TMI Blog2024 (4) TMI 632X X X X Extracts X X X X X X X X Extracts X X X X ..... centage in M/s. Selma Precision Technologies, NC, LLC nor its claim has been admitted in the liquidation of M/s. Selma Precision Technologies, NC, LLC which is going in U.S. Court. Amount of Rs.1.85 Crores was disbursed to the Corporate Debtor which disbursement have clearly been admitted in the balance sheet of the corporate debtor, the said amount has been shown as borrowing from the financial creditor. It is clear that the letter of intent dated 23.12.2017 could not be fructified which was subsequently clearly superseded by 14.02.2018 agreement as noted above. Hence, the amount disbursed by the financial creditor to the corporate debtor has to be treated to be borrowing by corporate debtor which was required to be refunded. As noted above, in the agreement dated 14.07.2018 in which director of the corporate debtor was also party, there was undertaking recorded in paragraph 5 as noted above that Warm Forgings Pvt. Ltd. shall refund amount of Rs.1.85 Crores to the Corporate Debtor. There is no denial that on 22.05.2018 amount of Rs.25 lacs was returned by the corporate debtor to the financial creditor which is an admitted fact. Had the amount of Rs.1.85 Crores was given by financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in bidding process for the auction of a U.S Company namely M/s. Sona BLW Precision Forge INC, 500 Oak Tree Drive, Selma LC 27576, USA. On 23.12.2017, a letter of intent was issued between the Financial Creditor- Surya Testing Services Limited and Corporate Debtor- Warm Forging Pvt. Ltd. agreeing for equal participation to restructure the entity M/s. Selma Precision Technologies, NC, LLC. A new company was proposed in the name M/s. MV Forge Inc. (MVF) or such other name as may be mutually agreed to take over the assets of M/s. Selma Precision Technologies. Financial Creditor- Surya Testing Services Limited agreed to pay a token amount to M/s. Warm Forging Pvt. Ltd. for exploring and participating in business activity. The funds for the token amount of $ 1,00,000/- for the business evaluation process was to be transferred through the HDFC Bank account of M/s. Warm Forgings Pvt. Ltd. Letter of Intent further provided that the closure date of deal is not later than 28.02.2018. Financial Creditor was unable to get permission from RBI to send the money abroad. The Financial Creditor transferred money to account of Corporate Debtor in India from Bank account of Financial Creditor amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Surya to SPT. Certain recommendations was made in the report submitted by the receiver dated 21.09.2020. Supplement of claim was submitted by Jain Group including Surya on which further report dated 14.10.2020 was submitted by receiver. Receiver s report was responded by Jain Group. Jain Group thereafter did not participate in the proceeding and default judgment was delivered by Superior Court Judge dated 01.08.2023. 2.4. A Section 7 application CP No.(IB)- 92/7/JPR/2021 was filed by Surya Testing Services Limited against Warm Forging Pvt. Ltd. claiming debt and default of Rs.1,60,00,000/-. Date of default being mentioned as 22.05.2018. Application claimed the financial debt on the basis of amount transferred to Warm Forging Pvt. Ltd. totalling Rs.1,85,00,000/-. Receipt of the amount of Rs.25,00,000/- was also acknowledged on 27.05.2018 and hence, for balance due Rs.1,60,00,000/-, application under Section 7 was filed. 2.4. In the Company Petition, IA No.651/JPR/2022 IA No.652/JPR/2022 were filed by the Corporate Debtor. In IA No.652/JPR/2022, Corporate Debtor pleaded that Section 7 application is not maintainable. In IA No.651/JPR/2022 filed by the Corporate Debtor prayed for prio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain etc. in the General Court of Justice, Superior Court Division, State of North Carolina where claims were invited by receiver. Receiver has observed that 15% ownership interest was held by Anamika Jain on 28.03.2018. As per contract dated 14.07.2018 amount of $ 0.8 million were never received by M/s. Warm Forging Pvt. Ltd. from Selma Precision Technologies NC, LLC , hence, there was no occasion for refund of amount of Rs.1,95,00,000/- as mentioned in the agreement dated 14.07.2018. The Financial Creditor has again submitted supplement to claims which claims have not been accepted. It is submitted that the U.S Court passed a default judgment in favour of the Plaintiff where it was observed that Anamika Jain holds a 15% ownership interest in SPT by virtue of payments made by Surya Testing Services Limited . It is submitted that the judgment referred by this Tribunal in Reckon Industries is concerned, the said judgment was on its own fact and does not help the financial creditor in the present case. It is submitted that Ajay Kumar Jain has already filed a suit before Gurugram Court where he admitted that the amount paid by Surya Testing Services Limited was on his behalf and the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the corporate debtor that it shall return amount of Rs.3.5 Crores to Reckon Industries and Rs.1.95 Crores to financial creditor. 