TMI Blog2022 (1) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... rent Account of the Respondent/Company. In fact, the first Transfer of ₹ 2.50 Crores, was made on 01.12.2016 to the Respondent/Company and these were recorded in the Minutes of the Board of Director s on 22.03.2017 and 06.04.2017 respectively. The contra views arrived at by the Adjudicating Authority that the Loan was not a Financial Debt , as the amounts were not money borrowed by the Corporate Debtor and that the borrowing may not constitute a Financial Debt that could be enforced as per the I B Code, 2016 though the Borrowing may be reflected in the Balance Sheet as pointed out by the Petitioner (Appellant) etc; are legally invalid and untenable - Application allowed. - TA No. 117/2021 [COMPANY APPEAL (AT) (INSOLVENCY) NO. 553/2020] - - - Dated:- 3-1-2022 - (Justice M. Venugopal) Member (Judicial) And (Kanthi Narahari) Member (Technical) For the Appellant : Ms. Haripriya Padmanabhan, Mr. Rahul Kripalani, Mr. Rea Bhallo, Advocates For the Respondent : Mr. Dhritiman Bhattacharyya, Advocate JUDGEMENT VIRTUAL MODE M. VENUGOPAL, MEMBER(J) I.A. NO. 1415 OF 2020 The Applicant/Appellant has preferred I.A. No 1415 of 2020 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Adjudicating Authority (National Company Law Tribunal, Bengaluru Bench) in dismissing the Application. 6. The Adjudicating Authority (National Company Law Tribunal, Bengaluru Bench) while passing the impugned order dated 28.01.2020 in CP (IB) No. 1/BB/2019 at paragraph 8 to 14 had observed the following: In the instant case, the amounts are stated to be given at a time when the Petitioner was a Director in the Respondent Company, for the purpose of keeping the Company running and meeting the Company s funding requirements. As per the Petition, the Petitioner herself informed the Board about the fund requirement. That was much in the interest of the Petitioner herself as of the Respondent Company, as she was a Director. She then advanced the amounts on 01.12.2016 and 18.01.2017 in two tranches, totalling ₹ 4.10 crore. In the Board Meeting of 23.02.2017, another Director Sri S Jairam, a close associate and statutory auditor in other Companies in which the Petitioner was a Promoter Director and later in the Respondent Company as well, only informed the Board that the amounts had been received and were to be repaid in 6 months and bore an interest of 7.5% p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as pointed out by the Petitioner, but the same may not constitute a Financial Debt that could be enforced as per the Code. As held by the Hon ble NCLAT in the case of Dr. BVS Lakshmi v. Geometric Laser Solution Pvt. Ltd. dated 22.12.2017, in such circumstances it cannot be said the amounts stated to have been given acquired the nature of a financial debt and the Petitioner cannot be termed as a Financial Creditor. The Petition becomes liable to be dismissed on this ground as well. 10. Proceedings under the Code are summary proceedings, where even if there was debt, the same should be undisputed and the default, as defined under Section 3 (12) of the Code should be clearly established. While the amounts had been given in December 2016 and January 2017, and became due by June 2017, the demand notice (under section 9 and not under section 7 of the Code) was sent by the Petitioner only on 26.09.2018, that is, after a lapse of more than a year. In the intervening period, when she wielded full powers, took all the decisions and signed all the minutes of the Meetings, there were disputes that led to financial due diligence being undertaken by the Company through an independent Mala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Respondent Company is Insolvent. The Respondent Company is 99.99% wholly owned subsidiary of M/s. OnChamp Investments Limited, a foreign Company which has made huge Foreign Direct Investments in to the Corporate Debtor. Further, it is a 100% Export Oriented Unit and is committed to continue its regular operations and also to support hundreds of its employees. It has total assets of ₹ 152,05,49,836/- as at 31.03.2018, and net worth of ₹ 132.5 Crore with few liabilities. It has an investment in Land and Buildings of about ₹ 136 Crore. It was therefore a solvent Company, though there may have been temporary cash flow issues. 13. Section 7 (5) of the Code uses the term may , which gives this Adjudicating Authority the option to weigh the pros and cons of initiating a CIRP against the Corporate Debtor. In the circumstances stated above, we do not consider it justifiable to send the Respondent into CIRP, as that would have serious socio-economic repercussions on an Export oriented Company with huge foreign funding, and of the stature mentioned above, especially on the hundreds of employees and other stakeholders and customers, and that too when the Respondent C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors, Members or other persons, any sum or sums of money for the purpose of the Company on such terms and conditions as the Board of Directors may agree in each case . 