AI Drafter 
TaxTMI 
TaxTMI 
2020 (7) TMI 202
X X X X Extracts X X X X
X X X X Extracts X X X X
....acts of the case, as mentioned in the Company Petition and Summary, which are relevant to the issue in question, are as follows: (1) Mrs. Jayanthi G. Ravi (hereinafter referred to as 'Petitioner/Financial Creditor') bears an Identification Number / Aadhar Number 5313 3918 0221 and her address is No. 1629, 31st Cross, 16th Main, BSK 2nd Stage, Bangalore - 560070. (2) M/S. Chemizol Additives Private Limited (hereinafter referred to as 'Respondent/Corporate Debtor') is a Private Limited Company incorporated on 13.09.2007 under the provisions of Companies Act, 1956 with CIN: U24240KA2007PTC043855 and having its registered office situated at Plot No. 19 E&F, Bidadi Industrial Area, 2nd Phase, Sector l, Talakuppe Village, Bidadi Hobli, Ramanagara District, Bangalore Rural, Karnataka-562109. Its Authorised Share Capital is and Paid-up Share Capital is Rs. 15,00,00,000/- and Paid-up share capital is Rs. 12,37,31,570/-. The main objects of the Company inter alia are to carry on the business as manufacturers, traders, services, importers, exporters, dealers, agents, research and development of all kinds and types of additives, petroleum products, lubricants,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n from the financial creditor to be repaid within 6 months along with an interest of 7.5% p.a. The Board has ratified the same. (7) It is stated that the Articles of Association of the Corporate Debtor, produced at page 27 of the Application, at clause 26 permits the Board of Directors from time to time at their discretion to borrow from individual directors, members or other persons, any sum of money for the purpose of the Company on such terms and conditions as the Board of Directors may agree in each case. The Financial Creditor vide letter dated 05.11.2016 addressed to the Corporate Debtor stating that loan advanced to the Corporate Debtor is not out of funds borrowed or accepted as deposits from others in compliance of Section 179 of the Companies Act, 2013 and Rule 2(1)(c)(viii) of the Companies (Acceptance of Deposit) Rules, 2014. (8) During the 78th meeting of the Board of Directors of the Corporate Debtor held on 06.04.2017 it was resolved by the Board that it had received a loan of Rs. 4,10,00,000/- from the Financial Creditor @ interest at 7.5% p.a. and it was further resolved that the same would be repaid within 60 days from the date of the meeting. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was manufacturing and exporting various lubricant products to customers in addition to providing technical services solely to TC Corporation (TCC) a China entity controlled by the Directors of Respondent Company. It was supposed to get huge money from TCC for provision of technical services made during the FYs 2017-18 & 2018-19 and its financial problems would be resolved by April 2019. It is committed to continue regular operations and at stake are her 48 employees, who will lose their jobs if the application is accepted. It has total assets of Rs. 152,05,49,836/- as at 31.03.2018 and its net worth is Rs. 132.5 Crore, with liabilities amounting to Rs. 18.49 Crores only and there are no other lenders. Its investment in the Land and Building, Plant and Machinery amounts to Rs. 135,52,68,920. The market value of the above will be much higher than book value. From the above, it is evident that the Respondent Company is not an Insolvent Company. It is also stated that the Petitioner is only sole Financial Creditor and TCC's financier in China expects to secure fresh funding by 30.04.2019. In case the issues are not resolved by 30.04.2019, the Corporate Debtor does not have any obje....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The Respondent Company is 99.99% wholly owned subsidiary to M/s.OnChamp Investments Limited, which is a foreign Company and had invested huge Foreign Direct Investments in to the Corporate Debtor in the form of share transfer (by way of share subscription), Plant & Machinery from year 2012 to 2015. The Respondent Company is viable, having no secured loans and having Reserves & Surplus which shows the positive financial capacity of the Respondent. (4) It is contended that the Board meetings of the Corporate Debtor were conducted under the supervision of the Petitioner and the Minutes of the Board Meetings were signed by herself. Till 06.04.2017 i.e. three months before the resignation date (25.07.2017) of Petitioner, Petitioner had enjoyed absolute power in the day to day activities of the Company in the capacity of "Board Chairperson". (5) In January 2017, the investing Company of the Respondent had initiated a financial due diligence report from Malaysian Financial Consultants, 'VCus', which found that there is an utter misrepresentation and misappropriation of funds. Pursuant to the same, the Respondent Company had conducted a Board meeting on 06.04.201....