2024 (4) TMI 632 - AT - Insolvency and Bankruptcy

Financial creditor's Section 7 CIRP petition upheld as equity investment claim rejected by NCLAT

The NCLAT dismissed an appeal challenging the rejection of applications seeking dismissal of a Section 7 CIRP petition filed by a financial creditor. The ... Rejection of application against admission of CIRP u/s 7 application filed by the Financial Creditor (Respondent herein) - Financial Debt or Equity investment - disbursement by financial creditor to corporate debtor - HELD THAT:- The financial creditor i.e. ‘Surya Testing Services Limited’ was not a party to the said agreement and the said agreement was between three different parties which are neither the financial creditor nor the corporate debtor - 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 With regard to acquisition of ownership of ‘Selma Precision Technologies NC, LLC’, earlier transactions were superseded. The facts on the record 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 It is clear that the letter of intent dated 23.12.2017 could not be fructified which was subsequently clearly superseded by 14.02.2018 agreement as noted above.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. 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 financial creditor only for the purposes of equity in M/s. Selma Precision Technologies, NC, LLC, there was no question of refund of any amount. The refund of Rs.25 lacs clearly proves that amount was borrowed by the corporate debtor as reflected in its balance sheet as noted by the Adjudicating Authority. Counsel for the Appellant has also referred to the Civil Suit filed by Ajay Kumar Jain in Gurugram Court which suit has been filed by Ajay Kumar Jain against Amit Rajput and others. The injunction has been sought with regard to suit property. Ajay Kumar Jain has claimed that the amount was paid by ‘Surya Testing Services Limited’ to M/s. Warm Forgings Pvt. Ltd. which was payment made by the Appellant. The said pleading by Ajay Kumar Jain in a suit which was filed subsequent to filing of Section 7 application cannot be treated to be pleading on behalf of the financial creditor. The present appeal arises out of the order passed by the Adjudicating Authority rejecting two IAs being IA No.651/JPR/2022 & IA No.652/JPR/2022 by which corporate debtor has prayed for dismissal of Section 7 application. The applications have been rejected by the Adjudicating Authority by the impugned order dated 19.01.2024. Thus, no ground has been made out to interfere with the impugned order passed by the Adjudicating Authority - The Appeal is dismissed. Issues Involved:1. Maintainability of Section 7 application filed by the Financial Creditor.2. Nature of the amount disbursed by the Financial Creditor to the Corporate Debtor.3. Admissibility of evidence and documents presented by both parties.4. Relevance and impact of the receiver's report and U.S. court proceedings.5. Validity of the Adjudicating Authority's decision to reject the Corporate Debtor's applications.Summary:Issue 1: Maintainability of Section 7 application filed by the Financial CreditorThe Corporate Debtor challenged the maintainability of the Section 7 application filed by the Financial Creditor, claiming that the amount disbursed was not a financial debt but an investment for obtaining equity in a U.S. Company, Selma Precision Technologies NC, LLC (SPT). The Adjudicating Authority rejected this claim, stating that the amount disbursed was acknowledged as unsecured borrowing in the Corporate Debtor's balance sheets for financial years 2017-18 and 2018-19.Issue 2: Nature of the amount disbursed by the Financial Creditor to the Corporate DebtorThe Corporate Debtor argued that the amount of Rs.1,95,00,000/- disbursed by the Financial Creditor was meant for equity investment in SPT and not a financial debt. The Financial Creditor could not obtain RBI permission to transfer the money abroad and hence transferred Rs.1,85,00,000/- to the Corporate Debtor in India. This amount was reflected as unsecured borrowing in the Corporate Debtor's balance sheets. The Adjudicating Authority held that the disbursed amount was a financial debt, as evidenced by the balance sheets and the partial repayment of Rs.25,00,000/-.Issue 3: Admissibility of evidence and documents presented by both partiesThe Adjudicating Authority considered various agreements, including the Letter of Intent dated 23.12.2017, and agreements dated 14.02.2018 and 14.07.2018. The Letter of Intent indicated an initial plan for equity participation, but subsequent agreements and the balance sheets reflected the amount as unsecured borrowing. The Adjudicating Authority also noted the acknowledgment of the debt in the agreement dated 14.07.2018, where the Corporate Debtor agreed to return the amount to the Financial Creditor.Issue 4: Relevance and impact of the receiver's report and U.S. court proceedingsThe Corporate Debtor relied on the receiver's report and U.S. court proceedings, which disallowed the claim of Surya Testing Services Ltd. (Financial Creditor) regarding SPT. However, the Adjudicating Authority found that these proceedings did not alter the nature of the transaction between the Financial Creditor and the Corporate Debtor. The amount disbursed was treated as borrowing in the Corporate Debtor's balance sheets, and the Financial Creditor's claim was valid under Section 7.Issue 5: Validity of the Adjudicating Authority's decision to reject the Corporate Debtor's applicationsThe Adjudicating Authority rejected the Corporate Debtor's applications (IA No.651/JPR/2022 & IA No.652/JPR/2022) seeking dismissal of the Section 7 application. The Authority concluded that the amount disbursed was a financial debt, supported by the balance sheets and partial repayment. The Tribunal upheld the Adjudicating Authority's decision, finding no infirmity in the reasoning provided.Conclusion:The Appeal was dismissed, affirming the Adjudicating Authority's order that the Section 7 application was maintainable and the amount disbursed by the Financial Creditor was a financial debt. The Corporate Debtor's applications for dismissal were rightly rejected.