2023 (3) TMI 175 - AT - Insolvency and Bankruptcy

Appeals Dismissed, Resolution Plan Approved. Appellants not Financial Creditors. Pursue claim against Promoter.

M/s. Sandhya & Co., M/s. Sri Adinath Enterprises, M/s. Jai Jinendra Enterprises, M/s. Vijyalakshmi Enterprises, M/s. V.S. Enterprises, M/s. H.S. Syndicate, M/s. Hemanth Mehta & Sons HUF, M/s. Vipul Investment, M/s. Hemanth & Co. Versus V. Mahesh

M/s. Sandhya & Co., M/s. Sri Adinath Enterprises, M/s. Jai Jinendra Enterprises, M/s. Vijyalakshmi Enterprises, M/s. V.S. Enterprises, M/s. H.S. ... Issues Involved:1. Rejection of Claim Amount by the Adjudicating Authority.2. Definition and applicability of 'Financial Debt' under Section 5(8) of the Insolvency and Bankruptcy Code (IBC), 2016.3. Privity of Contract between the Appellant and the Corporate Debtor.4. Validity of Board Resolutions and Written Agreements.5. Limitation and Time-barred Claims.6. Compliance with Provisions of Companies Act, 1956 & 2013.7. Admissibility of Evidence and Documentation.8. Role and Findings of the Resolution Professional (RP).9. Applicability of Doctrine of Indoor Management.10. Implications of Independent Auditor's Report.11. Approval and Implementation of the Resolution Plan.Detailed Analysis:1. Rejection of Claim Amount by the Adjudicating Authority:The Appellant, M/s. Sri Adinath Enterprises, was aggrieved by the Impugned Order dated 13.10.2020, which rejected its claim amount. The Appellant argued that it had lent Rs. 4,90,00,000/- to the Corporate Debtor, evidenced by various documents, including Promissory Notes and letters of undertaking. The Appellant filed Form-C claiming Rs. 10,58,26,750/- but was rejected by the Respondent.2. Definition and Applicability of 'Financial Debt' under Section 5(8) of IBC, 2016:The Appellant contended that the term 'Financial Debt' under Section 5(8) of the Code includes debts disbursed against consideration for time value of money. The Appellant argued that the amounts lent to the Corporate Debtor through the Promoter should be considered as Financial Debt. However, the Respondent argued that there was no privity of contract between the Appellant and the Corporate Debtor, and the amounts were lent to the Promoter in his personal capacity.3. Privity of Contract between the Appellant and the Corporate Debtor:The Respondent submitted that there was no direct contractual relationship between the Appellant and the Corporate Debtor. The amounts were lent to the Promoter, who accepted them in his personal capacity. The Respondent highlighted that the Board Resolutions authorized the Promoter to obtain loans in his personal name and deposit them into the Company's account.4. Validity of Board Resolutions and Written Agreements:The Respondent argued that there was no documentary evidence of any Board Resolutions authorizing the loan transactions. The Board Meetings and Resolutions purportedly held were not recorded in accordance with the provisions of the Companies Act. The Appellant did not produce any Written Agreement between the Corporate Debtor and the Appellant.5. Limitation and Time-barred Claims:The Appellant argued that the Agreement was dated 12.03.2013, and the act had to be performed within six years, making the claim barred by limitation. The Adjudicating Authority did not address the issue of limitation but proceeded on merits.6. Compliance with Provisions of Companies Act, 1956 & 2013:The Respondent argued that the loans were treated as Director's loans in the Books of Accounts of the Corporate Debtor. The Appellant did not rebut the submissions that loans from Directors are allowed under the Companies Act, subject to certain conditions. The amounts brought in by the Promoter were deemed as Director's loans.7. Admissibility of Evidence and Documentation:The documents relied upon by the Appellant, such as Promissory Notes, Confirmation Letters, and Statements of Account, did not establish that the amounts were lent directly to the Corporate Debtor. The Independent Auditor's Report for three consecutive financial years contained disclaimers regarding the transactions involving the Corporate Debtor and the Promoter.8. Role and Findings of the Resolution Professional (RP):The RP rejected the Appellant's claim, stating that the amounts were paid in cash to the Managing Director and his wife, not to the Company. The RP highlighted the absence of any Written Agreement or documentary evidence supporting the loan transactions.9. Applicability of Doctrine of Indoor Management:The Appellant argued that the Doctrine of Indoor Management applies, and the onus was on the Managing Director of the Corporate Debtor to provide the documents. However, the Tribunal found that there were no substantial reasons for disbursing the amounts to the personal account of the Managing Director.10. Implications of Independent Auditor's Report:The Independent Auditor's Report contained disclaimers regarding the transactions and highlighted the lack of documentary evidence supporting the impugned transactions. The Tribunal emphasized that the Corporate Debtor had not produced any documents supporting the transactions.11. Approval and Implementation of the Resolution Plan:The Tribunal held that the Appellants did not fall within the definition of 'Financial Creditors' under Section 5(7) of the Code. The Resolution Plan submitted by M/s. ASG Hospitals Private Limited was approved by the requisite majority. The Tribunal dismissed the IA seeking to stay the operation of the Resolution Plan.Conclusion:The Tribunal dismissed the Appeals, holding that the Appellants did not satisfy the requisite essentials to fall within the definition of Financial Creditors under Section 5(7) of the Code. The Tribunal found no illegality or infirmity in the well-reasoned Order of the Adjudicating Authority, which observed that the Appellant should seek its remedy against the Promoter and not against the Corporate Debtor.