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TMI Blog2017 (8) TMI 1646X X X X Extracts X X X X X X X X Extracts X X X X ..... , their objections/reply if any well before the next date of hearing and Counsel for the Respondent should also submit his Vakalat and the case is posted 12-09-2017. On 11-07-2017 heard both the Counsels. The Learned Counsel for the Respondent filed objection to the Petition and Learned Counsel for the Petitioner requested time to file a Rejoinder and the case was posted on 21-07-2017. The case was heard at length from both the parties on 21-07-2017 and the Learned Counsel for the Respondent requested time to produce legal opinion obtained in this case and the case is posted on 01-08-2017. 0n 01-08-2017 heard both the sides and parties were directed to submit their written submission within a week and orders reserved. Submissions of the Petitioner / Financial Creditor: 2. The Company Petition (IB) No.97/7/HDB/2017 has been filed by the Financial Creditor viz Quinn Logistics India Private Limited (Petitioner/Financial Creditor), against Mack Soft Tech Private Limited (Respondent/Corporate Debtor), under Section 7 of Insolvency and Bankruptcy Code 2016, read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, inter alia seeking the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding of the Financial Creditor has been diluted by issue of shares to MECON FZE on 22-06-2011 for consideration of only Rs. 40,71,579/-. 8. However the 9,990 shares held by the Financial Creditor have been transferred to UCA LOGVAS AG on 27-08-2011 for a consideration only Rs. 9,90,000/-. The share issue and share transfer are subject matter of the Civil suits in O.S.No.21 of 2012 and O.S. No.1303 of 2013 pending before the Learned District Judge, Ranga Reddy Court, Hyderabad. 9. On 15.06.2017, the Financial Creditor issued notice of demand on the Corporate Debtor recalling the loan and calling upon the Corporate Debtor to make repayment thereof immediately and no later than 30.06.2017. 10. The Corporate Debtor, despite receipt of the notice dated 15.06.2017, has not repaid the admitted outstanding loan amount due to the Financial Creditor. Instead, vide reply dated 29.6.2017, the Corporate Debtor has stated that it will have to verify the claims made by the Financial Creditor from its records and has sought two-three weeks' time for the same. The reply of the Corporate Debtor is vague and an attempt to delay the repayment of the Financial Debt which is admitted in its Bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliminary submissions and objections. I. The Petitioner does not exist as a Company and or as a Legal Entity. Name of the Petitioner has been struck off a. That the Respondent Company has checked up with the website of the MCA (www.mca.gov.in) and it has revealed that the name of the Applicant / Petitioner Company has already been struck off by Registrar of the Companies. In fact a public notice was issued by the Ministry of Corporate Affairs on 05.05.2017 giving 30 days notice prior to striking off and which notice period ended on 05.06.2017. b. That the effect of the strike off of the name of the Applicant / Petition Company is that it ceases to be a legal entity recognized by law and the certificate of incorporation issues, it is deemed to have been cancelled. The authorized signatory/director of the Applicant/Petitioner Company does not have any authority to present and / or to continue proceeding with the above Application/Petition. c. That therefore, the Applicant / Petitioner could not have presented the above Application / Petition and now the Applicant / Petition cannot further proceed with the above Applicant / Petition. d. Therefore, the above Applicant / Petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance sheets of the Respondent Company only arise if the Petitioner is able to demonstrate ex-facie that It is a Financial Creditor of the Respondent Company. The above Petition deserves to be dismissed on grounds of concealment alone. d. That the reliance by the Petitioner on the balance sheet of the Respondent Company for claiming the purported Loan is highly erroneous, the Respondent Company has already Written Off the purported debt from the books of the Respondent Company in the Financial Year 2016-2017. e. Mere reflection of an amount as an unsecured loan in balance sheet of the Respondent Company does not cover the case of the petitioner within (4) four corners of IBC Code. f. In the Board Meeting held on 23-03-2016 the unsecured loans in the books of accounts of the company amounting to Rs. 62,94,18,214/- which are shown and reflected in the books of accounts of the company as an amount due and payable in the books of accounts and has not been claimed asunsecured loan by any company or person with reference to the company may be first discussed in the Accounts Department of the Company and the board further resolved that Mr.Anil Kumar, CFO of the company asked to clos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of a company by sending a letter without any board resolution recalling the purported loan. d. The Corporate Debtor vide its subsequent letter 06-07-2017 replied to Financial Creditor that on verification of our records, we have not found any such amount due and payable by our company to so called Financial Creditor Quinn Logistics India Pvt. Ltd. or any other company or any person. We therefore, state that, no amount at all is due and payable to your company as claimed by you. Your claim is wrong and denied in toto. V. The Petition is