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TMI Blog2023 (3) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... esha Merla ] Member ( Technical ) For the Appellant : Mr. Pawan Jhabakh , Advocate For the Respondent / IRP : Ms. Yajura Devi , Advocate JUDGMENT ( Virtual Mode ) [ Per ; Ms. Shreesha Merla , Member ( Technical ) ] : Common Order : TA157 / 2021 ( Comp. App. ( AT ) ( CH ) ( Ins . ) No. 995 / 2020 ) ( ' Lead Case ' ) : 1. Aggrieved by the 'Impugned Order' dated 13.10.2020 passed by 'The Adjudicating Authority', (National Company Law Tribunal, Division Bench - I, Chennai) in I.A.473/IB/2020 in CA/1/IB/2017, M/s. Sri Adinath Enterprises preferred this 'Appeal' under Section 61 of the Insolvency and Bankruptcy Code 2016, (hereinafter referred to as 'The Code') to the extent of the rejection of its 'Claim' amount. 2. Learned Counsel appearing on behalf of the 'Appellant' submitted that based on the commercial understanding between the 'Corporate Debtor', and the 'Appellant' herein, the 'Appellant' had lent a significant amounts of money to the 'Corporate Debtor' i.e., Rs.4,90,00,000/- for the utilization and use by the 'Corporate Debtor' in its business activities; that the 'Corporate Debtor' had executed various documents evidencing the amounts 'due and outstandi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or of the 'Corporate Debtor' to provide these documents and the same is to be taken at 'face value'. 4. It is further contended by the Learned Counsel for the 'Appellant' that the Statutory Authorities have also confirmed in the Report that the Managing Director has acted on behalf of the Company and the balance in the Managing Director's Account includes the amounts received by the Company from various third parties. 5. Learned Sr. Counsel for the Respondent Mr. Arvind Pandian submitted that there is no privity of contract between the 'Appellant' and the 'Corporate Debtor' and the amounts were lent by the 'Appellant' to the Promoter who accepted the same in his personal capacity and has nothing to do with the 'Corporate Debtor'. Learned Counsel drew our attention to para 8 of the Minutes of the 10th Meeting of the Committee of Creditors ('CoC') of the 'Corporate Debtor' convened by the Insolvency Resolution Process (IRP), Mr. V Mahesh and held on 19.12.2020, the said para is reproduced as hereunder: "8. TO DISCUSS AND TAKE ON RECORD THE APPLICATION FILED BY THE IP BEFORE HON'BLE NCLT, CHENNAI BENCH UNDER SECTION 19 OF IBC, 2016: The Chairman informed that the Application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thru' legally permitted methods like invoking the personal guarantee, as per the Chairman, and the amount realized thru' that, needs to be reported to CoC and to the IRP/RP as the case may be. These are being sensitive matters would be circulated and taken up for discussion/s in the ensuing CoC Meetings. Mrs. Meera Arun informed that personal cheques have been taken by some of the Lenders from her late husband forcefully and that she's in the process of unearthing more information on the same. She expressed that amidst this very unfortunate situation, she has not had the mind space to go through and respond to this Application and that she's in the process of examining the available information by way of appointing her own counsel or representative." 6. Learned Sr. Counsel for the Respondent vehemently contended that Minutes of the alleged Board Meeting/Resolution of the 'Corporate Debtor' dated 26.12.2014, 05.01.2015 and finally on 26.06.2015, authorizing Dr. A.M. Arun to avail the loans from the 'Appellants' clearly specifies that Dr. A.M. Arun would obtain the same in his personal name and capacity and then deposit it into the Company's Account. It is argued t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is contended that the documents relied upon by the 'Appellant' together with the transaction Audit was placed before the CoC for perusal and consideration in the 11th CoC Meeting held on 12.03.2021. 8. Learned Counsel for the 'Appellant' submits that the Agreement is dated 12.03.2013 and the act had to be performed within 6 years of the date of the Agreement and therefore the Application is 'barred by Limitation' and the 'Adjudicating Authority' has proceeded 'on merits' but did not address to Limitation. Assessment : 9. It is the case of the 'Appellant' that the amounts were lent to the 'Corporate Debtor' through the Promoter, solely for the purpose of conducting the business operations of the 'Corporate Debtor', and that this amount of Rs.4,90,00,000/- was lent in three tranches on 26.12.2014, 05.01.2015 and finally on 26.06.2015. Learned Counsel drew our attention to the Demand Promissory Notes executed to establish that the said amounts were indeed lent to the 'Corporate Debtor'. It is relevant to reproduce the letter dated 15.12.2014 addressed by the 'Corporate Debtor' to the 'Appellant' herein seeking a business loan of Rs.3,00,00,000/- for expansion of their business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys may be borrowed by the Board of directors under clause (d) or, as the case may be, the total amount which may be contributed to charitable and other funds in any financial year under clause (e). Explanation II. - The expression "temporary loans" in clause (d) means loans repayable on demand or within six months from the date of the loan such as short-term, cash credit arrangements, the discounting of bills and the issue of other short-term loans of a seasonal character, but does not include loans raised for the purpose of financing expenditure of a capital nature. Explanation III. - Where a portion of a financial year of the company falls before the commencement of this Act, and a portion falls after such commencement, the later portion shall be deemed to be a financial year within the meaning, and for the purposes, of clause (e). (2) Nothing contained in clause (a) of sub-section (1) shall affect - (a) the title of a buyer or other person who buys or takes a lease of any such undertaking as is referred to in that clause, in good faith and after exercising due care and caution ; or (b) the selling or leasing of any property of the company, where the ordinary business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alf of the 'Corporate Debtor' is a 'Financial Debt': 'Phoenix ARC Pvt. Ltd.' Vs. 