TMI Blog2023 (3) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... . From the Resolutions relied upon by the Counsel for the Appellant, it 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. The documents relied upon by the Appellant with respect to the Promissory Note, the Confirmation Letter dated 31.03.2019, the Statement of the Account (Annexure-5) do not establish that the amounts were lent directly to the Corporate Debtor, though the amounts have been linked to the Promoter of the Corporate Debtor, in his personal capacity, the same cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 outstanding , and also executed Promissory Notes, promising to pay the Appellant on demand the aggregate amount of Rs.4,90,00,000/- with interest at 18% p.a.; in addition to the Demand Promissory Notes, the Corporate Debtor has also issued various letters undertaking to repay the entire amount with interest to the Appellant ; that the Appellant pursuant to the Corporate Debtor being ordered into Corporate Insolvency Resolution Process ( CIRP ) filed Form-C on 17.10.2019 before the Respondent for an amount of Rs.10,58,26,750/- along with the documents, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 filed against the Suspended Directors of the CD under Section 19, 60(5) of IBC. 2016 read with Rule 11 of NCLT Rules, 2016 on 10.11.2020 has already been circulated to the CoC vide e-mail on 18.11.2020. The Members of the CoC enquired as to Beneficiaries of the said unauthorized Bank Account. The Chairman explained that the entire Bank Account statements have been circulated to the CoC and that the same contains voluminous transactions with thousands of entries, which are under verification, compilation and reconciliation. The Chairma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idst 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 that the Board Resolutions dated 26.12.2014, 05.01.2015 and 26.06.2015 were signed by two Directors, Dr, A.M. Arun and Mrs. Meera Arun authorizing Dr. A.M. Arun to sign the necessary documents/papers with the Appellant and to collect money in their personal names. It is contended that there is no record of the Meetings of the Board till the date of the CIRP, which was filed with the Registrar of Companies ( RoC ). 7. There is no Written Agreement of any sort between the Corporate Debtor and the Appellant , and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt : 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. The payment was required to be made in favour of Dr. A.M. Arun, who would undertake to repay the loan, promptly along with interest : 10. Section 293 of the Companies Act, 1956 is reproduced as hereunder: 293. RESTRICTIONS ON POWERS OF BOARD : (1) The Board of directors of a public company, or of a private company which is a subsidiary of a public company, shall not, except with the consent of such public company or subsidiary in general meeting, - (a) sell, lease or otherwise dispo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the company consists of, or comprises, such selling or leasing. (3) Any resolution passed by the company permitting any transaction such as is referred to in clause (a) of sub-section (1) may attach such conditions to the permission as may be specified in the resolution, including conditions regarding the use, disposal or investment of the sale proceeds which may result from the transaction: Provided that this sub-section shall not be deemed to authorise t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount raised under any other transaction, including any forward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in cash which has been deposited into the Company's bank accounts on behalf of the MD until January 2015. Further, basis our procedures performed on lest check basis, we have noted payments of approximately Rs.3,30,00,000, which as per the information and explanation provided to us by the management have been made during the year ended 31 March 2015 to a third party on behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 account. In respect of the above transactions between the Company and the MD, the Company has not and complied with the provisions of Section 73 and Section 185 of the Act. Under these circumstances and in absence of sufficient appropriate audit evidence with respect to the transactions involving the Company and the MD / third parties, we are unable to comment upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 category. In order to address this core question, delving into the finer connotations of the expression financial debt , as defined in Section 5(8) of the Code is, obviously, necessary. As noticed, while defining financial creditor and financial debt in Section 5(7) and Section 5(8) of the Code, both the expressions means and includes h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ground that there was lack of proof, or any documentation that this amount was owed to the Appellant . In these matters, a part of the Claim amount was admitted only because that particular part of the amount was not disbursed directly to the account of the Corporate Debtor . In this case, only a partial amount of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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