2021 (8) TMI 1134 - AT - Insolvency and Bankruptcy

Tribunal Upholds Decision to Reject CIRP Application in Loan Dispute Case

The Tribunal dismissed the appeal and upheld the decision of the Adjudicating Authority to reject the application for initiating Corporate Insolvency ... Maintainability of application - initiation of CIRP - Dues are on the company or on the director in his personal capacity - Mortgage - Financial Creditors - Financial Agreement - right or title over any immovable property - Section 17 of the Registration Act, 1908 - HELD THAT:- The Appellant itself admitted the fact that the loan amount was released by the Appellant by way of RTGS to the account of the Managing Director of the Respondent Company. The Learned Adjudicating Authority also recorded the fact that the Appellant filed Statement of Account of State Bank of India (SBI) for the period from 01.04.2015 to 01.03.2017. From the said statement of account, a sum of ₹ 50,00,056/- was paid into the account of Mr. A. Francis, on 20.10.2015 through RTGS. From the records it is clear that the loan amount has not come to the account of the Respondent Company. The transaction between the Appellant, a partnership firm and the Director of the Respondent Company in his personal capacity. There is no doubt that the Financial contract means, a contract between a Corporate Debtor and Financial Creditor. However, the MoU dated 05.07.2019 does not fit in this clause, in view of its genuineness, as Questioned by the Respondent. This Tribunal does not find any illegality in the Order passed by the Adjudicating Authority - Appeal dismissed. Issues Involved:1. Admissibility and validity of the MoU dated 05.07.2019.2. Whether the loan was given to the Respondent Company or its Managing Director in a personal capacity.3. Existence of a financial agreement and privity of contract between the Appellant and the Respondent Company.4. Whether the Respondent Company is liable for the loan obtained by its Managing Director.Issue-wise Detailed Analysis:1. Admissibility and Validity of the MoU dated 05.07.2019:The Appellant argued that the MoU dated 05.07.2019, where the Respondent undertook to repay the outstanding amount within 45 days, constitutes a 'Financial Agreement' under Rule 3(d) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016. The Respondent contended that the MoU is an unregistered document required to be registered under Section 17 of the Registration Act, 1908, and thus cannot be admitted as evidence. The Tribunal noted the Respondent's objections regarding the genuineness of the MoU, highlighting the absence of signatures of all lenders on each page. Consequently, the Tribunal held that the MoU could not be taken into consideration for initiating proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016.2. Loan Given to the Respondent Company or Its Managing Director in Personal Capacity:The Appellant claimed that the loan amount was transferred to the account of the Managing Director of the Respondent Company, Mr. A. Francis. The Respondent argued that the loan was a personal loan to Mr. A. Francis, secured by a mortgage deed of his personal property. The Tribunal found that the loan amount was indeed transferred to Mr. A. Francis's personal account and not to the Respondent Company's account. The mortgage deed executed on 20.10.2015 further supported that the loan was for Mr. A. Francis's business and family needs.3. Existence of a Financial Agreement and Privity of Contract:The Appellant relied on the MoU dated 05.07.2019 to establish a financial agreement between the Appellant and the Respondent Company. However, the Tribunal observed that the MoU's genuineness was questionable, and there was no evidence of the loan amount being transferred to the Respondent Company's account. The Tribunal also noted that the mortgage deed was executed by Mr. A. Francis in his personal capacity, indicating no privity of contract between the Appellant and the Respondent Company.4. Liability of the Respondent Company for the Loan Obtained by Its Managing Director:The Tribunal concluded that the loan was obtained by Mr. A. Francis in his personal capacity, supported by the mortgage of his personal property. The Respondent consistently maintained that the loan was unrelated to the Corporate Debtor (Respondent Company). The Tribunal found no evidence of the loan amount being transferred to the Respondent Company's account, and thus, the Respondent Company was not liable for the loan obtained by its Managing Director.Findings:The Tribunal upheld the Adjudicating Authority's decision to dismiss the application filed by the Appellant seeking initiation of CIRP against the Respondent Company. The Tribunal found no illegality in the Adjudicating Authority's order dated 23.02.2021 in IBA/60/2020. The appeal was dismissed, and the Appellant was advised to avail alternate remedies available under the law.