'Spade Financial Services Ltd. & Ors.' (2021) SCC OnLine SC 51. 'Kantu Shankar Dessai & Anr.' Vs. 'Sociedade Agricola Dos Gauncares De Cuncolim E Veroda & Ors.' 2019 SCC OnLine Bom 9566. 'Ranvir Ranjit' Vs. 'M/s. Vijay R Vakharia & Ors.' Comp. App. (AT) (Ins.) No.646/2018 . 'Edelweiss Asset Reconstruction Company Limited' Vs. 'V. Mahesh' IA/156/2020 in CA/1/IB/2017 . 13. For the applicability of these issues to the matter on hand, the moot question as to whether these amounts were given to the 'Corporate Debtor' has to be ascertained and whether these amounts fall within the definition of 'Financial Debt' as defined under Section 5(8) of the Code, which reads as follows: (8) "financial debt" means a debt alongwith interest, if any, which is disbursed 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 dematerialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the 'Appellant' regarding the 'letter of confirmation' of 'debt' dated 31.03.2018, it is seen that this 'letter of confirmation' was given by Dr. A.M. Arun on behalf of the 'Corporate Debtor' is not corroborated by any other records namely Minutes of the Board Meeting or General Meeting or in the Bank Statements of the 'Corporate Debtor'. Learned Counsel for the 'Appellant' submitted that the Statutory Auditors have confirmed in their Report that the Managing Director had acted on behalf of the Company and the balance in the MD's Account includes amounts received by the Company from various third parties through the MD only. 17. At this juncture, it is relevant to extract from the independent Auditors Report dated 31.03.2015 regarding the said loans, which is detailed as hereunder: "9. As described in note 41(6) to the financial statements, as at 31 March 2015, the Company's current assets include amounts aggregating Rs. 301,693 (31 March 2014 payable of Rs.445,519,078) as due from the Managing Director (MD) of the Company. As per information and explanation provided to us by the management, the aforesaid balance includes multiple receipts of approximately Rs.547,540,000 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company from various third parties through the MD and amounts repaid to various third parties by the MD, which are in the process of being quantified. As per the explanations of the Management, the MD has acted on behalf of the Company and the balances in MD's account include amounts received by the Company from various third parties through the MD and amounts repaid to various third parties by the MD, which are in the process of being quantified. As per the explanations of the Management, the MD has acted on behalf of the company and the balances in MD's account include amounts received by the company from various third parties through the MD and amounts repaid to various third parties by the MD, which are in the process of being quantified. The company has not produced any documents supporting the above transactions. In the absence of sufficient appropriate audit evidence, we are unable to comment on the effect of the above transactions in the accompanying financial statements. The erstwhile auditors have also given a disclaimer of opinion on the financial statements for the previous year ended 31st March 2015 on the balance receivable from the Managing Director's a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clear that 'Dr. AM Arun in his capacity as Managing Director was authorized to sign the documents and to conclude the money in his personal name and deposit the same into Company's Account and the Board approved that the repayment is to be made by Company only'. There are no substantial reasons given as to why the amounts, if meant for the purpose of rendering the operations of the Company, and the Company has a distinct Bank Account, the amount was disbursed to the Personal Account of the Managing Director. The 'Adjudicating Authority' has given a finding that there was no copy of any 'Notice' convening the Board Meeting or the relevant extract of the attendance of the other Directors on the Board, having been produced before the 'Adjudicating Authority'. 21. The Hon'ble Apex Court in 'Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited' Vs. 'Axis Bank Ltd. & Ors.' (2020) 8 SCC 401 , has clearly defined the ingredients of a 'Financial Debt' as defined under Section 5(8) of the Code and observed in para 43 as follows: "43. Having imbibed the basic features associated with a "financial creditor", we need to examine as to who could at all fall in this catego ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Debtor' and the 'Appellant' herein with respect to the amounts lent or the interest percentage to be paid. At the cost of repetition, merely because the Promoter had acknowledged the 'debt' does not tantamount to the same being classified as a 'Financial Debt' under the IBC, specially, in the absence of 'Loan Agreements', 'terms of repayment', 'payment of interest', 'tenure of loan', etc., more so keeping in view the Independent Auditor's Report for three consecutive Financial Years. 24. Learned Counsel for the RP Ms. Yajura Devi submitted that Clause 6.2 of the Resolution Plan deals with the provision made for 'Financial Creditors'. In the instant case, the amount disbursed is not being considered as a 'Financial Debt' and therefore, the 'Appellants' do not fall within the definition of 'Financial Creditors' as defined under Section 5(7) of the Code. TA 156, 158 & 160/2021 (Comp. App. (AT) (CH) (Ins.) No.994, 996 &998/2020: 25. In TA 156/2021, it is submitted that the 'Appellant' received an email dated 19.03.2020 from the Respondent that out of a total claim of Rs.9,18,36,600/- only an amount of Rs.60 Lakhs/- was being accepted and the interest portion was rejected on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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