13. The Learned Counsel for the Appellant comes out with a plea that the Board of Directors is empowered to subsequently ratify an Act which was done earlier and to lend support to this contention cites the decision of the Hon ble Supreme Court in Goa Shipyard Ltd. v Babu Thomas reported in 2007) 10 SCC page 622 where in at paragraph 13 it is observed as under: 13 .The question whether the Board of Directors of a company could subsequently ratify an invalid act and validate it retrospectively is no more res integra. The question has been considered by a three-Judge Bench of this Court in Maharashtra State Mining Corpn. v. Sunil [(2006) 5 SCC 96 : 2006 SCC (L S) 926]. In that case the respondent, an employee of the Corporation was dismissed by the Manging Director preceded by an inquiry. A writ petition was filed challenging the dismissal order on the ground that the Managing Director of the Corporation was incompetent to pass such an order. During the pendency of the writ petition, the Board of Directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting was signed by Mr. Ooi Boon Aun on 06.04.2017 as the Chairman of the Meeting and that the Appellant had not participated in the said meeting, because of the fact that it related to a Loan given by her. 15. The Learned Counsel for the Appellant adverts to the fact that Mr. Ooi Boon Aun also had signed the Ledger Book recording the Loan given by the Appellant and added further, the Balance Sheet of the Respondent/Company for the period from 01.04.2016 to 31.03.2017 mentions the outstanding liability to the Appellant of ₹ 4.10 crores. 16. The Learned Counsel for the Appellant points out that the Balance Sheet of the Respondent/Company for the period even after resignation i.e. for the period from 01.04.2017 to 31.03.2018 again mentions the outstanding liability to the Appellant. 17. The Learned Counsel for the Appellant brings it to the notice of this Tribunal that the instant case relates to a Financial Debt and it does not pertains to the difference between a Secured and an Unsecured Creditor . In this regard, the Learned Counsel for the Appellant seeks in aid of the decision of the Hon ble Supreme Court in Orator Marketing Pvt. Ltd. v Samtex Desin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for more time to repay the amount. Indeed, the Director of the Respondent/Company (Mr. Ooi Boon Aun) on 25.10.2018 addressed a letter to the Appellant, apologising and sought more time for repayment and also requested that legal action was not to be initiated. 20. The pivotal stand of the Appellant is that Mr. Weiqui wrote a letter on 07.06.2017 to the Appellant apologising for the breach of the repayment deadline 05.06.2017 and by an another letter dated 27.06.2017 addressed to the Appellant Mr. Weiqui promised that the loan would be repaid by 10-15.07.2017. 21. The Learned Counsel for the Appellant brings it to the notice of this Tribunal that the Respondent/Company filed its Reply in March 2019 (through its Company Secretary) thereby admitted its liability to repay the Appellant, the Principal as well as Interest. On the same day, Mr. Ooi Boon Aun (the Director) wrote to the Appellant under the Letterhead of the Respondent/Company, which is extracted as under: Thank you or your patience and co operation regarding your loan to Chemizol Additives Pvt. Ltd. Bangalore (CAPL). We have been working strenuously to raise funds from investors and it is his wish to make a pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where in at paragraph 7, it is observed as under: 7. The Adjudicating Authority was of the view that in view of pendency of the civil suit, there exist a dispute in the amount of debt between both the parties is concerned. The said stand cannot be accepted. The application filed before the Adjudicating Authority is under Section 7 of the IBC and not under Section 9 of the IBC where one can take a plea stating that there exists a dispute between the parties before issuing a Demand Notice under Section 8(1) of the IBC. Therefore, we are unable to uphold such finding of the Adjudicating Authority. 26. The Learned Counsel for the Appellant refers to the decision of the Hon ble Supreme Court in Innoventive Industries Ltd. v ICICI Bank (2018) 1 SCC 407 at paragraph 30 wherein it is held that in case the Corporate Debtor commits default of a Financial Debt , the Adjudicating Authority is to merely see the evidence produced by the Financial Creditor to satisfy itself that a Default has occurred. As a matter of fact, the Hon ble Supreme Court had held as under: It is of no matter that the debt is disputed so long as the debt is due i.e., payable, unless interdicted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith Section 179 (3) (d) of the Companies Act, 2013, to ratify the Loan obtained by the Respondent from the Appellant. The Learned Counsel for the Respondent adverts to Section 179 of the Companies Act, 2013 which among other things mentions that certain Resolutions is required to be passed in the Board Meeting. Apart from that, Section 179 (3) (d) specifies that the Board of Director shall exercise its power To Borrow Monies only through a Resolution passed at the meetings of the Board. 