incomplete in terms of the Section 7(2) of the IBC Code and is liable to be rejected in terms of the Section 7(5) (B) of the IBC Code That the Application of the Petitioner is incomplete since the documents annexed in support of the amount of the debt and the default due, do not reflect the existence of the amount of debt or the amount of default of the date of filing the application etc. VI. The Petitioner is guilty of concealment. a. That the Petitioner is guilty of concealment and approaching this Hon'ble Tribunal with unclean hands. Particularly because the Petitioner has not filed even a single balance sheet of the Petitioner Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following judgements of Hon'ble NCLAT & Hon'ble Supreme Court: 1. Definition of Financial Creditor and Financial debt as upheld by NCLAT in para 17 in Nikhil Mehta & Sons Vs AMR Infra Ltd in Company Appeal No.07/2017. 2. Starlog Enterprises Ltd Vs ICICI Bank Ltd, NCLAT in Company Appeal No.05/2017, dated 24-05-2017 para 20 & 21. 3. CIT Vs Chip Soft Technology Pvt. Ltd. before the Hon'ble High Court of Delhi decided on 20-07-2012 para 9. 4. Innoventive Industries Ltd. Vs. ICICI Bank & Another, Company Appeal No.1&2 of 2017 para 82, 83 & 85 decided on 15-05-2017. 23. The Corporate Debtor also raised the issue that the Director who was authorized to initiate Corporate Insolvency against the Corporate Debtor is also legally not eligible that admittedly the Petitioner Company has not filed its Annual Returns to the Registrar of the Companies for more than three consecutive Financial Years. Admittedly the Directors of the Petitioner Company are in default. The Directors of the Petitioner Company therefore, are disqualified to be Directors of the Petitioner Company. Therefore, under Section 167 of the Act, it is very clear that there is automatic vacation of Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase the amount of Rs. 62,90,45,905/- is acknowledged as an Intercorporate Loan under the loans in the balance sheet of the respondent company. It is denied that there is any concealment of any material fact as alleged or otherwise. It is denied that the applicant is not a Financial Creditor. vi) The contents of para 8 are incorrect and denied. The question of applicability of the Foreign Exchange Management Act, 1999 (FEMA) to the transaction of loan between the Applicant and the Respondent does not arise as the Applicant and the Respondent are both companies registered in India and the transaction is in Indian Rupees. The Financial Collaboration Approval relied upon by the Respondent is granted to Quinn Logistics Sweden AB. The loan given by the Applicant to the Respondent does not require any permission from the Government of India. FEMA is only applicable to remittance of funds into or outside India. It is therefore, denied that the Applicant is not legally capable of granting any loan to the Respondent. The loan granted by the Applicant to the Respondent is valid and cannot be avoided. vii) The petitioner further submitted that the term inter-corporate loan and inter-compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out even a single communication, prior to or after write off with the Applicant. Further, and without prejudice, the subsequent write off, as alleged, does not extinguish the legal liability of the respondent as the bilateral obligation cannot be extinguished unilaterally. For a liability to be derecognized or for an obligation to be extinguished by means other than payment, it would require the lender to legally waive or forfeit its rights. xi) The contents of para 14 and 15 are incorrect and denied. The Respondent has failed to appreciate that the receipt of sums as loan from a party creates a legal obligation to repay immediately and a default occurs if the amount is not repaid despite demand. A written contract is not a necessary pre requisite to establish relationship of lender and creditor and, in fact, the disbursement of money as loan itself creates such relationship which is governed by the terms implied by law. The balance sheet is both an admission and an acknowledgement of the liability which is approved by the Board and the Statutory Auditors as also the shareholders in AGM and therefore binds the company. The fact of there being a contractual relationship is establi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason to address any correspondence till such time as it desires the repayment of the amount. In the present case, the latest audited balance sheet for year ending 31.03.2016 signed on 02.09.2016 and uploaded with the ROC on 10.03.2017, reflects the debt and within less than a year of such acknowledgement the Applicant has sought repayment of the loan and immediately upon the refusal to do so has filed the present petition. xiv) The contents of para 18, any writing off of the debt does not impact the liability of the company to repay the amount due. The Hon'ble Tribunal may take note of the fact that the letter dated 29.06.2017 written by the Director of the Respondent o the Applicant states that the claims of the Applicant will be "verified from our records". If indeed on 29.06.2017, the Board Resolution dated 23.03.2016, 20.06.2016 and 28-12-2016 had existed, there would have been no reason whatsoever why this fact was not stated either in the letter dated 29.06.2017 or the letter dated 06.07.2017. It would appear that prima facie that aforesaid alleged Board Resolutions are false. However, as stated above, assuming arguendo, that such alleged resolutions were passed, thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic document being its balance sheet. It is denied that the recovery of the debt is time barred as alleged, or otherwise. xxi) The contents of para 36 are wrong and denied. It is submitted that the Respondent is only seeking to mislead the Hon'ble Tribunal by seeking to show that there is a difference in the terminology "inter-company balance" and "inter-corporate loan". In fact the balance sheet of the Applicant and the Respondent both reflect this amount as due and payable under the head loans. Therefore, the allegation of suppression is equally unfounded and baseless. The balance sheet of the Respondent is relied upon as it amounts to conclusive evidence against the Respondent. 