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TMI Blog2023 (8) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... ce M. Venugopal, Member (Judicial): IA No. 107 of 2023 in Comp. App (AT) (CH) (INS.) No. 30 of 2023: According to the Petitioner / Appellant, he is a 'Shareholder' and 'Suspended Director' of 'M/s. Golconda Textiles Private Limited' ('Corporate Debtor'), and that the 'Corporate Debtor' / M/s. Golconda Textiles Private Limited', is a family business of the 'Appellant', wherein, three brothers are 'Directors', as well as equal 'Shareholders', in the 'Company'. 2. It is represented on behalf of the Petitioner / Appellant that as per decision of Hon'ble Supreme Court of India, in Innovative Industries Limited v. ICICI Bank, reported in (2018) 1 SCC 407, a 'Promoter' / 'Shareholder' of the 'Corporate Debtor', may prefer an 'Appeal', assailing an 'Order of Admission', into 'Corporate Insolvency Resolution Process'. As such, the 'Petitioner / Appellant', seeks leave, to prefer the instant 'Comp. App (AT) (CH) (INS.) No. 30 of 2023 in IA No. 107 of 2023'. 3. This 'Tribunal', taking note of the fact that the Petitioner / Appellant, being a 'Shareholder and a Suspended Director' of the 'Corporate Debtor' / 'M/s. Golconda Textiles Private Limited', grants permission to him, to prefer the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k, reported in (2018) 1 SCC 407, a 'Promoter' / 'Shareholder' of the 'Corporate Debtor', may prefer an 'Appeal', assailing an 'Order of Admission', into 'Corporate Insolvency Resolution Process'. As such, the 'Petitioner / Appellant', seeks leave to prefer the instant 'Comp. App (AT) (CH) (INS.) No. 38 of 2023 in IA No. 133 of 2023'. 8. This 'Tribunal', taking note of the fact that the Petitioner / Appellant, being a 'Shareholder and Suspended Director' of the 'Corporate Debtor' / 'M/s. Golconda Textiles Private Limited', grants permission to him, to prefer the Comp. App (AT) (CH) (INS.) No. 38 of 2023, in respect of the 'Impugned Order', dated 24.01.2023 in CP (IB) No. 94 / 07 / HDB / 2022 (Filed by the '1st Respondent / Financial Creditor'), passed by the 'Adjudicating Authority' ('National Company Law Tribunal', Bench - II, Hyderabad), as an 'Aggrieved Person', in terms of Section 61(1) of the I & B Code, 2016, and 'allows', the 'IA No. 133 of 2023', but, without costs. IA No. 136 of 2023 in Comp. App (AT) (CH) (INS.) No. 38 of 2023: 9. According to the Petitioner / Appellant, the Copy of the '1st Respondent / Financial Creditor's Ledger Account' (Outstanding Ledger Balance, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r', dated 24.01.2023 in CP (IB) No. 94 / 07 / HDB / 2022, (Filed by the '1st Respondent / Financial Creditor), under Section 7 of the I & B Code, 2016), passed by the 'Adjudicating Authority' ('National Company Law Tribunal', Bench - II, Hyderabad), among other things, at Paragraphs 17 to 25, had observed the following: 17. ''At the outset it may be stated that, the plea that the financial creditor having failed to file the 'Record of Default' from Information Utility, in terms of the circular dated 12-05-2020, the present application is liable to be rejected, in our considered view is unsustainable, in as much as Section 7(3) (a) of the IB code, itself states that the Financial Creditor is required to furnish the record of default recorded with the information utility or such other record or evidence of default. That apart, the very initial order of the NCLT, viz. Order File No.25.02.2020-NCLT dated 12th May 2020 as relied by the Corporate Debtor has been struck down by the Hon'ble High Court of Calcutta in Univalue Projects Private Limited Vs. The Union of India & others vide order dated 18.08.2020 in W.P. No.5595 (W) with C.A. No.3347 of 2020 and allied matters, as discussed h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the account of GNIDA to save the corporate debtor on account of financial crunch to save the allotment made in the name of corporate debtor falls within the ambit of ''financial debt‟. Admittedly, the amount has not been paid back, and there is a default. Consequently, the adjudicating authority had admitted the petition filed under Section 7 of the Insolvency & Bankruptcy Code, 2016. In the circumstance, as stated above, we do not find any justification for interfering with the impugned order. Therefore, the Appeal is dismissed. No order as to costs." 21. We find that the ratio of above judgement squarely applies to the facts of the present case. 22. That apart, a bare perusal of the undisputed the Audited Balance Sheet of the corporate debtor for the year ending 31st March 2021 discloses an unsecured loan of Rs.13,84,72,064.00. The undisputed certificate dated 08/05/22 issued by the Auditor of the corporate debtor clearly states that the unsecured loan shown in the balance sheet of the corporate debtor as on 31/03/2021 was advanced by the applicant herein. It is pertinent to note that the balance sheet of the corporate debtor for the year ending 2021 discloses as long- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s acknowledged by the corporate debtor. As the said Debt, which we have categorically held to be a financial debt, since not discharged by the corporate debtor, the default stars at the corporate debtor. 