. 1, 5 8 which are prior to two years preceding the insolvency commencement date. However, taking into consideration, the exorbitant rates of interest charged by the Appellants, the said transactions are unconscionable. 22. In so far as the stand of the Appellants that for seeking appropriate direction with respect to make an Application for avoidance of such transaction to the Adjudicating Authority, either liquidator or the RP may make an Application is concerned, in this context we are of the view that as per Section 60(5) of IBC, the Adjudicating Authority has jurisdiction to entertain or dispose of any Application or proceeding by or against the Corporate Debtor or Corporate persons. For beneficial reference Section 60 Sub Section 5 IBC is reproduced below: 60. Adjudicatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of the view that claim of exorbitant rates of interest is extortionate regarding interest and thus illegal. However, Appellants No. 1,5 8 can make their claims for Principal Amount as Unsecured Creditors. We have seen that even the RP has not accepted the exorbitant rates of interest charged by the Appellants as stated supra. CONCLUSION: 27. In view of the aforesaid reasons, the Appeal is disposed off by modifying the order of the Adjudicating Authority in CA No. 184/18 dated O9.07.2018 as under: a) Appellants No. 2,3,4,6,7 9 transactions are held to Extortionate Credit Transactions as prohibited under Section 50(1) of IBC, 2016 and accordingly the entire Transactions are set aside as illegal void and not entitled to be considered for any relief; b) Appellants No. 1, 5 8 are not falling under Section 50(1) of IBC, therefore, the order of Adjudicating Authority is affirmed to these Appellants confirming that they are only unsecured creditors for Principal Amount and not entitled to the interest. c) We affirm the order of Adjudicating Authority that the CoC meetings held on 13.06.2018, 29.08.2018, 12.09.2018 and 29.09.2018 are nonest and resolution pass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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