TaxTMI 
TaxTMI 
2018 (7) TMI 1634
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....s. 37, 00,000/- (Rupees thirty-seven lakhs only) during the period between 11.11.2011 and 18.10.2014 in as many as 5 (five) instalments. However, the CD did not refund the loan nor did it pay the interest thereon to the FC as agreed upon for which an amount to the tune of Rs. 38,88,754/- as on 03.07.2015, became due to the FC from the side of the CD. 3. The details of debt together with interest has been worked out in Annexure-I(i) at page 13 of the application. The dates of disbursement of the said loan to the CD in instalments, interest accrued thereon, as well as the dates on which the alleged default in repayment of loan and interest, accrued thereon have been given in the annexures, attached with the application as Annexure I(ii), Annexure I(iii) Annexure I(iv). Annexure I(v), Annexure I(vi) and Annexure I(vii) at pages 14 to 47. 4. Equally importantly, there is also enough material on record to show that despite there being demand from the side of FC from time to time, the CD did not repay the loan with interest thereon on and from 15-12-2014. All those have firmly established that as on 03.07.2015, the CD owed a debt to the tune of Rs. 38,88,754/- and there was clear d....
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.... original term loan on new terms and conditions and obtained a further amount of Rs. 1.68 crores from SBI on 30-07-2013 so as to make the said resort a viable proposition once again. What is extremely important to note was that such restructured term loan was made available to the CD under some stringent terms and conditions. 11. The terms and conditions on the basis of which original loan was restructured were incorporated in the agreement dated 30-07-2013 between the CD and the State Bank of India (hereinafter referred to as the "Bank"). Two very vital conditions incorporated in such an agreement were (a) the company would furnish an undertaking that the unsecured loans would not be withdrawn during the currency of the Bank Loan and (b) those unsecured loans would be non-interest bearing. 12. All those conditions were unconditionally accepted by the then management of the CD and as stated above, the persons in the management of the CD at that point of time as well were present FC (who was working as Managing Director of the CD), his son and his daughter-in-law (who were working as Director of the CD at that point of time). 13. What is, however, equally important to note ....
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....art of the Agreement is reproduced below: "1. The COMPANY and the Main Promoter declare and confirm as under: - (a) The COMPANY is well and sufficiently entitled to the said property and that its title to the said property is free without any encumbrance except to the extent mentioned in this agreement. (b) No other person except the COMPANY has any right, title, interest, claim or demand in respect of the HOTEL or any part thereof. (c) The COMPANY has not created any charge, lien or encumbrance by way of sale, gift, mortgage, lease or any other third party rights on the HOTEL except to the extent mentioned in this agreement. The HOTEL is not subject to any claim or demand, encumbrance, attachment or any process issued by any Court or Authority and the title of the said property is not under any lis pendens. (d) No notice from any authority or under any statute has been served upon the COMPANY in respect of the HOTEL which restricts the operation management, administration etc. of the said HOTEL. (e) The Main Promoter, Mr. Kanishka Himatsingka and Mrs. Neha Himatsingka are the Directors of the COMPANY. (f) Mr. Kanishka ....
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....quired for repairs of the hotel, bathrooms, furniture, and replacement of damaged TV sets, electrical fittings, kitchen equipment, etc. The first party ad his successors shall also provide a 68 feet width approach road from the National Highway to the hotel front by demolishing all permanent/Temporary structure that falls on the way of 68 feet approach road of the hotel and shall remain ever binding on it forever. 18. That a separate Memorandum of Understanding (MOU) may be executed, in the event any need arises for achieving the purpose(s) of this agreement and/or towards a smooth transition and takeover of the COMPANY and the HOTEL. In the event of any Memorandum of Understanding signed in terms of this clause, the same shall be deemed to be a part of this agreement. 19. That, the Main Promoter and the outgoing Directors, Mr. Kanishka Himatsingka and Mrs. Neha Himatsingka will not have any objection whatsoever to allow the Second Party to continue to operate the hotel in the current name and use the same company name or change the either or both." ................................................... 17. Mr. Goswami appearing for the CD, now contends that the p....
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....e entry of Sri Bhagya Kalita and his family members as shareholders and managers of the company. 22. The fact that said agreement required Shri Rajesh Kumar Himatsingka and his family members (hereinafter referred to as Himatsingka Group) to surrender their entire shareholdings as well as their positions in the management of the company in favour of Sri Bhagya Kalita and his family members (hereinafter referred to as BK Group) on BK Group paying the former an amount to the tune of Rs. 3,71,68,000.00, being the price shares they held in the company, Rs. 8,78,52,000/- towards the satisfaction of banks and other statutory dues, Rs. 2,20,00,000.00 towards the satisfaction of unsecured loans and Rs. 29,80,000.00/- being the value of the land over which hotel is situated makes such a conclusion inevitable. 23. Equally importantly, said agreement also worked out as to how all the liabilities of the CD as on 15-12-2014 were to be apportioned between BK Group and Himatsingka Group. As per the agreement dated 15-12-2014, BK Group, apart from undertaking to liquidate various dues, owed by the CD to various authorities as on 15-12-2014, also undertook to liquidate unsecured loans, so obt....
