TaxTMI 
TaxTMI 
2022 (1) TMI 161
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.... aforesaid reasons ascribed on behalf of the Appellant/ Applicant, in preferring the instant Comp. Appeal (AT)(Ins) 553 of 2020 (T.A. No. 117 of 2021) with a delay of 15 days, this 'Tribunal', in the interest of justice, allows I.A. No. 1415 of 2020. No costs. I.A. NO. 1414 OF 2020 2. According to the Learned Counsel for Applicant/Appellant the Appellant has filed I.A. No. 1414 of 2020 in Com. Appeal (AT)(Ins) 553 of 2020 (T.A. No. 117 of 2021) seeking permission to bring on record, the additional documents (which were not part of the proceedings before the 'Adjudicating Authority' in CP (IB) No. 1/BB/2019), in view of the fact that the said documents are very much essential for proper and effective adjudication of the 'Appeal'. 3. Because of the fact that the 'Adjudicating Authority' in the impugned order had rendered findings like there was 'misrepresentation', 'misappropriation', fabrication of documents and accounts, the 'additional documents' admittedly, which were not filed earlier, in the Section -7 Application, the Applicant/Appellant has chosen to file the 'additional documents' to substantiate her case and these documents, according the Learned Counsel for the Applican....
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....erally - decision on requirement of funds, information of payments and terms and intimation of the same, and adoption of Resolutions about each of these events. It is also seen that in the Resolution adopted on 06.04.2017, when the Petitioner was still a Director, the period of return is stated to be 60 days as per the Petition, and not 6 months as mentioned elsewhere. 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 ....
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..... Payments totalling Rs one crore were made in December 2016, when the Petitioner was a Director and under her supervision, to M/s Chemizol Lubricants Private Limited, a Company which had already been dissolved on 11.08.2016. Thus not only the purpose of giving the amounts but also the net amount payable, came into dispute much prior to the demand notice issued the Petitioner. 11. It is 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 has inter alia, held that I&B 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 a substitute for debt enforcement procedures. In Transmission Corporation of A.P. Ltd. Vs. Equipment Conductors....
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....resultantly dismissed the 'Application' filed by the Appellant/ Applicant/Financial Creditor. Appellant's Contentions 7. Challenging the order of dismissal dated 28.01.2020 in CP (IB) No. 1/BB/2019 passed by the Adjudicating Authority (NCLT, Bengaluru Bench) The Learned Counsel for the Appellant contents that the impugned order passed by the Adjudicating Authority dated 28.01.2020 is an invalid and illegal one and that the Adjudicating Authority wrongly came to the conclusion that there was a dispute as to the purpose for which the amount was given. 8. According to the Learned Counsel for the 'Appellant' the 'Adjudicating Authority' had erroneously held in the 'impugned order' that a borrowing being reflected in the 'Books of Account' is not a 'Financial Debt'. 9. It is represented on behalf of the Appellant whether an amount Loaned by the Director to a 'Company' recorded as a Loan in the Minutes of the Meeting of the Board of Directors is not a 'Financial Debt'? 10. The Learned Counsel for the Appellant proceeds to point out that even in September, 2016, the 'Board of Directors' were aware of the fact that the Company was in the requirement of 'Funds' and it was discussed in ....
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....e the order of termination on the ground that the invalid act cannot be subsequently ratified by the Board of Directors. This Court after referring to various earlier decisions set aside the order of the High Court. This Court held as under: (SCC pp. 99-100, paras 7 & 10) "7. The High Court was right when it held that an act by a legally incompetent authority is invalid. But it was entirely wrong in holding that such an invalid act cannot be subsequently 'rectified' by ratification of the competent authority. Ratification by definition means the making valid of an act already done. The principle is derived from the Latin maxim ratihabitio mandato aequiparatur, namely, 'a subsequent ratification of an act is equivalent to a prior authority to perform such act'. Therefore ratification assumes an invalid act which is retrospectively validated. 10. In the present case, the 'Managing Director' order dismissing the respondent from the service was admittedly ratified by the Board of Directors on 20-02-1991 and the Board of Directors unquestionably had the power to terminate the services of the respondent. On the basis of the authorities noted, it must follow that since the order of th....
