TaxTMI 
TaxTMI 
2018 (12) TMI 1126
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....ptcy Code, 2016 ('I&B Code' for short) for initiation of 'Corporate Insolvency Resolution Process' against 'M/s. Luthra Water Systems Private Limited'- ('Corporate Debtor'). The said application was admitted by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai, by impugned order dated 15th November, 2017. One of the Shareholders of the 'Corporate Debtor' has challenged the said order in Company Appeal (AT) (Insolvency) No. 336 of 2017 on the ground that the petition under Section 7 of the 'I&B Code' is not maintainable with regard to 'usurious penal interest' in view of Section 3 of the 'Usurious Loans Act, 1918'. 3. 'M/s. Bell Finvest (India) Limited'- ('Financial Creditor') filed another application under Section 7 of the 'I&B Code' for initiation of 'Corporate Insolvency Resolution Process' against 'M/s. Avance Logistics & Trading India Pvt. Ltd.'- ('Corporate Debtor'). The said application has also been admitted by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai, by impugned order dated 11th September, 2017, which has been challenged by the 'Corporate Debtor' on similar grounds as challenged in Company Appeal (A....
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....arned counsel for the Appellant, the charging of an extortionate interest of 1% per day i.e. 365% per annum, over and above the interest rate, is in the nature of penal interest being grossly unjust and against the public policy. 10. Reliance was placed on the decision of the Hon'ble Supreme Court in "Central Inland Water Transport Corporation Ltd. & Anr. Vs. Brojo Nath Ganguly & Anr.− AIR 1986 SC 1571", wherein the Hon'ble Apex Court held that the contracts which are 'unconscionable and opposed to public policy' are void in accordance with Section 23 of the Indian Contract Act. 11. Learned counsel appearing on behalf of the Respondents referred to Loan Agreement dated 15th October, 2015 entered between the parties for a sum of Rs. 1,72,08,000/- to be paid along with interest at the rate of 10% per annum. 12. It was submitted that the Appellant cannot take advantage of the 'Usurious Loans Act, 1918' for initiation of 'Corporate Insolvency Resolution Process' under the 'I&B Code'. 13. Reliance has also been placed on the 'Severability' Clause 14 of the Loan Agreement dated 15th October, 2015 which reads as follows:- "if one or more rights or provisions set....
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....'- ('Financial Creditor') submitted that the 'Intercon Container & Survey & Commodities Pvt. Ltd.'- ('Corporate Debtor') defaulted in making repayment of dues amounting to Rs. 58,55,500/- as on 20th June, 2017, which was the reason for filing application for 'Corporate Insolvency Resolution Process' against the 'Corporate Debtor'. 21. According to the Appellant, the 'Corporate Debtor' approached the Appellant- 'Financial Creditor' for allowing loan of Rs. 30,00,000/- by its application dated 17th March, 2016. The loan was sanctioned by the Appellant by their letter dated 19th March, 2016 with the condition that the rate of interest payable would be @24% per annum flat rate payable in advance for the entire tenure. After negotiation rate of interest was discounted to 24% as against the applicable rate of 36% per annum. It is being further conditioned that interest amount of Rs. 4,80,000/- is payable in advance, EMI amount would be Rs. 3,75,000/- per month. The 'Corporate Debtor' has to give 'corporate guarantee' and the Directors have to give 'personal guarantee'. This loan amount was to be paid within 8 months from the first day of disbursement. It was also agreed upon that in c....
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.... 27. The powers under Section 3 of the 'Usurious Loans Act, 1918' were vested with the 'Court', which deals with money claim and reads as follows: "3. (1) Notwithstanding anything in the usury Laws Repeal Act, 1855, where, in any suit to which this Act applies, whether heard ex parte or otherwise, the Court has reason to believe:- (a) that the interest is excessive; and (b) that the transaction was, as between the parties thereto, substantially unfair, the Court may exercise all or any of the following powers, namely, may, (i) re-open the transaction, take an account between the parties, and relieve the debtor of all liability in respect of any excessive interest; (ii) notwithstanding any agreement, purporting to close previous dealings and to create a new obligation, re-open any account already taken between them and relieve the debtor of all liability in respect of any excessive interest, and if anything has been paid or allowed in account in respect of such liability, order the creditor to repay and sum which it considers to be repayable in respect thereof; (iii) set aside either wholly or in part or revise or alter any secur....
