TaxTMI 
TaxTMI 
2018 (12) TMI 887
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....declare moratorium and appoint Interim Resolution Professional (IRP) under the Insolvency and Bankruptcy Code, 2016 (I&B Code). The lst Financial Creditor has stated that he is filing the Affidavit on his own behalf and also on behalf of the Financial Creditor Nos. 2 to 5 based on the Power of Attorney executed on various dates in his favour. It is further stated that the lst Financial Creditor is also authorised by the Board of Directors of Financial Creditor Nos. 6 and 7 to file the Affidavit on behalf of them. Hence, all the 7 Financial Creditors jointly filed this common Application under the provisions of Section 7 of I&B Code, 2016 against the Common Corporate Debtor viz., M/s. Rayala Corporation Private Limited. However, the Power of Attorney filed on behalf of Applicant No.5 [Smt. V.Vakharia] is found to be general in nature, therefore, a fresh Power of Attorney was directed to be filed and the same has been filed, which is taken on record. 2. Heard the learned Senior Counsels for Financial Creditors and the Corporate Debtor, perused the pleadings and written submissions placed on the case file. 3. The Financial Creditors have claimed an amount to the tune of Rs. 4....
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....ed after seeking the approvai of the Corporate Debtor. 8. The Financial Creditors have referred to the mails sent by the Corporate Debtor to them on 08.01.2013, 25.06.2013, 05.02.2014, 10.02.2014, 06.11.2014, 24.11.2013, 29.01.2015, 11.08.2015, 30.12.2015, 11.01.2016, 04.02.2016, 15.03.2016, 24.03.2016, 26.04.2016 and 17.04.2017, assuring the payment of pending dues owed to the Financial Creditors and categorically asked the Financial Creditors to procure the money on higher rates of interest, from other sources, since the Financial Creditors were in dire need of the money and admitted the liability to pay such higher interest to the Financial Creditors. 9. The details of the Financial Debt owed by the Corporate Debtor to the Financial Creditors are as under:- Sl. No. Name of the Financial Creditor Financial Debt 1 Vijay R. Vakharia Rs.8,15,80,040.61 2 Vijay R. Vakharia and Ajay R.Vakharia Rs.17,93,55,210.84 3 Vijaykumar HUF Rs.1,89,96,437.71 4 Late Ramanlal N. Vakharia represented by his legai heir Vijay V. Vakharia Rs.54,84,575.25 5 Smt. V.Vakharia Rs.6,71,323.49 6 Aasman Financial Services Private Limited Rs....
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....ed Senior Counsel representing the Corporate Debtor that if the outstanding debt has been paid, then, why 'No Dues Certificate', (NDC) has not been obtained by the Corporate Debtor from the lst Financial Creditor. The Learned Senior Counsel has reluctantly replied that due to mutual trust and faith that the parties had on each other, the NDC was not necessitated. 14. The lst Financial Creditor's computation sheet placed at pages 273 to 276 of the typed set filed with the Application goes to show that on 09.12.2014 an amount of Rs. 1,00,00,000/- was received by the lst Financial Creditor and the balance amount is Rs. 3,40,78,177.03.03p. Thereafter, from 16.05.2015 to 30.05.2015, an amount of Rs. 1,00,00,000/- has been paid to the Corporate Debtor in four equal tranche? It also rellects from computation sheet at page 276 that on 24.03.2016, the lst Financial Creditor has received Rs. 2,35,20,000/- and the balance is Rs. 3,07,09,706.42p, whereas, on 31.10.2017, the total balance outstanding is shown as Rs. 4,46,08,990.28p in relation to the lst transaction. Similar are the facts relating to 2nd and 3rd transactions and the total outstanding is shown as Rs. 8,15,80,040/-. 15. The....