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....t of repetition, it is reiterated that the trigger for initiation of the Corporate Insolvency Resolution Process by a Financial Creditor under Section 7 of the IBC is the occurrence of a default by the Corporate Debtor. 'Default' means non-payment of debt in whole or part when the debt has become due and payable and debt means a liability or obligation in respect of a claim which is due from any person and includes financial debt and operational debt. The definition of 'debt' is also expansive and the same includes inter alia financial debt. The definition of 'debt' is also expansive and the dame includes inter alia financial debt. The definition of 'Financial Debt' in Section 5(8) of IBC does not expressly exclude an interest free loan. 'Financial Debt' would have to be construed to include interest free loan advanced to finance the business operations of a corporate body." 18. The Learned Counsel for the Appellant points out that because of the fact that 'Repayment' never took place, the Appellant finally resigned as 'Director' of the Respondent/Company, on 25.07.2017. Besides this, the Appellant had approached an Advocate requiring him to issue a legal notice for Repayment upon....
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.... Judgment of this Tribunal in Shailesh Sangani v Joel Cardoso and Anr. Reported in 2019 SCC Online NCLAT 52, wherein it is held that the 'Money' advanced by a 'Director' or 'shareholder' of a Company to improve financial health of the Company or Boost its economic prospects has the 'Commercial Effect of Borrowing' and as such, it is a 'Financial Debt'. Likewise, is the ruling in Rajesh Gupta v Dinesh Jain, reported in 2018 SCC Online NCLAT 412. 23. The Learned Counsel for the Appellant advances an argument that the I & B Code, 2016 does not give an option to a creditor to decide whether it wants to be a 'Financial Creditor' or an 'Operational Creditor'. In this connection the learned Counsel refers to the decision in G. Sreevidhya v Karismaa Foundation's Pvt. Ltd. , 2019 SCC Online NCLAT 145 wherein a 'Demand Notice' was incorrectly issued, under wrong 'Legal Advice' given by the 'Advocate' treating the 'Debt' as an 'Operational Debt'. However, this 'Tribunal' held that since the Respondent had committed default in discharge of 'Financial Debt', the 'Appellant' was within her Rights to initiate 'Corporate Insolvency Resolution Process' even the Civil Appeal No. 3376 of 2019 filed ....
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....plication in CP (IB) No. 1/BB/2019 filed by the Appellant/Applicant, cannot be Countenanced in the eye of Law. Respondent's Pleas 29. According to the Learned Counsel for the Respondent that the 'Demand Notice' dated 26.06.2018 issued by the Appellant indicates that the 'Debt' as an 'Operational Debt' but in the Application filed by the Appellant/Applicant it is mentioned as 'Financial Debt' and as 'Financial Creditor', as per the Code. 30. The Learned Counsel for the Respondent/Company points out that the Appellant was the Executive Director of the Company, having unfettered powers in day today affairs and functioning of the Company. In fact, all the Board Meetings held in the Financial Year 2016-2017 shows that the Appellant either had participated or 'chaired' including the meeting that took place on 23.02.2017, held under the Chairmanship of the Appellant which records a 'Resolution' to the effect that the Respondent/ Company had obtained a Loan from the Appellant, to be repaid, within Six Months from the date of the first disbursement with interest at 7.5%. 31. It is the version of the Respondent/Company that the 'Appellant' had stepped down from their position of 'Executi....
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....tor'. 36. The Learned Counsel for the Respondent cites the Judgment dated 19.10.2020 of this Tribunal in Volkswagen Finance Pvt. Ltd. v Balaji Printo Pack Pvt. Ltd. (Vide Company Appeal (AT) (Ins) No. 02 of 2020) wherein in it is held that non- compliance of the provisions of the Act has 'ramifications' under the code. 37. On behalf of the Respondent, the Judgment of the Hon'ble Supreme Court in Asha John Divianathan v. Vikram Malhotra and Others, 2021 SCC online SC 147 is cited before this 'Tribunal' for the proposition that 'where a contract, express or implied, is expressly or by implication forbidden by statute, no court will lend its assistance to given it effect. (See Mellis v. Shirley L.B. [ (1885) 16 Q.B.D. 446: 55 LJQB 143 : 2 TLR 360]). Assessment 38. The Appellant/Applicant in the Application filed by the financial Creditor under Section 7 of the Code read with rule 4 of the Insolvency and Bankruptcy (Application 2 Adjudicating Authority) rules 2016 in December, 2018 under part 4 'particulars of financial debt' had mentioned that the total sum of debt which was granted by the Appellant/Applicant was Rs. 4,10,00,000/-. The date of disbursement was mentioned as 1.12.20....
