TMI Blog2023 (12) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... is dues. It is also noteworthy that all outstanding of Guman Builders and Developers Pvt. Ltd and Guman Furniture Services Pvt. Ltd., was agreed to be adjusted to the account of outstanding partner i.e., the Respondent Shankar Khandelwal. The Respondent Shankar Khandelwal filed an application under Section 7 of Code alleging non-payment of financial debt of Rs. 38,73,94,501/- which has been disputed by the Appellant stating this to be highly inflated amount due from the Corporate Debtor whereas the only Rs. 5,16,55,842/- was due and payable to the Respondent Shankar Khandelwal by the Corporate Debtor at the time of his retirement from the LLP - the pleadings of the Appellant is accepted that based on combined examination of Ledger and balance sheet it is proven that all dues towards the Respondent Shankar Khandelwal stand settled. It is also noted that the allegations of the Appellants that the Respondent Shankar Khandelwal is allegedly attempting to recover tainted money from Corporate Debtor, which is forming a part of the proceeds of crime. Even if the alleged loan is found to not be a part of the proceeds of crime, any attempts towards recovery of the amount would have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jasthan State Industrial Development and Investment Corporation Limited (for short RIICO') is the Appellant in Company Appeal (AT) (Insolvency) No. 270 of 2022. 2. The Corporate Insolvency Resolution Process (in short CIRP ) was initiated against A. Gangwal Real Estate L.L.P who is the Corporate Debtor and the Respondent herein. A moratorium was declared under Section 14 of the Code. 3. Since both appeals have been preferred before us against the same common Impugned Order dated 13.10.2021 and are based on same or similar facts and were also heard conjointly, as such we will examine both these appeals together in coming discussions and will decide by single order. 4. Heard the Counsel for the Parties, perused the records made available including cited judgements. 5. The Corporate Debtor, A. Gangwal Real Estate L.L.P , a Limited Liability Partnership (in short LLP ), was incorporated on August 5, 2014 under the provisions of the Limited Liability Partnership Act, 2008. It has further been informed that the Corporate Debtor as LLP has undergone various changes since its incorporation, in respect of admission and retirement of designated partners and nominal partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate Debtor for the purpose of extortion and blackmail and the said FIR was closed by the Police putting a FR being false FIR. 11. The Appellant submitted that the liabilities of both, the incoming and outgoing partners' were crystallized and determined by way of preparing audited balance sheets, duly signed by the Statutory Auditors of the Firm and all these well duly registered with the office of the Registrar of Companies. 12. The Appellant denied the averments of the Respondent - Shankar Khandelwal regarding dishonours of 6 alleged cheques out of which 3 cheques were issued by Mr. Mudit Danagyach. 2 cheques were issued by Nihal Danagyach and one cheque was issued by Vinay Tambi. The Appellant stated that the alleged dishonour of cheques have no link to the alleged claims by the Shankar Khandelwal, as the said alleged cheques were issued by the drawers in their personal capacity and not in capacity of the partners of the Corporate Debtor. 13. The Appellant emphasised that the Adjudicating Authority whilst passing the Impugned Order ignored the decision of the Hon'ble Supreme Court of India in the case of Phoenix Arc Pvt Ltd v Spade Financial Services Ltd Ors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pay back him his entire dues by the Corporate Debtor and accordingly the Respondent Shankar Khandelwal signed these documents which were later used for printing the LLP agreement dated 31.12.2015, the terms and clauses of which were never agreed by and between the then partners. The Respondent Shankar Khandelwal submitted that the LLP document dated 31.12.2015 relied upon by the Appellant is disputed and an FIR to this effect had already been filed. The Respondent Shankar Khandelwal claimed that he was forcefully and deceitfully made to retire from the firm and the then partners of the Corporate Debtor had given the 6 post-dated cheques (PDCs) totalling to Rs. 6,07,00,000/- which were deposited in the month of April 2017, however, all the cheques got dishonoured and no payment could be received by the Respondent- Shankar Khandelwal. 18. The Respondent Shankar Khandelwal emphasised that the Bank statements of the Corporate Debtor cannot be valid proof for the discharge of its debt owed to the him as the same has not been paid but to third independent entities like M/s Guman Builders and Developers Private Limited which in no manner can be regarded as a valid discharge of debt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( ED ). The Appellant RIICO stated that the Respondent Shankar Khandelwal was arrested in connection with the said Fraud on 18.03.2016 and in pursuance to the said ECIR, Provisional Attachment order was issued on 10.05.2018 by the Deputy Director, Enforcement Directorate, Jaipur wherein the aforesaid Mortgaged Property of the Corporate Debtor M/s. A. Gangwal Real Estate LLP was attached under the provision of Prevention of Money Laundering Act (in short PMLA ). 