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....mencement of the fourth month from the date of the agreement till the date of refund." Thus, it is established that the admitted amount is disbursed by the 2nd Financial Creditor to the corporate debtor against the consideration for time value of money which has the commercial effect of borrowing. 17. Similar are the terms and conditions contained in the Memorandum of Agreement dated 01.12.2010 entered into between the 2nd Financial Creditor with the Corporate Debtor which is placed at pages 318 to 324 of the typed set filed with the Application. 18. The transactions that took place between the 2nd Financial Creditor and the Corporate Debtor are reflecting from the computation sheet placed at pages 326 and 327 and the balance outstanding as on 31.10.2017 is shown as Rs. 1/79,355,210.84. 19. It has been noted that a letter dated 01.06.2015 has been written by the Corporate Debtor to the 2nd Financial Creditor, copy of which is placed at page 325 of the typed set filed with the Application which reveals that the Corporate Debtor has failed to fulfil the obligations as per the Memorandum of Agreements dated 01.11.2010 and 01.12.2010 and assured the 2nd Financial Creditor that....
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....it is an admitted fact that the Corporate Debtor has executed renewed Promissory Notes in relation to each of the Financial Creditors on 15.05.2015. If, no advance has been made by the 3rd Financial Creditor, then, there was no requirement on the part of the Corporate Debtor to renew the Promissory Note in favour of the 3rd Financial Creditor and to pay Rs. 1.15 crores to the 3rd Financial Creditor. The Corporate Debtor has not placed any document on record pertaining to the OTS and the instructions which it claims to have been received from the other Financial Creditors to pay Rs. 1.15 crores to 3rd Financial Creditor. The plea taken by the Corporate Debtor that it has not received any advance from the 3rd Financial Creditor is per se contradictory and devoid of merits. 22. The Corporate Debtor in its reply at page 33 has admitted that the renewed Promissory Note dated 15.05.2015 would show that the Promissory Note is for the outstanding principal amount of Rs. 20 lakhs and there is no interest quantified and added in the renewed Promissory Note. The Corporate Debtor further states that it has paid a sum of Rs. 20 lakhs vide cheque No. 029433 dated 23.03.2016 drawn on Bank of I....
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....5th Financial Creditor has placed the Promissory Note dated 15.05.2015 at page 362 of the typed set filed with the Application which goes to show that the said amount has to be paid with interest @ 24% per annum. The interest which is calculated @ 21% per annum on the said amount, is not shown to have been paid by the Corporate Debtor to the 5th Financial Creditor as per the Computation Sheet and the plea taken by the Corporate Debtor that in terms of the OTS of interest, it has paid to the Financial Creditors a sum of Rs. 1.15 crores in favour of the 3rd Financial Creditor viz., Vijaykumar (HUF). But this assertion of the Corporate Debtor is not being supported with any documentary evidence. Therefore, the plea taken by the Corporate Debtor has no legs to stand. 25. Another plea that has been taken by the Corporate Debtor is that the Power of Attorney dated 05.08.2013 executed by 5th Financial Creditor in favour of lst Financial Creditor is not specifically authorizing for filing the Application under Section 7 of the I&B Code, 2016. Therefore, this Authority has given notice to the 5th Financial Creditor to execute fresh Power of Attorney specifically authorizing lst Financial....
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....as been recorded that the Corporate Debtor promised to pay Rs. 1,00,00,000/- (Rupees One Crore Only) with interest @ 21% per annum. Therefore, the plea taken by the Corporate Debtor is contrary to the contents of the Promissory Note placed on record. The Computation Sheet of 7th Financial Creditor placed at pages 374 and 375 of the typed set fìled with the Application reflects that Rs. 1,00,00,000/- has been paid on 28.03.2016 and as on 31.10.2017, the outstanding balance against the Corporate Debtor is Rs. 1,48,27,755.9lp. 28. The above noted factual matrix are specifically evidencing the existence of default on the part of the Corporate Debtor in making payment of the outstanding debt claimed by the Financial Creditors. However, it is necessary to deal with other legai issues raised by the parties in their pleadings and at the time of final submissions, the issues can be framed as follows:- i. Whether the claim of the Financial Creditors is barred by limitation? ii. Whether the claim made by the Financial Creditors relates to Financial Debt and thereby being afinancial transaction? iii. Whether the interest charged by the Financial Credits is ....
