TMI Blog2022 (11) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... w that burden of proof lies on the party who asserts except when the law states otherwise. To prove the existence of a debt, the Applicant has relied on the 4 dishonoured cheques amounting to Rs. 20,00,000/- but at the same time the Applicant has failed to provide a link between the said cheques being given for discharge of liability to the tune of Rs. 70,00,000/-. In any circumstances attribute a liability cannot be attributed which is greater in amount than the numbers mentioned on the cheques which have been dishonoured - Further, merely bringing it to the knowledge that TDS was deducted does not constitute a financial debt or loan in the present case. TDS can be deducted for various reasons and mere payment of TDS towards interest payable does not amount to acknowledgement of debt. The same cannot be treated as an acknowledgement of debt, more so a default of the alleged loan. A mere plain reading of the provisions under Section 7 of the IBC show that to initiate CIRP under Section 7 of the Code, the Applicant must establish that there is a financial debt and the default has been committed in respect of that financial debt by the Corporate Debtor. All of these aforementio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated under the provisions of the Companies Act, 1956 on 10.01.1990 and duly registered with the Registrar of Companies, Jaipur having CIN: U20211RJ1990PTC005264. The registered office of the Corporate Debtor is situated at G-718, Road No- 9F-3, V.K.I Area, Jaipur, RJ 302023 India. The Authorised share capital of the Company is Rs. 2,25,00,000/- and the Paid-up share capital of the Company is Rs. 1,19,12,800/-. 4. The details of the transactions leading to the filing of this Application as averred by the Applicant are as follows: a. The Financial Creditor lent an amount of Rs. 70 Lacs on 18.12.2015 at an interest rate of 16.20% p.a. by way of bank transfer to the Corporate Debtor. Copy of the Bank Statement has been attached as Annexure C at Pg. 20 of the Application. As on 31.03.2019, the total amount of debt stands at Rs. 1,09,11,607/- (Rupees One Crores Nine Lacs Eleven Thousand Six Hundred and Seven Only) including the interest being charged @ 16.20% p.a. The same has been duly acknowledged by the Corporate Debtor as on 01.04.2019 by signing the confirmation of account sent by Financial Creditor, which is annexed as Annexure D of the Application. b. For repayment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed as per confirmation of account for the period ended 31.03.2019 plus an amount of Rs. 10,36,393/- (Rupees Ten lacs Thirty-Six Thousand Three Hundred and Ninety-Three Only) being interest charged at the rate of 16.20% p.a. for the period 01.04.2019 to 31.10.2019 aggregating Rs. 1,19,48,000/- (Rupees One Crore Nineteen Lacs Forty-Eight Thousand Only) Date of Default- 27.08.2019 Being the first cheque dishonour date 5. Consequent to the notice issued by this Adjudicating Authority, the Corporate Debtor filed its reply vide Diary No. 1144/2020 dated 22.12.2020 whereby the following is stated: a. The Corporate Debtor has submitted that the Application for the alleged amount is not supported by any document executed between the parties regarding the tenure, terms of repayment, rate of interest payable thereon. The Application has been filed without occurrence of default and therefore is not maintainable. b. The Corporate Debtor further stated that the Applicant has failed to establish the existence of Debt within the meaning of Section 3(11) of the Code. The alleged amount was never availed by the Corporate Debtor as a loan; the families of the Corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporate Debtor. The document alleging acknowledgement of the claim of the Applicant has not been signed on behalf of the Corporate Debtor. The signature of Mr. Vinod Kumar Jain (Director of Respondent Company) is entirely different from the signature appearing on the document alleged as acknowledgement. Further, the Applicant has failed to establish that the cheques collectively amounting to Rs. 20,00,000/- (Rupees Twenty Lacs) were issued against a legally enforceable debt. Also, the date of default is calculated from the date of dishonour of the first cheque whereas the alleged cheques have no relation to the alleged amount. g. With respect to the filing of Form-26AS along with affidavit dated 30.12.2019, the Corporate Debtor stated that it is a settled law whereby payment of TDS does not amount to payment of interest or acknowledgement of liability. The TDS returns are primarily to acknowledge the deduction of tax at source and do not refer to any amount of loan or even the rate of interest payable on the principal amount. Therefore, the said transaction does not by any means translate into default in terms of the Code. Lastly, the Corporate Debtor submits that the Applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounts dated 01.04.2019 and 01.04.2019 duly signed by authorised signatory. Even Form 26AS filed by the Applicant vide Diary No. 10/2020 dated 06.01.2020 shows that TDS has been deducted on Interest other than Interest on Securities . Further there exists only one transaction between the parties related to the due loan amount and hence the TDS deducted by the Corporate Debtor on interest is for the Interest to be paid on the said loan amount. 