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....ntioned, to be paid towards 'Notice Charges' by the Respondent/Company. 45. The Respondent's Advocates had issued a 'Reply' dated 05.07.2018 to the Appellant's Advocate whereby and whereunder a sufficient time was sought to refund the sum of Rs. 4,10,00,000/- at the agreed interest till date of repayment. 46. It is to be pointed out that in order to prove an existence of debt, the 'Onus' is on the concerned Applicant/Petitioner. The 'Adjudicating Authority' must be satisfied as to the existence of 'Default' and in fact, is not required to note any other criteria for 'Admission of the Application'. In short, where the Applicant/Petitioner is able to establish the existence of a 'Debt' and the Corporate Debtor's default, and if the 'Application' is complete in all aspects, necessarily, the Application is to be admitted by the 'Adjudicating Authority' as opined by this 'Tribunal'. IBC DEFINITIONS 47. Section 3(11) of the I & B Code, 2016 speaks of 'Debt' meaning a liability or Obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. Section 3 (12) of the Code defines ' default' meaning non- payment of debt when whole or any ....
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....lution Process' is not a 'litigation' and that the 'proceedings' under the I & B Code, 2016 are of a 'Summary Jurisdiction' and it is not 'Adversial' in character. 54. At this juncture, this 'Tribunal' relevantly points out that in respect of 'Loan' the 'Borrowing' is primarily is for the benefit of 'Borrower'. In fact, the 'Lender' is in receipt of benefit, through 'interest'. In case of 'Loan', the obligation to repay the sum arises immediately n receipt of 'Loan'. 55. It cannot be ignored that 'Loan' is payable only, when the obligation to repay the money arises, in terms of the 'Agreement'. After all, the stark reality is that 'Loan' is taken at the instance of a person requiring money. 56. Be it noted, that Section 73 of the Companies Act, 2013, deals with 'Prohibition on acceptance of deposits from public. Section 76 of the Companies Act, 2013, provide for the 'Acceptance of deposits' from public by certain Companies. 57. Rule 2(1)(c) of the Companies (Acceptance of deposits), Rules 2014, reads as under: (c) "deposit" includes any receipt or money by way of deposit or loan or in any other form, by a company, but does not include- (viii) any amount received from a pers....
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.... 'Debt' in question is not to be a disputed one. 64. In the present case on hand, it is quite clear from the Minutes of the Meeting of the Board of Directors of the Respondent/Company ('Corporate Debtor') dated 23.03.2017 wherein at serial No. 5 it is mentioned as under: "Mr. Jairaj S, Director of the company informed the board of the Company has obtained loan from one of its Director- Madam Jayanthi G Ravi on an agreed terms and conditions and the Board need to ratify the same. The Board further agreed the interest rate of 7.5 percent annum on the drawn amount and further agreed for the loan term for a period of six months from the date of first disbursement." 65. It is seen from the Minutes of the 78th Meeting of the Board of Directors of the Respondent/Company dated 06.04.2017 that 'The Minutes of the previous Meeting of the Board were taken note and confirmed at the Meeting. 66. It is evident from the 'Receipt Voucher' of the Respondent/Company dated 01.12.2016 Mr. Ooi Boon Aun had signed the Ledger Book on 06.04.2017 wherein it was mentioned that Rs. 2,50,00,000/- was mentioned to be the amount received from the 'Appellant' towards Loan, vide transaction dated 01.12.201....
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....16 to 31.03.2017 about the outstanding liability to the Appellant of Rs. 4.10 Crores, the 'Balance Sheet' of the Respondent/Company, (even after the resignation of the 'Appellant' from the Company) also mentions the factum of 'outstanding liability' to the 'Appellant' and in spite of several assurances made to the 'Appellant', the Respondent/Company had not repaid the due outstanding sum to the 'Appellant' (received as 'Loan') and the correspondences between the parties, and even the 'Reply' of the Respondent/Company filed before the 'Adjudicating Authority' (during March, 2019) 'clinchingly' establishes that the Respondent/Company had admitted its liability to repay the 'Principal sum' and 'Interest' ('Admission' is the best piece of evidence in Law), especially the Respondent/Company had sought time to repay Loan and Interest thereon, in one payment by 30.04.2019 and taking into account all these cumulative facts in an integral manner, this 'Tribunal' comes to an inevitable, inescapable and consequent conclusion that the 'Appellant/Financial Creditor' had established the 'Financial Debt' and 'Default' being the pre-requisites for admitting the 'Application' (under Section 7 of th....