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....ption in favour of the said instrument and the person defending may adduce direct evidence to prove that the Promissory Note was not supported by the consideration and if such evidence is accepted, then, the burden to prove shifts to the claimant. But, in this case, the Corporate Debtor has not produced any documentary evidence to rebut presumption which is in favour of the Promissory Notes (including renewed) executed by the Corporate Debtor in favour of Financial Creditors. This view is supported by the ruling given in Kundan Lai Rallaram v. Custodian, Evacuee Property AIR 1961 SC 1316, which is relied upon by the Learned Sr. Counsel for the Corporate Debtor. However, the above ruling is not beneficiai to the Corporate Debtor in the facts and circumstances of the case on hand, because the Corporate Debtor has acknowledged the liability continually by executing documents, sending letters, and e-mail Communications to the Financial Creditors. 31. It is worthwhile to mention that the Hont'le NCLAT in Speculum Plast Pvt. Ltd. and Ors., MANU/NL/0163/2017, has held that the Limitation Act, 1963, is not applicatile for initiation of 'Corporate Insolvency Resolution Process'. The Hon'....
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....y) Rules, 2016, wherein the Financial Contact has been defined, which is extracted below :- "Definitions-(l) In these Rules, unless the context otherwise requires,- (a)............ (b)............ (d) "financial contract" means a contract between a corporate debtor and a financial creditor setting out the terms of the financial debt, including the tenure of the debt, interest payable and date of repayment; (e)............. Based on the above definition, the learned Sr. Counsel for the Corporate Debtor has submitted that there is no Financial Contract between the Financial Creditors and the Corporate Debtor, and in the absence of any Financial Contract, the Application filed under Section 7 of I&B Code, 2016, is not maintainable. 35. The plea taken by the learned Sr. Counsel for the Corporate Debtor cannot only be the requirement of a valid contract, because a contract can be oral; based on exchange of Communications which may or may not be signed and it may be single document signed by both the parties. Therefore, even an oral agreement can be a valid and enforceable contract. Thus, it is not essential that a contract must be in wr....
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....ebtor for the space as mentioned above is for consideration for the time value of money and the said transactions have a commercial effect of borrowing. Subsequently, the project could not see the light of the day and the Corporate Debtor has time and again acknowledged the debt by providing Cheques, Promissory Notes and sending e-mail Communications from time to time on the demand raised by the Financial Creditors. Therefore, the debt in question falls within the purview of the definition of "Financial Debt" as defined under Section 5(8) of the I&B Code, 2016. Thus, the issue stands decided in favour of the Financial Creditors and against the Corporate Debtor. Issue No. iii 39. The third issue is pertaining to the charging of interest @ 24% per annum which as per the Corporate Debtor is exorbitant and violates the provisions of Section 3 of the Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003 (the Act). The Act provides that no person shall charge exorbitant interest on any loan advanced by him. In reply to the objection raised by the Corporate Debtor, the learned Sr. Counsel for the Financial Creditors has relied upon the order of the Hon'ble High Court of A....
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....estion stated to have been scraped by the Corporate Debtor. Therefore, the interest charged by the Financial Creditors cannot be said excessive. In the circumstances, the objection of the Corporate Debtor that the Madras Debtor Protection (Amendment) Act, 1935, is barring the charging of exorbitant interest is devoid of merits and stands rejected. This view is also fortifìed by the reasoning that 24% compound interest in modem business exigencies is common and as such, is an accepted arm's length rate of interest for commercial loans. It is otherwise not the case of the Corporate Debtor that fes is in any way willing to pay the outstanding debt on the terms of the lesser rate of interest. Issue No. iv 41. The 4th issue raised by the Corporate Debtor is as to whether the documents filed by the Financial Creditors are sufficient in nature to ascertain the existence of a default in the absence of the record of Information Utility and Financial Contract. The learned Sr. Counsel for the Corporate Debtor has submitted that the Mortgage Deed, Memorandum of Agreements, Promissory Notes, e-mail Communications and Cheques along with computation sheets are not admissible in ev....