33. The Learned Counsel for the Respondent comes out with a plea that Section 179 of the Companies Act, 2013 vests the Directors , the Power to Borrow after deliberating the Financial needs of the Company, implications thereof, rate of interest etc. in a properly convened Board Meeting and the same cannot be passed in circulation. In this regard, the stance of the Respondent is that the Post Facto ratification is not envisaged under the Section. 34. The Learned Counsel for the Respondent brings it to the notice of this tribunal that as per Section 73 read with Section 76 of the Companies Act,2013 and the Companies (acceptance of deposit) rules 2014 Loans obtained from the Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (IB) No.1/BB/2019 had stated that the Demand Notice issued by the Appellant shows that the Debt as Operational Debt , but the Petition indicates that the Debt as Financial Debt and the Appellant as Financial Creditor as per the Code. 41. It is further averred in the Reply of the Respondent that in January- February 2017 an Audit was conducted relating to the affairs of the Respondent/Company, by a Malaysian Firm VCus , which found out that there was Misrepresentation and Misappropriation of funds, as observed by the Adjudicating Authority in the impugned order. Thereafter, a meeting was held on 06.04.2017, wherein, the Appellant had stepped down from the post of Executive Director and further that New Directors were appointed and given Authority to sign Cheques and other agreements on behalf of the Respondent/Company. Finally, the Appellant resigned on 25.07.2017. 42. The stand of the Respondent is that during the year 2016-2017 the Respondent/Company was under a Liquidity crisis and an impression was made by the Appellant that the purported loan was granted by the Appellant, in order to meet the Operational Expenses , especially E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed against the consideration for the time value of money and includes a money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent etc. 49. Section 3(8) of the I B Code, 2016 defines Corporate debtor means a corporate person who owes debt to any person. Section 3(6) of the I B Code, 2016 defines claim meaning: (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment fixed, matured, unmatured, disputed, undisputed, secured or unsecured 50. It must be borne in mind that Financial Debt under Section 5(8) of the I B Code, is an inclusive definition and even if a transaction which does not fall under any of those described under the provision can be classified as a Financial Debt . It is to be remembered that a Financial Creditor is a person who has a right to the Financial Debt . 51. Section 3(10) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en out of funds acquired by him by borrowing or accepting loans or deposits from others and the company shall disclose the details of money so accepted in the Board s report; 58. The term Deposit and Loan they include borrowing of money and in Deposit , the Depositor is a prime mover. In Loan , the Borrowing is to ultimately, benefit the person who borrows . 59. In the present case, it is brought to the forefront that the Appellant had issued the declaration under the proviso to, Rule 2(c) of the Rules. There is no gainsaying of the fact that the ingredients of Sections 73 76 are not meant to protect the Company to whom the sum is given. 60. In the present case, it is to be pointed out that at no point of time the Respondent/Company sought to avoid the Loan Transaction with the Appellant . As a matter of fact, the Respondent and its Officers had confirmed their obligations to repay the Loan to the Appellant . As such, the plea of Voidability of the Loan Transaction is not available to the Respondent/ Company, in the considered opinion of this Tribunal . 61. On behalf of the Appellant a reference is made to the Order passed by the Adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Company as Financial Creditor . The mistake that had crept in the First Legal Notice was corrected by the Second Legal Notice, issued through a new Advocate, is not a fatal one, to the facts of the case which float on the surface. 68. In fact, Mr. Qi Wei through letter dated 07.06.2018 addressed to the Appellant had among other things mentioned that this will be last delay. It can only be earlier than the date I had promised. I can only deal with some urgent thing at noon time and at night. Again please understand my situation. 69. In reality, the Director of the Respondent/Company, Mr. Ooi Boon Aun had addressed a reply (to the Legal Notice dated 06.09.2018) on 25.10.2018, to the Appellant wherein deferring of any Legal Action was mentioned and a reiteration was made that the Respondent/Company will repay the entire Loan amount at an agreed interest rate of 7.5% per annum within sixty days from 6th April, 2017 i.e., from 5th June, 2017 . 70. In the present case, the Second transfer ₹ 1.60 crores was made to the Respondent/Company on 18.01.2017 and the said transfer was effected from the Appellant s personal Bank Account to the Current Account of the Responde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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