6. Coming to the receiver report relied by Counsel for the Appellant. It is submitted that the receiver did not accept the claim of the financial creditor holding that there is no proof of any payment by financial creditor to U.S Company Selma Precision Technologies NC, LLC and the claim on the basis of payments made to Warm Forging Pvt. Ltd. cannot be accepted. The rejection of the claim of financial creditor by receiver was also upheld by U.S Court. It is submitted that the Adjudicating Authority relying on the relevant documents filed before it has rightly come to the conclusion that the application filed under Section 7 is maintainable and there is no ground to reject Section 7 application as prayed by the corporate debtor. 7. We have considered the submissions of the Counsel for the parties and perused the record. 8. The first agreement which has been referred to by the parties is letter of intent dated 23.12.2017 which was entered between the financial creditor and the corporate debtor under which letter of intent both the parties i.e. financial cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed various submissions in support of their respective case. There are several documents and materials brought on record by both the parties which need to be noticed for finding out the nature of transaction. We have already noticed the letter of intent dated 23.12.2017 entered between the corporate debtor and the financial creditor. It is useful to extract the entire letter of intent which is as follows:- Date: December 23, 2017, Letter of Intent (LOI) for M/s. MY FORGE Inc., Selma, NC, USA This LOI is between: 1. M/s. Surya Testing Services Ltd., 23/3 East Patel Nagar. New Delhi 110008. Represented by: Mr. Ajay Kumar Jain Mr. Virat Jain. 2. M/s. Warm Forgings Pvt. Ltd., Bhiwadi, Rajasthan, India. Represented by: Mr. Amit Rajput, Mrs. Anupam Chauhan Mayank Rajput The salient points of this LOI are: 1. Both parties agree for equal equity participation (50:50) to restructure the existing entity M/s. Selma Precision Technologies, NC, LLC (SPT) located at, 500 Oak Tree Drive, Selma, NC 27576, USA, SPT assets includes Land: 17.38 Acres; Building: 100,000 Sq., feet, with fair market value of US$ 4.51 Million and Plant Machinery with fair market value of US$ 14.265 Million. Total Fair Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to acquire 50% ownership of Selma Precision Technologies NC, LLC by third party i.e. Ajay Kumar Jain. The amount of 2 million USD was to be remitted by the third party and its family members and relatives within six months from February, 2018 to August, 2018. The said investment was to be made in Selma Precision Technologies NC, LLC . Agreement dated 14.02.2018 is as follows:- Agreement This agreement is executed at Gurgaon on this 14th day February 2018 in continuation of understanding entered on December 23rd, 2017, by and between 1. Selma Precision Technologies NC, LLC, 500 Oak Tree Dr, Selma, NC 27576, USA through its Manager Mr. Amit Rajput (Hereinafter referred to as First party), 2. Amit Rajput S/o Shri Bhupinder Singh R/o Villa no. 8, Hibiscus, Sector 50, Gurgaon, Haryana-122018 (Hereinafter referred to as Second party) and 3. Ajay Kumar Jain S/o Shri Salek Chand Jain R/o C- 13/55, Sector 3, Rohini, Delhi-110085 (Hereinafter referred to as Third Party) Whereas the First Party has acquired through Bankruptcy Court, the assets of Sona BLW Precision Forge Inc. on- 14/12/2016 at the sum of 4.675 million USD. The Second party is one of promoter in First party holding 40% ownersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Utica Lease Co. (D) That the future funds, if required by first party for working capital or running Expenses shall be send / remitted by Second and Third party in equal proportions till the time working capital loan is granted by any Bank /Financial Institute in USA to the first party. 4. That total contribution for getting 50% holding in the company is settled at 2.25 million USD. 5. That the said consideration is required to be send to first party as per payment schedule as stated in para 2 above. 6. That the second party shall have no objection, whatsoever for the said transfer/allotment/dilution of holding to the third party. 7. The Second Party agrees to indemnify, defend and hold harmless the Third Party, affiliates, directors, officers, representatives, employees and agents (collectively, the Indemnified Persons ), from and against any and all claims, actions, suits, proceedings, costs, damages, Judgments, amounts paid in settlement and expenses (including without limitation reasonable attorneys' fees and reasonable disbursements at actual) (collectively, Loss ) asserted against or incurred by the Indemnified Persons, to the extent directly suffered (excluding conse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... logies NC, LLC . Paragraph 12 of the agreement, as noted above, is as follows:- 12. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes any prior oral or written agreements, commitments or understandings with respect to the matter provided for herein. 