25. Therefore, in the light of our discussions as above we are fully satisfied that the applicant has established existence of Financial Debt of a sum over Rupees One Crore due and payable, besides its default by the corporate debtor. We are also satisfied that the present application is complete and that there is no disciplinary proceedings pending against the proposed IRP.'' and 'admitted', the main 'Company Petition', declared 'Moratorium', and appointed the 'Interim Resolution Professional', etc. Appellants' submissions (in Comp. App (AT) (CH) (INS.) Nos. 30 & 38 of 2023: 14. The Learned Counsels for the Appellants, contend that the 'impugned order', dated 24.01.2023, in CP (IB) No. 94 / 07 / HDB / 2022, (Filed by the '1st Respondent / Financial Creditor'), passed by the 'Adjudicating Authority' ('National Company Law Tribunal', Bench - II, Hyderabad), in admitting the 'Section 7 Application', is per se an 'illegal' and an 'invalid' one, because of the fact that 'there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / Financial Creditor), and adverts to the Balance Sheet of the 'Corporate Debtor', as at 31.03.2020 (Page 104 of Vol. I of the Appellant's Appeal Paper Book at Spl.Pg: 108, wherein at 'Note 4.1 to the 'Long-term Borrowings', which runs as under: 4.1 ''Loans from directors and directors relatives are treated as long term as no terms of repayment are fixed and the Company is not expecting to pay any amounts in the next financial year.'' [Emphasis Supplied] and the very same 'Note', was appended for 'Long-term Borrowings', in the Balance Sheet, ending on 31.03.2021 (vide Vol. I of the Appellant's Paper Book at Spl. Pg: 147). 22. The Learned Counsels for the Appellants, proceed to point out that the 1st Respondent / Financial Creditor / Petitioner', had secured the 'Term Loan', in his 'individual capacity', from the Adarsh Co-operative Urban Bank Limited, for INR 4 Crores on 24.01.2021 and the purpose of 'Loan', was mentioned at Serial No.4 as ''for investment on Group Businesses and Units' (vide Vol. II of the Appellant's Appeal Paper Book at Page 379), and the same 'Sum', was then transferred to the 'Corporate Debtor', for Investment on 25.01.2021 (vide Vol. I of the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner of Wealth Tax (Central) 1966 2 SCR at Page 688 (vide Paragraph 20). 28. The Learned Counsels for the Appellants, submit that the 'Balance Sheet' of the 'Corporate Debtor', ending on 31.03.2020, was signed by all the 'Three Directors', including the 'alleged Financial Creditor', and it is acknowledged by the '1st Respondent', that 'no terms of repayment are fixed, for the 'Long-term Borrowings'. As such, the '1st Respondent' / 'Financial Creditor', is estopped from contending that there is a 'Fixed Term of Payment' or that 'Money', was 'due and payable', by the 'Corporate Debtor'. 29. The Learned Counsels for the Appellants, bring it to the notice of this 'Tribunal', that in terms of the ingredients of Section 134 of the Companies Act, 2013, the 'Financial Statements' of a 'Company', are required to be signed by the 'Two Directors', including the 'Managing Director' ('Mahmood Alam Khan', in the instant case), and therefore, the 'Balance Sheet' of the 'Corporate Debtor', ending on 31.03.2021, containing the same 'Note 4.1', regarding the 'no terms of repayment, for 'Long-term Borrowings', is also binding on the '1st Respondent / Financial Creditor / Petitioner'. 30. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in CP (IB) No. 94 / 07 / HDB / 2022 (Filed by the '1st Respondent / Financial Creditor'), holding that 'there is a 'Financial Debt', which has not been, discharged by the 'Corporate Debtor'. 1st Respondent's Contentions (in Comp. App (AT) (CH) (INS.) Nos. 30 & 38 of 2023): 36. According to the 1st Respondent / Financial Creditor / Petitioner, the 'Corporate Debtor', was under an 'immense financial pressure', and on 25.01.2021, the 1st Respondent / Financial Creditor, had advanced a Sum of Rs.3,97,85,000/- to the 'Corporate Debtor', and this 'Sum', was utilised by the 'Corporate Debtor', to 'Repay the Loans', taken by the 'Company', from State Bank of India (Erstwhile State Bank of Hyderabad), under the 'One Time Settlement Scheme', offered by the 'Bank', to save the 'Corporate Debtor', from the 'Liquidation' and 'Attachment'. 