23. It has been submitted that when the said attachment came to the Appellant RIICO's knowledge, the Appellant challenged the same before PMLA Appellate Authority and vide order dated 17.06.2019, PMLA Appellate Authority, after observing that Corporate Debtor is beneficiary of proceeds of crime, held that rights of RIICO being Financial Institution would prevail over attachment of ED. The Appellate Authority therefore vacated the attachment over Mortgaged Property permitting RIICO to realize and liquidate the same and allowed rest of the attachment. The Appellant RIICO took possession of the Mortgaged Property on 18.09.2019 and the Appellant. RIICO thereafter issued 4 advertisements dated 20.12.2019, 24.02.2020, July ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;. (Emphasis Supplied) The Appellant submitted that as per the above, it can be clearly noted that the true intent behind a transaction being a loan/debt or not has to be determined on the basis of the surrounding circumstances of the case as well as the intention of the parties. 25. The Appellant also cited the judgment of the Hon'ble Supreme Court in Phoenix ARC Private Limited v. Spade Financial Services Limited Ors., [(2021) 3 SCC 475], wherein it was held as follows: 48. The above discussion shows that money advanced as debt should be in the receipt of the borrower. The borrower is obligated to return the money or its equivalent along with the consideration for a time value of money, which is the compensation or price payable for the period of time for which the money is lent. A transaction which is sham or collusive would only create an illusion that money has been disbursed to a borrower with the object of receiving consideration in the form of time value of money, when in fact the parties have entered into the transaction with a different or an ulterior motive. In other words, the real agreement between the parties is something other than advancing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a recovery suit. The intent of IBC is not to facilitate recovery for creditors. 27. The Appellant stated that the date when debt became due is unknown and the Respondent Shankar Khandelwal has taken the debt becoming due from the date of filing of an FIR against Corporate Debtor i.e. 17.04.2017 which is not admissible particularly in absence of any written contract. 28. The Appellant stated that as there was no agreement between the parties, there is no agreed interest rate which is to be charged on the transferred amount, or if the transfer was interest free advance. As there was no interest component decided between the parties, it can be safely assumed that there was no time value of money attached with the transaction. Therefore, the transfer cannot be considered as Financial Debt 29. It is the case of the Appellant that the Financial Creditor has for the first time in the Application under Section 7 before the Adjudicating Authority claimed 18% interest on the amount, which is without any basis and Respondent No. 1 has failed to establish any understanding between the parties regarding rate of interest. 30. The Appellant stated that Shri Pankaj Khandelwal, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vering the due amount, which in turn would be a loss of public money. 34. Per contra, the Respondent Shankar Khandelwal stated that there is no place for any third party other than the concerned financial creditor and the Corporate Debtor under Section 7 of the Code. The Respondent No. 1 cited the judgment of Vekas Kumar Garg vs. DMI Finance Pvt. Ltd., CA(AT)(Ins) No. 113 of 2021, wherein this Appellate Tribunal has categorically held that in an application under Section 7, the Financial Creditor and the Corporate Debtor alone are the necessary party at the pre-admission stage. It is the case of the Respondent Shankar Khandelwal that if the application filed by any financial creditor against the corporate debtor has already been admitted, no further application by any other financial is maintainable and the only remedy available to other financial creditors is to submit their claims to the IRP/RP appointed by the Adjudicating Authority in an admitted application in respect of the said corporate debtor. The Respondent Shankar Khandelwal, therefore, pleaded that the Appellant-RIICO does not have locus to file the instant appeal initiating CIRP against the Corporate Debtor as it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten agreement so there is no Financial Debt, we note that the Code nowhere prescribes the compulsory existence of an express agreement to prove the loan and its disbursement to be treated as a 'financial debt. Where there are acknowledgements by corporate debtor and where the statement of accounts produced proves the disbursement of a loan and payment of interest, the lack of an express loan agreement would not bar financial creditor from initiating CIRP. In the present appeals, we have seen Balance Sheet prepared clearly acknowledged debts dues towards the Respondent Shankar Khandelwal, hence we do not agree on this point with the Appellant. 