7. It is also noteworthy that the Applicant had filed Form 26AS for the Financial Creditor for the Financial Year 2015-16, 2016-17, 2017-18 and 2018-19 vide Diary No. 10/2020 dated 06.01.2020. The Applicant has also filed Written Submissions vide Diary No. 1854/2022 dated 22.06.2022 whereby the following has been submitted: a. The Applicant has reiterated that the loan of Rs. 70,00,000/- (Rupees Seventy Lacs) was given to the Corporate Debtor via bank transfer on 18.12.2015 at an interest rate of 16.20% p.a. The following instances substantiate the said loan having being defaulted by the Corporate Debtor: i. The Applicant has showed the said loan amount in its Balance Sheet under the head of Short Term Loans and Advances sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial debt are: (i) disbursement of the amount as loan; (ii) disbursement of loan against time value of money; (iii) default. The Applicant has failed to provide any documentary evidence to establish the ingredients of financial debt. As per the definitions in the Code, debt is a liability in respect of a claim which is due. Since the amount of Rs. 70 Lakhs was given as an investment and the Applicant has failed to establish disbursement of amount as loan and the tenure or the terms of repayment of alleged debt, this application is not maintainable. In absence of any debt, there can be no occurrence of a default. b. The Corporate Debtor has reiterated that there is no Financial Contract as in terms of Rule 3(1)(d) and in absence of financial contract, the amount invested by the Applicant cannot in any stretch of imagination be considered to be a financial debt under Section 5(8) of the Code. Also, the contention raised by the Application stating that the debt is repayable on demand has only been raised in the rejoinder as an afterthought. Furthermore, no board resolution was passed by the Financial Creditor for granting loan as enshrined under Section 186 of the Companies A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction of Rs. 70 Lacs dated 18.12.2015, which has been admitted by both the parties to the case wherein the Applicant has made a payment of Rs. 70 Lacs to the Corporate Debtor. The Applicant has contended that the transaction is a loan and since there is no written document, the loan is a short-term loan repayable on demand. The Corporate Debtor on the contrary has submitted that the said transaction is an investment made by the Applicant for a long period of time and repayable after 10 years. It is observed that books of accounts as filed by the Applicant can only be treated as corroborative evidence and such corroborative evidence must be supported by other evidence to establish the existence of a valid debt and default thereof. 12. The basic ingredients to be looked into while passing an order under Section 7 of the code is: (i) there must be a disbursal of loan amount, such dispersal should be made for a consideration of time value of money; (ii) when the debt (whole or any part of instalment) becomes due and payable and; (iii) the same is not paid by the Corporate Debtor i.e., default committed by the Corporate Debtor. Presently, in the case before us, there is disburs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs. 20,00,000/- but at the same time the Applicant has failed to provide a link between the said cheques being given for discharge of liability to the tune of Rs. 70,00,000/- (Rupees Seventy Lacs). We cannot in any circumstances attribute a liability which is greater in amount than the numbers mentioned on the cheques which have been dishonoured. 16. Further, merely bringing it to the knowledge that TDS was deducted does not constitute a financial debt or loan in the present case. TDS can be deducted for various reasons and mere payment of TDS towards interest payable does not amount to acknowledgement of debt. The same cannot be treated as an acknowledgement of debt, more so a default of the alleged loan. 17. It is seen that vide order dated 19.12.2019, the Applicant was directed to file an affidavit denoting the nature of transaction underlining the money advanced to the Corporate Debtor and supporting documents thereof. The Applicant in compliance of the same had filed an Affidavit vide Dairy No. 10/2020 dated 06.01.2020 whereby the Applicant has stated that the loan was provided to the Corporate Debtor for business purposes. Thereafter, the Applicant has also filed a r ..... 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