37. The Learned Counsel for the 1st Respondent / Financial Creditor, contends that the '1st Respondent / Financial Creditor', who is also a 'Director', in the 'Corporate Debtor' / 'Company', had advanced a Sum of Rs.13,84,72,064/-, to pay back 'Dues', to the 'Banks', and further the said Loan(s), are admitted reflected in the 'Balance Sheet' of the 'Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmits that the learned Adjudicating Authority landed in error in holding that the amount claimed by Respondent No.1 for triggering Corporate Insolvency Resolution Process, in respect whereof default on the part of Corporate Debtor was alleged, was not a 'Financial Debt' as defined under Section 5(8) of the I&B Code despite the admitted position that there was no consideration for the time value of money in the transaction. It is further submitted that learned Adjudicating Authority failed to notice that no interest was ever claimed by the Respondent No.1 or paid by the Corporate Debtor to Respondent No.1, that no TDS amount was ever deducted in respect of the part payments made, that there was no tenure for the repayment of amounts granted by Respondent No.1 to Corporate Debtor and that there was no time value of money in the transaction and no consideration for the time value of the money was agreed between the parties at the time of disbursement of moneys by Respondent No.1. 9. The balance sheet as on 31st March, 2017 at page 83 of the reply affidavit filed by Respondent No.1, inter alia, reflects a non-current liability of Rs.4,72,76,182/- treated as 'long term bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o save the allotments by making direct payment to the GNIDA for the plot allotted in the name of Corporate Debtor. The para 6 of the judgment in Shailesh Sanganiv (supra) of this Tribunal it is held that the monies advanced by a Director to improve the financial health of the Company would have the commercial effect of borrowing even if no interest is claimed on the same. 12. Thus the amount deposited by the respondent No.1 in the account of GNIDA to save the corporate debtor on account of financial crunch to save the allotment made in the name of corporate debtor falls within the ambit of financial debt. Admittedly, the amount has not been paid back, and there is a default. Consequently, the adjudicating authority had admitted the petition filed under Section 7 of the Insolvency & Bankruptcy Code, 2016. In the circumstance, as stated above, we do not find any justification for interfering with the impugned order. Therefore the Appeal is dismissed. No order as to costs.'' 46. The Learned Counsel for the 1st Respondent / Financial Creditor, projects an argument that the 'Corporate Debtor', had not discharged the amount, and not denied the 'context of the Letter', dated 17.11.2021 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate Debtor' as 'M/s. Maruti Rich Ventures Limited', and later, amended the name of the 'Corporate Debtor', as 'M/s. Golconda Textiles Private Limited' (as per Order dated 28.04.2022 in IA No. 418 of 2022), passed by the 'Adjudicating Authority' / 'Tribunal' (vide Page 241 of Vol. II of Appeal Paper Book in Comp. App (AT) (CH) (INS.) No. 30 of 2023 dated 01.02.2023 - Diary No. 109). 55. According to the '1st Respondent / Financial Creditor / Petitioner', the 'Total Amount of Debt', granted was Rs.13,84,72,064/-, vide Part -IV of the Section 7 Application (Amended fair copy). The amount Claimed to be in 'Default' was Rs.18,28,95,628/-, out of which, Rs.13,84,72,064/-, was towards 'Principal Sum', disbursed by the '1st Respondent / Petitioner', whereas the 'Balance of Rs.4,44,23,565/-', was towards 'Interest' at 14% per annum, from the respective 'Date of Disbursal' of the 'Amounts', to the 'Corporate Debtor', till 21.02.2022. Also, the '1st Respondent / Financial Creditor / Petitioner', had averred that, it was entitled to 'Future Interest', from the 'Date of Filing of the main Petition', till the 'Date of Actual Payment'. 56. In the Section 7 Application, filed by the '1st Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,049.00 60. According to the 1st Respondent / Financial Creditor / Petitioner, he is a 'Shareholder', holding 33.33% of Shares in the Equity of the Company and the Act of Advancing the 'Unsecured Loans', to the 'Company' protects and enhances the 'Value off his Shareholding', which would be the consideration for the 'Loans', advanced. Besides this, even an 'Interest Free Term Loan', constitutes a 'Financial Debt', under the I & B Code, 2016. 61. The 1st Respondent / Financial Creditor / Petitioner, in its 'Rejoinder' (before the 'Adjudicating Authority' / 'Tribunal'), had pointed out that he demanded 'Interest' on the 'Unsecured Loans', and the 'Loans', advanced are in the 'nature of commercial borrowing', by the 'Corporate Debtor', and it is consideration of the 'Time Value of Money' and hence, qualifies as a 'Financial Debt', as per Section 5 (8) of the I & B Code, 2016. 62. Dealing with the plea of the 'Appellants', that 'no record of Default', from 'Information Utility', was filed by the '1st Respondent / Financial Creditor / Petitioner', this 'Tribunal', poignantly points out that the ingredients of Section 7(3)(a) of the 'Code', latently and patently specify that the 'Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 3(12) of the I & B Code, 2016, as held by this 'Tribunal'. 