25. Financial Creditor submitted that It is a common practice that no written agreement for the loans and the same is valid as per the Indian Contract Act 1872. It is further submitted that under IBC or Indian Contract Act 1872 do not require that contract to be in writing. 26. The Board Resolution dated 20-06-2016/2017 of the Corporate Debtor acknowledged the debt from the Financial Creditor. The Balance Sheet as at 31-03-2013 is dated and signed on 03-09-2013, therefore, according to the Applican ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case, therefore, the period of limitation is extended to 02.09.2019 by the balance sheet dated 31.03.2016 signed on 02.09.2016. 35. There is no legal basis for the Respondent to claim that between 20.06.2016, when its own Board Resolution acknowledges the unsecured loan due to the Applicant, and the date of the Petition, the liability of the Respondent to repay the Applicant has vanished. A mere unilateral decision of the Board of the Respondent to so-called write off its own admitted liability , without any basis, does not amount to extinguishing of the liability in law. 36. There is no accounting standard or practice enabling a debtor to unilaterally write off debts owned by it to its creditors. Respondent has not shown any auditing standard in support of such purported write-off. Indian Accounting Standard AS 109 relied upon by the Respondent (para 3.3.1) also does not provide for write off of a subsisting liability. 37. The opinion of the Ld. Senior Advocate relied upon by the Respondent is not relevant. It has not been served upon the Applicant and as such cannot be relied upon by the Respondent. In any event, the opinion cannot be contrary to the settled princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Section 164(2) of the Companies Act, 2013 relied upon by the Applicant came into force only on 01.04.2014 and under Companies Act, 1956 there was no such provision applicable to private limited companies. The penal disqualification is prospective in nature and hence the period for disqualification will begin only after expiry of time for filing balance sheet for year ended 31.03.2017 which is upto 30.09.2017. Therefore, it would be incorrect to say that the directors are disqualified. In any case, this question need not be decided in the present petition, as the institution of the petition is also authorized by the share holder by way of EGM Resolution dated 04.07.2017. 44. For maintainability of the Petitioner under Section 7 (5) (a) of the IBC for admission of the petition is that a default should have occurred, the petition should be complete, and there should be no disciplinary proceedings pending against the IBC. Therefore, the status of the audited accounts of the financial creditor is not a relevant factor, (even though in present case the audited accounts have in fact been adopted by the Applicant). 45. The decision sought to be relied upon by the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate Debtor during the hearing held on 01-08-2017 has confirmed that the name of Financial Creditor was not published in the official Gazette (regarding struck off of the name of the Financial Creditor) as per Section 248 (5) of the Companies Act, 2013. 50. We have also taken into account the submissions of Financial Creditor with regard to disqualifications of Directors and authorization given by shareholders by way of Resolution in EGM held on 04.07.2017. 51. The Financial Creditor submitted that share issue and share transfer are subject matter of the Civil Suits in O.S.No.21 of 2012 and O.S.No.1303 of 2013 pending before the Learned District Judge, Ranga Reddy Court, Hyderabad and not relating to repayment of the loan.Therefore, the prayer of Corporate Debtor is not considered. 52. Further, while perusing the Government approval for foreign collaboration conveyed vide its letter dated 9-4-2007 , the letter was addressed to Quinn Logistics Sweden, and not to the Financial Creditor i.e. Quinn Logistics India Pvt. Ltd., With regard to the contentions of the Corporate Debtor regarding applicability of FEMA, we are satisfied with the submission of the Financial Creditor. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /submission of the Respondent, the amount disbursed to Corporate Debtor is not part of the balance sheet of Financial Creditor, while perusing the records submitted by the Corporate Debtor itself, we have observed / found the Audited Reports for year ending 31-12-2009 of Quinn Logistics India Pvt. Ltd (Financial Creditor) under the heading current assets / loans and advances, an amount of Rs. 63,15,88,023/- was shown as loans and advances and also previous year ending 31-12-2008, an amount of Rs. 74,80,26,336/- was also shown as loans and advances. While further analyzing the schedules of balance sheet, the same was discussed in Schedule-8 and said amount was against the name of Mack Soft Tech Pvt. Ltd. i.e. the Corporate Debtor, therefore, even in this count also the Corporate Debtor have failed and in addition to the balance sheet, the Financial Creditor have also submitted the bank statement, establishing the proof of loans disbursement to Corporate Debtor. 