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....ment of the Hon'ble Apex Court given in SLP(Crl).No.2302/2017 titled Shafhi Mohammed v. State of Himachal Pradesh, MANU/SC/0058/2018, dated 30.01.2018, wherein it has been held that the requirement of certificate under Section 65B (h) is not always mandatory. The Corporate Debtor has raised an issue in its reply that Mr. Gulam with whom the Financial Creditors had the Communications including e-mails regarding outstanding dues, is not the authorized representative of the Corporate Debtor whereas in the letter dated 06.03.2009 placed at page 39 of the typed set filed with the Rejoinder, the Corporate Debtor itself has admitted that Mr. Gulam who is CFO of the Corporate Debtor had discussions regarding the reduction in interest rate on the mortgage loan with the lst Financial Creditor. This goes to show that Mr. Gulam is the authorised person to handle the transactions on behalf of the Corporate Debtor with the Financial Creditors. Therefore, the plea taken by the Corporate Debtor is per se contradictory and misleading, so stands rejected. 44. In relation to the issue of blank Promissory Notes which as per the submission of the Corporate Debtor were kept with the Financial Credito....
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....ing CIRP against the Corporate Debtor. The Learned Sr. Counsel for the Corporate Debtor has further submitted that Columns 2, 3 and 4 of Part-I of Form -I shows that the Application under Section 7 of the I&B Code, 2016 can only be filed by the Corporate Persons and not by the individuals, to which the learned Sr. Counsel for the Financial Creditors has referred to the defìnition of the "Financial Creditor" given under Section 5(7) of the I&B Code, 2016 that provides as follows:- "Financial Creditor" means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. Further, the learned Sr. Counsel for the Financial Creditors has referred to Sub-Section (23) of Section 3 of the I&B Code, 2016 which provides the defìnition of "person" as follows :- 3. In this Code, unless the context otherwise requires:- (1).................. ...................... ...................... (23) 'person' includes:- (a) an individuai; (b) a Hindu Undivided Family; (c) a company; (d) a trust; (e) a partnership; (f) a lim....
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.... the Judgment given in Sumeet Ahuja's case (supra) has observed as follows:- "as noticed, in the present case the Application under Section 7 has been filed by the Deputy General Manager of the Bank, in the Authorisation order it is mentioned as Power of Attorney, but that will not change the complex of the instrument which is an order of Authorisation. In view ofsuch position of law the submission made by the Counsel for the Appellant cannot be accepted." 48. From the above, it can safely be concluded that if a person is duly authorised by the Financial Creditors, even by way of Power of Attorney, is competent to file the Application under Section 7 of I&B Code, 2016. Thus, the submission made by learned Sr. Counsel for the Corporate Debtor stands overruled as the submission made by the learned Sr. Counsel for the Financial Creditors is found plausible, and backed by the ruling of the Hon'ble NCLAT given in Sumeet Ahuja's case (supra). Issue No. vii 49. In relation to this issue the learned Sr. Counsel for the Corporate Debtor has submitted that the Corporate Debtor has borrowed the loan from the Financial Creditors against its Articles of Association and thereby....
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.... 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." 51. In view of the facts and circumstances and the legai position stated above, the Application of the Financial Creditors is complete in ali respect. The Financial Creditors have also proposed the name of IRP after seeking his consent in Form 2, which is placed at pages 222 to 223 of the typed set filed with the Application. Therefore, this Authority has ascertained the existence of a default on the basis of the documents produced by the Financial Creditors, and the Corporate Debtor has failed to pay the amount of loan borrowed from the Financial Creditors even after renewing the promissory notes on 15.05.2015 and executing other documents in favour of the Financial Creditors. The Financial Creditors have fulfilled ali the requirements of law. Therefore, CP/62/(IB)/CB/2017 is admitted and the commencement of the Corporate Insolvency Resolution Process is ordered which ordinarily shall get completed within 180 days, reckoning from the day this order is passed. 52....