67. There is no embargo in Law', for a 'Director of a Company', to infuse the 'Funds', into the 'Company', with a view to rescue a Company from 'Financial Distress / Crisis', and the monies advanced clearly come within the umbrage of Section 5(8) of the 'Code'. 68. In the present case on hand, the '1st Respondent / Financial Creditor / Petitioner', in its 'Application', under Section 7 of the I & B Code, 2016 in CP (IB) No. 94 / 07 / HDB / 2022, is to prove the 'Existence of Debt', which is due from the Corporate Debtor. No doubt, the 'Corporate Debtor' or its 'Directors', can point out that the 'Debt', is not 'Payable', by the 'Corporate Debtor', in 'Law', and also in 'Fact'. 69. In a Section 7 Application of the 'Code', an 'Adjudicating Authority' / 'Tribunal', is not required to go into the 'Claim' or 'Counter Claim', made by the 'Parties', except to find out, whether or not, 'record is complete', and whether or not, 'there is Debt and Default', committed by the 'Corporate Debtor'. 70. In 'Law', an 'Application', under Section 7 of the Code, deserves to be 'admitted', where the 'Sum', is more than Rs.1 Lakh (no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by one party to and receipt by another party of a 'Sum of Money', upon a 'Agreement', express or implied to repay it with or without interest. 78. It is to be remembered that the essential requirement of 'Loan', is 'advancement of money' (or some 'Article'), upon an 'Undertaking', that it shall be returned and it may or may not carry any 'Interest'. 79. Where a 'Loan', was shown as 'Debt', in the 'report' of the 'Directors to the Shareholders', while submitting the 'Auditing Accounts', it is held that even though, the managing 'Agent', had acted beyond its 'Powers', while contracting 'Loan', if there was a ratification of 'Loan', by the 'Directors', it will bind the 'Company'. 80. Where the 'Articles of a Company', contain a provision, conferring 'Power to the Board', to make 'Loans', the 'Board', shall exercise this 'Power', by means of 'passing a Resolution', at the 'Meeting of the Board of Directors'. However, if the 'Articles', contain any 'Special Provisions', restricting the 'Board's Powers', in this regard, such restrictions, must be complied with, before making 'Loans', on behalf of the 'Company'. 81. Where the 'Borrowing Powers' of 'Directors', are limited to certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir destinations. All those provisions show that there is 'disbursement' of money by the Respondent for which the 'consideration is time value of money' which the Respondent is entitled to as a Converter by receiving the yarn. 8. In view of the aforesaid specific provision, we hold that the Respondent comes within the meaning of 'Financial Creditor' and the Adjudicating Authority has rightly admitted the application under Section 7. 9. Learned counsel for the Appellant submitted that pursuant to agreement dated 3rd August, 2006, a letter of exchange for appointment of Arbitrator of Respondent was issued on 5th February, 2008, but such ground cannot be taken in a defeating an application under Section 7 of the 'I&B Code' though it is permissible to take such ground to get an application under Section 9 of the 'I&B Code' rejected.'' 87. It is true that Section 7 Application of the 'Code', is 'maintainable', only by a 'Financial Creditor', and in fact, an 'Adjudicating Authority', is not to decide the exact 'Sum of Default'. 88. The question of whether, there is a 'Debt and Default', can be looked into, only, if the 'Corporate Debtor', disputes the 'Debt' or takes a stand that 't ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Debtor', for the purpose of satisfying 'One Time Settlement Offer', given to the 'Corporate Debtor', by the 'State Bank of India', and the said amount was disbursed through Banking Transactions, all these would go to establish in a crystalline manner that there is a 'Financial Debt' of 'more than Rs.1 Crore', 'Due and Payable', by the 'Corporate Debtor', to and in favour of the '1st Respondent / Financial Creditor / Petitioner'. 93. In the light of foregoing detailed discussions, this 'Tribunal', taking note of the contentions, advanced on respective sides, considering the surrounding facts and circumstances of the instant case, in a holistic manner, comes to an 'irresistible' and 'inescapable' conclusion that the 'aspect of 'Debt and Default', committed by the 'Corporate Debtor', were established by the '1st Respondent / Financial Creditor / Petitioner', to the subjective satisfaction of this 'Tribunal'. Viewed in that perspective, the main CP (IB) No. 94 / 07 / HDB / 2022, (Filed by the '1st Respondent / Financial Creditor / Petitioner', before the 'Adjudicating Authority', 'National Company Law Tribunal', Bench - II, Hyderabad), was complete, in terms of the I & B Code, 2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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