59. The Financial Creditor recalled vide letter dt.15-06-2017 the Inter Corporate Loan and called upon the Corporate Debtor to repay the outstanding loan amount of Rs. 62,90,45,905/- on or before 30-06-2017. In response to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the beginning and during the course of period the loans were disbursed free of interest. Section 5(8) of IBC Code also states that the Financial debt means a debt along with interest if any. Issues relating to writing off / limitation: 63. We agree with the submission of the petitioner regarding the limitation period which extends up to 03-09-2016. We would also like to add that the shareholders approved/adopted the balance sheet in the Annual General Meeting held on 30-09-2013. It is also interesting to note that the said Balance Sheet as at 31-03-2013 of the Corporate Debtor was filed with ROC only on 24-12-2015. 64. From the various Board Minutes, it is noted that the Board of Corporate Debtor has taken steps since 23-6-2016 to write off the loan amount of the Financial Creditor and finally based on the expert legal opinion, the Board of Corporate Debtor decided to write off the outstanding amount of Financial Creditor with immediate effect. Though the entire exercise took nine months to write off, at none of the points, the Financial Creditor was ever given an opportunity to explain its stand with regard to writing off its own outstanding amount. Therefore, we are of the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-03-2016 was Rs. 0.13. 71. The stand of the Corporate Debtor that the recovery is time barred and therefore, the amount is not due or payable as per law, the same appears to be incorrect. The lender will have a right to recover its money and equally the borrower is under obligation is to repay the loan. If we accept the stand of the borrower then borrower becomes King and the lender is put to disadvantageous position which should not be a normal commercial practice. Borrower/Lender should fulfill their individual obligations so as to ensure the Corporates function well which in turn will help the economy. 72. The Corporate Debtor's stand that intercompany balance is not a debt or claim, however, we agree with the submissions of the petitioner and we are also of the view that both are one and the same and having the same effect. 73. We are of the prima facie view the Accounting Standard relied upon by Corporate Debtor is not related to the current facts & circumstances of the case since the accounting standard states that "when the obligation specified in the contract is discharged or cancelled or expires. 74. Apparently, in the instant case there are no obligations specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation utility or on the basis other evidence furnishedby the Financial Creditor and the sub sec (3). Under sub Section 5 of sec 7, the adjudicating authority is required to satisfy- a. whether a default has occurred, b. whether an application is complete; and c. whether any disciplinary proceeding is against the proposed insolvency resolution professional. Once It satisfied, it is required to admit the case ........... In the instant case, we are of the considered view that Financial Creditor has fulfilled all the three essential criteria's mentioned above therefore, we have no hesitation in admitting the case / application under IBC 2016. 79. After careful examination of all the records and contents of the Corporate Debtor, we are satisfied that the Corporate Debtor owes Rs. 62,90,45,905/- therefore, debt and default has been established by the Financial Creditor and accordingly the CP (IB) No. 97 / 2017 as prayed by the Financial Creditor is admitted. 80. In view of the above facts and circumstances, records produced, expert legal opinion, judgements submitted by both the parties, we are satisfied that Financial Creditorhas to receive Rs. 62,90,45,905/- which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation of all claims received against the Corporate Debtor and determination of Financial position of Corporate Debtor as per section 21 of IBC. The first meeting of the committee of Creditors, shall be held within 7 days of the constitution of committee of Creditors and their decision has to be communicated to the Tribunal as per section 22 of IBC, 2016. f. We direct the Interim Resolution Professional to follow all the applicable provisions of the Insolvency and Bankruptcy Code 2016 and Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016. g. The IRP shall perform all these functions religiously and strictly which are contemplated, inter alia, by sections 15, 17, 18, 19,20 & 21 of the Code. He must follow best practices available in the discipline of insolvency. h. It is further made clear that all the personnel connected with a Corporate Debtor its promoters or any other person associated with the management of the Corporate Debtor are under legal obligation under section 19 of the code to extend every assistance and cooperation to the IRP as may be required by him in managing the affairs of the Corporate Debtor. W ..... X X X X Extracts X X X X X X X X Extracts X X X X
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