40. We have noted the contentions of the Respondent Shankar Khandelwal about alleged fabricated LLP dated 31.12.2015, which according to the Respondent Shankar Khandelwal, were got signed by him under duress and against which some FIR has been filed. The contention of the Appellant was also noted denying all these averments of the Respondent Shankar Khandelwal and giving contrary facts. Shorn of unnecessary details, this Appellate Tribunal consider LLP Agreement dated 31.12.2015 as the basis for settlement which is duly signed by all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.12.2015, it will be desirable for us to refer and take a note of the same. The said LLP Agreement dated 31.12.2015 reads as under :- 43. From the above LLP Agreement dated 31.12.2015 following salient points emerges :- (i) The terms of the Resignation of Mr. Shankar Khandelwal was mentioned in Clause 5. (ii) The Outgoing Partner Shankar Khandelwal retirement was w.e.f 01.04.2016. (iii) The Outgoing Partner Shankar Khandelwal did not continue for any right over share, right, title, interest or claim, of any nature whatsoever, to or in the said LLP or business or assets of its name or its properties, whether tangible or intangible, including the outstanding etc. whatsoever. (iv) The parties agreed to prepare the Balance sheet of the Corporate Debtor prior to the retirement of the outgoing partner Shankar Khandelwal, reflecting all assets and liabilities of the Corporate Debtor to determine the amounts payable to the Outgoing Partner Shankar Khandelwal. (v) In determining the amount payable to outgoing partner Shankar Khandelwal, the balances if any, with the name of Guman Builders Developers Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndelwal. 48. Here, we will also like to refer to Ledger Accounts of the Corporate Debtor A. Gangwal Real Estate LLP with reference to accounts of Respondent Shankar Khandelwal. The relevant Ledger Accounts are reproduced for ready reference as under :- 49. The Respondent Shankar Khandelwal has pleaded not to take into account the Ledger Accounts; although with rider he has acknowledged the Balance Sheet while accepting outstanding Rs. 5,16,55,842/- as financial debt owed by Corporate Debtor to him. Hence, let us examine relationship between the Balance Sheet accepted by the Respondent Shankar Khandelwal and Ledger Account refuted by the Respondent Shankar Khandelwal in order to examine point raised by the Respondent Shankar Khandelwal. On the one hand, balance sheet is the financial statement that summarizes company s financial position on the specified date giving a snapshot of a company s assets and liabilities and provide stakeholders clear picture of the company s financial health. The ledgers on the other hand, are books or records that contain complete records of all financial transactions of Company and therefore ledgers are used to track individual tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, we also note from the averments of the Respondent Shankar that (a) Bank Statement cannot be valid proof for discharge of its debt and (b) payment to third independent entity cannot be regarded as valid discharge of debts. As regards the first argument of the Respondent, we consider that bank payment, primarily, is valid proof, of course, which need to be co-related with other relevant information as and if needed. As regard, Second issue raised by the Respondent Shankar Khandelwal about payment to third Independent entity, generally speaking, the transactions are required to be made inter-se between concerned parties. If the loan has been given by the Financial Creditor to the Corporate Debtor, the repayment can be made by the Corporate Debtor only to the Financial Creditor. However, if Financial Creditor desires and make agreement to settle his outstanding dues by making payments to someone else specified by him, in commercial world this need to be reckoned with towards satisfaction of outstanding debt of the Financial Creditor. Here, we take cognizance of fact that LLP Agreement dated 31.12.2015 was signed by the Respondent Shankar Khandelwal and Respondent Shankar Khandelwal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. The intent of IBC is not to facilitate recovery for creditors. We tend to agree that once all outstanding dues have been paid by the Corporate Debtor to the Respondent Shankar Khandelwal, disputed claims if any, can be raised in suitable other legal forum and IBC can not be used for such recovery proceeding. In this connection, we note the judgment of the Hon'ble Supreme Court in Swiss Ribbons (P) Ltd. v. Union of India, [(2019) 4 SCC 17] [Page 39, Paragraph 28] states: 28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow any valid proof that debt due and payment to the Respondent Shankar Khandelwal was paid in his individual capacity. In this regard, we have already examined in details that in normal circumstances the payment is to be made to the party from whom money was taken, however, the significant point in present appeal is to note about specific written instruction/ advise/ agreement, whereby the Lender (the Respondent Shankar Khandelwal ) asked borrower (the Corporate Debtor) to pay to third party (M/s Guman Builders and Developers Private Limited) as settlement of such dues. In term Clause 5(vi) of LLP Agreement dated 31.12.2015, all payments were settled as discussed in detail in pre-paras. The same has not been properly appraised in the Impugned Order and therefore the Impugned Order is not considered valid. 57. No amount of financial debt was due to the Respondent Shankar Khandelwal on the date of filing of the Application under Section 7 of the Code before the Adjudicating Authority. Therefore, the Adjudicating Authority has patently erred in admitting the Application filed by the Respondent Shankar Khandelwal vide its Impugned Order dated 13.10.2021. 58. Based on above discus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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