Tribunal rejects Corporate Debtor's arguments, orders CIRP. Debt due & payable.

Vijay R. Vakharia And 6 Ors. Versus M/s. Rayala Corporation Private Limited

Vijay R. Vakharia And 6 Ors. Versus M/s. Rayala Corporation Private Limited - TMI Issues Involved:

1. Whether the claim of the Financial Creditors is barred by limitationRs.
2. Whether the claim made by the Financial Creditors relates to Financial Debt and thereby being a financial transactionRs.
3. Whether the interest charged by the Financial Creditors is exorbitant and barred by the Usurious Loans Act, 1918 and the Madras Debtor Protection (Amendment) Act, 1935Rs.
4. Whether the documents placed on record by the Financial Creditors are sufficient in their nature to ascertain the existence of default in the absence of the record of Information Utility and Financial ContractRs.
5. Whether the Financial Creditors can file the Application under Section 7 of I&B Code, jointly when all of them are not corporate personsRs.
6. Whether the Application filed under Section 7 of the I&B Code, is maintainable under law on the basis of the authorization given by the 2nd to 7th Financial Creditors through Power of AttorneyRs.
7. Whether the Corporate Debtor has borrowed the loan from the Financial Creditors against its Articles of Association, thereby it is ultra vires and does not bind the Corporate DebtorRs.

Issue-wise Detailed Analysis:

Issue No. i: Limitation

The Corporate Debtor argued that the claim is barred by the period of limitation. However, the tribunal noted that the Corporate Debtor had continually acknowledged its liability through various documents, including promissory notes, cheques, confirmation letters, and emails. The application was filed within the period of limitation, considering these acknowledgments. The tribunal also noted that the right to apply under Section 7 of the I&B Code accrued on 01.12.2016, and the application was filed within the permissible period. Thus, the plea of limitation was rejected.

Issue No. ii: Financial Debt

The Corporate Debtor contended that the Financial Creditors did not produce any 'financial contract' showing underlying financial transactions. However, the tribunal found that various documents, including mortgage deeds, Memorandum of Agreements (MoAs), promissory notes, and cheques, evidenced the financial transactions. The tribunal concluded that the debt in question fell within the definition of "Financial Debt" under Section 5(8) of the I&B Code, 2016, as it involved consideration for the time value of money with a commercial effect of borrowing. Thus, the issue was decided in favor of the Financial Creditors.

Issue No. iii: Exorbitant Interest

The Corporate Debtor argued that the interest rate of 24% per annum was exorbitant and violated the Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003. The tribunal, relying on precedents, held that the interest rate agreed upon at the time of the loan could not be considered exorbitant subsequently. It was noted that the Financial Creditors had not received adequate security for the loan, and 24% interest was a common rate for commercial loans. Therefore, the objection regarding exorbitant interest was rejected.

Issue No. iv: Sufficiency of Documents

The Corporate Debtor challenged the admissibility of documents, including emails, without a certificate under Section 65B of the Indian Evidence Act. The tribunal held that the requirement of such a certificate is not always mandatory, especially when the party relying on the documents does not possess the original device. The tribunal found that the documents, including promissory notes, cheques, and computation sheets, were sufficient to establish the default. Thus, the issue was decided in favor of the Financial Creditors.

Issue No. v: Joint Application by Financial Creditors

The Corporate Debtor argued that the application could not be filed jointly by Financial Creditors, including individuals, HUF, and corporate bodies. The tribunal referred to the definitions of "Financial Creditor" and "person" under the I&B Code, which include individuals, HUF, and corporate entities. It was concluded that the joint application was maintainable, and the plea was rejected.

Issue No. vi: Authorization through Power of Attorney

The Corporate Debtor contended that the application could not be filed based on a Power of Attorney. The tribunal referred to precedents where it was held that a duly authorized person, even through a Power of Attorney, could file the application. The tribunal found that the authorization was valid, and the submission by the Corporate Debtor was overruled.

Issue No. vii: Ultra Vires Borrowing

The Corporate Debtor argued that the borrowing was against its Articles of Association and thus ultra vires. The tribunal referred to the principle that a party cannot benefit from its own wrong. It was held that the Corporate Debtor could not challenge its own action of borrowing. Thus, the plea was rejected.

Conclusion:

The tribunal concluded that the debt claimed by the Financial Creditors was due and payable, and the Corporate Debtor had defaulted. The application was complete and satisfied the legal requirements. The tribunal admitted the application, ordered the commencement of the Corporate Insolvency Resolution Process (CIRP), declared a moratorium, and appointed an Interim Resolution Professional (IRP). The order was pronounced in open court in the presence of the counsels for both parties.