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is dismissed. " (9) It is contended that in the present Petition also the Demand Notice indicate that it is an operational debt and the Petition indicates that the debt is a financial debt. The Petitioner has not filed any document to substantiate her claim of being Financial Creditor and debt as financial debt. The Petitioner herself does not know that which debt it is. (10) It is further submitted that M/S. Chemizol Lubricants Private Limited (Transferor Company) was amalgamated with the Corporate Debtor i.e. M/S. Chemizol Additives Limited (Transferee Company) vide Order dated 11.08.2016 of the Hon'ble High Court of Karnataka., and dissolved the said M/S Chemizol Lubricants Private Limited. It is submitted that, as per the Petitioner, she had deposited an amount of Rs. 2,50,00,000/- into the A/c of the Respondent Company on 01.12.2016, but under the supervision of the Petitioner, on 02.12.2016 the amount of Rs. 50,00,000/- out of the aforesaid amount of Rs. 2,50,00,000/- had been transferred into the A/c of M/S. Chemizol Lubricants Private Limited and again on the same day i.e. 02.12.2016 an amount of Rs. 50,00,00/- further transferred to that company, but....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt and the positive reputation of the Respondent Company with in its field of business, and with the systematic proposal of expanding business module from the new directors, makes the Respondent Company looks very lucrative in near future. From the above, it is evident that the Respondent Company is not an insolvent Company and have good reputation in the segmented market. Revival Project Report of the Respondent Company subtnitted by the New Indian Directors has been placed on record. (17) It is also contended that the Petitioner was prima facie indulging into malpractices, mismanagement through siphoning/writing-off/diversion of funds and other financial irregularities, including but not limited to preferential/related party transactions prejudicial to the Respondent Company's interest. (18) The Respondent has also submitted a Certificate dated 04.11.2019 issued by M/S. N.M. Arunkumar, P.S. Ananda Rao & Co., Chartered Accountants, certifying that an amount of Rs. 2,50,00,000/- has been received from Mrs. Jayanthi G Ravi, in the account of Chemizol Additives Pvt. Ltd., State Bank of India A/c No.00000033397432229 on 01.12.2016 and observed that on 02.12.2016,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Code and also relied upon the judgments of Hon'ble NCLAT as well as Hon'ble Apex Court in Dr. BVS Lakshmi v. Geometrix Laser Solution Pvt. Ltd. and Mobilox Innovations Private Limited v. Kirusa Software Private Limited, in support of its case. 6. Heard Mr. Amit Mandgi, learned Counsel for the Petitioner and Mr. D. Sriram Pavan Kumar along with Ms. A. Lakshmi, learned Counsel for the Respondent. We have carefully perused the pleadings of both the parties and extant provisions of the Code and the Rules made thereunder. 7. This Petition has been filed under section 7 of the Code, i.e. by the Petitioner as a Financial Creditor. However, it is seen from records that the Petitioner had issued a Demand Notice dated 26.09.2018 addressed to the MD/Board of Directors of the Respondent/Corporate Debtor as per Rule 5 of the I&B (AAA) Rules, 2016 in respect of "unpaid operational debt", i.e. under section 9 of the Code, treating itself as an Operational Creditor. This contradiction in itself makes the Application filed before this Tribunal defective and invalid. Alternatively, if the Demand Notice issued to the Respondent was under an incorrect provision and invalid for that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....where. Similarly the two amounts of Rs. 50 lakh each diverted immediately after receiving the above amounts in the Company to a another non-existent Company, in which the Petitioner had been a Director, without any approval, even though the amounts were stated to be given to the Respondent company to meet its expenses. 9. In view of the above facts, even though she may have given amounts as a Director, to meet the expenses of the company, it does not necessarily make the amounts owed to her a "debt" in the sense conceived in the Code. Debt, as defined under the Code in Section 3(11) means a liability or obligation in respect of a claim which is due from any person, and includes a financial debt or an operational debt. Such a debt would arise from a claim, as also defined in Section 3(6), i.e. from a right to payment in the hands of the Creditor. In the present context, such a right could arise from some prior terms and conditions agreed to by the concerned opposite parties, in the shape of a Contract or an Agreement between them, prior to the loan being given, so that the same could be enforced. It was also not a Financial Debt as per the definition given in section 5(8) of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssued by the Petitioner. 11. It is a settled position of law that the provisions of the Code cannot be invoked for recovery of outstanding amount but can be invoked to initiate CIRP for justified reasons as per the Code. The Hon'ble Supreme Court in the case of Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited (2018) 1 SCC 353), has inter alia, held that Code, 2016 is not intended to be a substitute to a recovery forum and cannot be used to jeopardize the financial health of an otherwise solvent company by pushing it into insolvency. The Hon'ble Supreme Court in the case of K. Kishan Vs. Vijay Nirman Company Pvt. Ltd. clarified that the Petitioners cannot use IBC either prematurely or for extraneous considerations or as substitute for debt enforcement procedures. In Transmission Corporation of A.P. Ltd. Vs. Equipment Conductors and Cables Ltd.,(CA No.9597 of 2018) dated 23^rd October, 2018 (2018) 147 CLA 112 (SC) Hon'ble Supreme Court of India has inter alia held that existence of undisputed debt is sine qua non of initiating CI RP. While we shall not go into the dispute per se, it is clear that the debt, if any was not clear or free from disput....