12. Agreement, thus, supersedes any prior oral or written agreements, commitments or understandings with respect to the matter provided therein. With regard to acquisition of ownership of Selma Precision Technologies NC, LLC , earlier transactions were superseded. 13. Now the next agreement which is relevant to be noted is agreement dated 14.07.2018. Agreement dated 14.07.2018 was again entered between three parties who were parties to the agreement dated 14.02.2018. The financial creditor- Surya Testing Services Limited was not a party to this agreement. Agreement dated 14.07.2018 was entered with intent to change terms and conditions. The agreement noticed that 15% ownership is already with Ajay Kumar Jain and he intends to acquire balance 85%. Clauses 1 to 5 are as follows:- NOW THIS AGREEMENT WITNESSETH AS FOLLOWS : 1. That to acquire 85% additional o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be liable to the other for any delay or failure in the performance by It of any obligation under the MOU to the extent affected, delayed or prevented by an event of Force Majeure, provided that the Party that is affected by the Force Majeure shall notify the other Party as soon as practicable. 4. That the Second Party shall replace the Corporate Guarantee given by Warm Forging Pvt Ltd, and personal Guarantee given by Amit Rajput and Anupam Chauhan. That further, the Third Party shall pay the amount of 0.502866 million USD as mentioned at serial (ii) to Kartick Rajput in five equal monthly installment of USD 0.10 million USD each starting from 25.08.2018 t 25.12.2019. 5. That further the Second Party who is Director of Warm Forgings Pvt Ltd., undertakes to pay Rs. 3,50,00,000/- (Rupees Three Crores Fifty Lacs only) t M/s Reckon Industries Limited and Rs. 1,95,00,000/- (Rupees One Crore Ninety Five Lacs only) M/s Surya Testing Services Pvt Ltd within 3 days of receipt of the amount of 0.80 million USD or any part thereof. 14. The above agreement contains two relevant statements i.e. Warm Forging Pvt. Ltd. - Corporate Debtor shall return the amount of Rs.3,50,00,000/- to Reckon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebt along with 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 sunder any acceptance credit facility or its de materialised 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 nonrecourse basis; f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; 16. From the balance sheets of the corporate debtor for the financial years 2017-18 and 2018-19, it is clear that the amount disbursed has been referred as unsecured borrowing . The amount of Rs.3,50,00,000/- given by Reckon Industries Limited and Rs.1,95,00,000/- was given by Financial Creditor has been duly reflected in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in SPT and otherwise seek loan balances and prepayment balances due and owing to Warm Forgings plus any residual liquidation value (the Rajput Claim ); c. Claim No. 3: Anamika Jain, Virat Jain, Ajay Jain, Himani Jain. V.P. Industries, Ltd. ( V.P. ), Surya Testing Services, Ltd. ( Surya ) (collectively, the Jain Group ), Meghna Venhateshwar, Mettu Venkateshwar, Akhil Nigam, Rinki Jain, Manish Jain, Pooja Jain, Anamik Singhal, Vikash Jain, and Divyank Goswami in the amount of $1,631,595 of funds they claim were provided to SPT in 2018 and 2019 as either capital contributions or loans (the Jain Claim ); d. Claim No. 4: Linamar consisting of various claims under the terms of its lease of real estate from SPT including claimed rights to offset rent and for possession and ownership of residual SPT equipment (the Linamar Claim ); and e. Claim No. 5: Gerhard Schicktanz in the amount of $66,500 for an employee loan to SPT (the Schicktanz Claim ). 20. In paragraph 11 of the report, the claim of Jain Group based on purported contributions of Surya Testing Services Ltd. was disallowed. In paragraph 11, the receiver states follows : - 11 . The Receiver disallows the portion of the Jain Claim ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anamika Jain was accepted in M/s. Selma Precision Technologies, NC, LLC. The facts on the record thus, clearly indicate that the financial creditor has neither been given any equity percentage in M/s. Selma Precision Technologies, NC, LLC nor its claim has been admitted in the liquidation of M/s. Selma Precision Technologies, NC, LLC which is going in U.S. Court. Amount of Rs.1.85 Crores was disbursed to the Corporate Debtor which disbursement have clearly been admitted in the balance sheet of the corporate debtor, the said amount has been shown as borrowing from the financial creditor. It is clear that the letter of intent dated 23.12.2017 could not be fructified which was subsequently clearly superseded by 14.02.2018 agreement as noted above. Hence, the amount disbursed by the financial creditor to the corporate debtor has to be treated to be borrowing by corporate debtor which was required to be refunded. As noted above, in the agreement dated 14.07.2018 in which director of the corporate debtor was also party, there was undertaking recorded in paragraph 5 as noted above that Warm Forgings Pvt. Ltd. shall refund amount of Rs.1.85 Crores to the Corporate Debtor. The factum of ack ..... X X X X Extracts X X X X X X X X Extracts X X X X
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