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....it is substantially one for the recovery of a loan or for the enforcement of any agreement or security in respect of a loan [or for the redemption of any such security]. (4) Nothing in this section shall affect the rights of any transferee for value who satisfies the Court that the transfer to him was bona fide, and that he had at the time of such transfer no notice of any fact which would have entitled the debtor as against the lender to relief under this section. For the purposes of this sub-section, the word "notice' shall have the same meaning as is ascribed to it in section 4 of the Transfer of Property Act, 1882. (5) Nothing in this section shall be construed derogating from the existing powers or jurisdiction of any Court. 4. On any application relating to the admission or amount of a proof of a loan in any insolvency proceedings, the Court may exercise the like powers as may be exercised under section 3 by a Court in a suit to which this Act applies." 28. From the aforesaid Sections 3 & 4 of the 'Usurious Loans Act, 1918', the following facts emerge: a) Section 3 is applicable only in the suit(s) to which the 'Usurious Loans Act, 1....
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....ded rationale for 'Financial Creditors' as under: "4. Creation of the creditors committee ... The Committee deliberated on who should be on the creditors committee, given the power of the creditors committee to ultimately keep the entity as a going concern or liquidate it. The Committee reasoned that members of the creditors committee have to be creditors both with the capability to assess viability, as well as to be willing to modify terms of existing liabilities in negotiations. Typically, 'Operational Creditors' are neither able to decide on matters regarding the insolvency of the entity, nor willing to take the risk of postponing payments for better future prospects for the entity. The Committee concluded that for the process to be rapid and efficient, the 'I&B Code' will provide that the creditors committee should be restricted to only the 'Financial Creditors'. ii. In Para 3.4.2 dealing with 'Principles driving design', the principle IV reads as under: "IV. The 'I&B Code' will ensure a collective process. 9. The law must ensure that all key stakeholders will participate to collectively assess viability. The law must ensure....
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....e, the dues of creditors of 'Operational Creditors' must get at least similar treatment as compared to the due of 'Financial Creditors'. 3. 'Resolution Plan' The 'I&B Code' defines 'Resolution Plan' as a plan for insolvency resolution of the 'Corporate Debtor' as a going concern. It does not spell out the shape, colour and texture of 'Resolution Plan', which is left to imagination of stakeholders. Read with long title of the 'I&B Code', functionally, the 'Resolution Plan' must resolve insolvency (rescue a failing, but viable business); should maximise the value of assets of the 'Corporate Debtor', and should promote entrepreneurship, availability of credit, and balance the interests of all the stakeholders. It is not a sale. No one is selling or buying the 'Corporate Debtor' through a 'Resolution Plan'. It is resolution of the 'Corporate Debtor' as a going concern. One does not need a 'Resolution Plan' for selling the 'Corporate Debtor'. If it were a sale, one can put it on a trading platform. Whosoever pays the highest price would get it. There is no need for voting or application of mind for approving a 'Resolution Plan', as it will be sold at the highe....
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....litigation and are not decided by Court of Law. Now, the 'Adjudicating Authority' deals with the matter of insolvency, which in its first stage is required to take steps for 'resolution' of the 'Corporate Debtor'. Therefore, the Adjudicating Authority being not a Court of law and as the Adjudicating Authority do not decide a money claim or suit, it cannot exercise any of the power vested under Sections 3 or 4 of the 'Usurious Loans Act, 1918'. 31. 'The Presidency- Towns Insolvency Act, 1909' having repealed, and there being a bar of jurisdiction under Section 231 of the 'I&B Code' as no civil court have jurisdiction in respect of any matter in which the Adjudicating Authority is empowered to decide under the Code, we hold that the provisions of Sections 3 & 4 of the 'Usurious Loans Act, 1918' are not applicable to any of the proceeding under Section 7 or 9 of the 'I&B Code'. 32. Further, as initiation of 'Corporate Insolvency Resolution Process' under Sections 7 or 9 do not amount to recovery proceedings, the question of deciding the claim, which may include the interest by the Adjudicating Authority does not arise for the purpose of triggering the 'Corporate Insolvency Resol....