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....g from it which it had never/ever owed to the applicant herein thereby gaining something which he was not at all legally entitled to but also a great design to deceive all the genuine unsecured creditors of the CD by falsely creating an illusion that under the agreement aforesaid they are entitled to seek recovery of the aforesaid dues not from the applicant but from the CD instead. 29. In that connection, my attention has been drawn to the decision of the Hon'ble Apex Court in Case of DDA v. Skipper Construction [1996] 4 SCC 622. In the aforesaid case, it has been held that a company cannot be allowed to use its corporate veil in order to defraud the public or its members. In fact, in appropriate case, the veil of the company needs to be lifted to discover the real intention of the company. The relevant part of the judgment is reproduced below: 24. In Aron Salomon v. Salomon & Company Limited (1897) AC 22, the House of Lords had observed, "the company is at law a different person altogether from the subscriber...; and though it may be that after incorporation the business is precisely the same as it was before and the same persons are managers and the same hands re....
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....ompany Law, this topic is discussed in Part-II of Vol-I. Several situations where the court will disregard the corporate veil are set out. It would be sufficient for our purposes to quote the eighth exception. It runs: "The courts have further shown themselves willing to 'lifting the veil' where the device of incorporation is used for some illegal or improper purpose.... Where a vendor of land sought to avoid the action for specific performance by transferring the land in breach of contract to a company he had formed for the purpose, the court treated the company as a mere 'sham' and made an order for specific performance against both the vendor and the company". Similar views have been expressed by all the commentators on the Company Law which we do not think it necessary to refer. 26. The law as stated by Palmer and Gower has been approved by this Court in Tata Engineering and Locomotive Company Limited v. State of Bihar MANU/SC/0036/1964: [1964]6SCR885. The following passage from the decision is apposite: Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But, it would not be possible to evolve a r....
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....ion, my attention has been drawn to the decision of the Hon'ble Apex Court in the case of Innoventive Industries Ltd. v. ICCI Bank [2018] 1 SCC 407. 31. In Innoventive Industries Ltd. (supra), it has been held that in deciding whether the CD owed any debt to the FC or whether there was any default in repayment of such debt, the authority concerned needs to look into the averments made in the application. The relevant part of the judgment aforesaid is reproduced below: - 30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is "due" i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise. 32. It has also been contended that the CD failed ....
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....ication under Section 7 of the Code. Coming to the first allegation, it is found that there is no dispute that in 2013, the SBI on being approached by the then management of the CD, had restructured the term loan which it obtained from the bank in 2008, The said loan was restructured on some stringent terms & conditions which were duly accepted by the management of the CD at that point of time. 37. It is worth remembering here that Sri Rajesh Kumar Himatsingka, the applicant herein, had signed the loan agreement dated 30-07-2013 on behalf of the CD, which was further approved by the other directors of the CD at that point, they being Sri Kanishka Himatsingka and Mrs. Neha Himatsingka, who happened to be the son and daughter-in-law of Sri Rajesh Kumar Himatsingka respectively. 38. On perusal of loan agreement dated 30-07-2013, it is found that two most important conditions under which said term loan was restructured on 30-07-2013 were (1) all the unsecured loans, obtained by the CD would not carry any interest till the time of full liquidation of said bank loan and (2) such unsecured loans could not be liquidated during the currency of bank loan. It needs to be stated here tha....
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....7) and 5(8) and in the impugned judgment rightly observed: - "12 A perusal of definition of expression 'Financial Creditor' would show that it refers to a person to whom a Financial debt is owed and includes even a person to whom such debt has been legally assigned or transferred to. In order to understand the expression 'Financial Creditor the requirements of expression financial debt' have to be satisfied which is defined in Section 5(8) of the IBC. The opening words of the definition clause would indicate that a financial debt is a debt along with interest which is disbursed against the consideration for the time value of money and it may include any of the events enumerated in sub-clauses (a) to (l). Therefore, the first essential requirement of financial debt has to be met viz, that the debt is disbursed against the consideration for the time value of money and which may include the events enumerated in various sub-clauses. A Financial Creditor is a person who has right to financial debt. The key feature of financial transaction as postulated by section 5(8) is its consideration for time value of money. In other words, the legislature has included such....
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.... due had been disbursed against consideration for time value of money. A person can do so if he is successful in showing that the disbursement has been made for consideration for time value of money through any instrument. The disbursement against consideration for time value of money is therefore, the main factor. In the present case, the applicant had failed to bring on record any evidence to suggest that he disbursed the money against consideration for time value of money. 44. More importantly, the applicant did not give any information about the rate of interest or anything about the periodicity of servicing of interest on the principal amount or time of repayment of such loan. Since such fundamental information was not made available in the application, the description of loan as given in the application, hardly satisfies the requirements of financial debt, as contemplated in section 5(8) of the Code. This, in my firm opinion, is a proof to the fact that the application in hand is devoid of merit. 45. In regard to the contention of the CD that the agreement dated 15-12-2014 had completely relieved the CD of the liability to repay all the dues that CD had as on 15-12-2014....
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....y between Himatsingka Group and BK Group. On doing so, one would easily find that very purpose of the proceeding is to cheat the CD and so also the genuine unsecured creditors of the company. 50. Since the present application is found to be a ploy to defraud the CD as well as all the genuine unsecured creditors of the CD and since no Judicial Authority would ever be a privy to such an ill design, therefore, it provides one more ground to this Authority to turn the present application down. 51. It is worth noting here that the learned counsel for the applicant submitted that the CD keeps on paying interest on the principal amount till 03-07-2015, which, according to him, unmistakably shows that as on 03-07-2015, the CD owed the applicant a debt to the tune of Rs. 38,88,754/- and since there was default in repayment of such debt, this Authority needs to admit the application under consideration. I have considered such submission and found that such contentions are without any substance. 52. It needs to be stated here that at the time of entering into the agreement dated 15-12-2014, Himatsingka Group ought to have posted BK Group about the loan agreement dated 30-07-2013 betw....