TaxTMI 
TaxTMI 
2022 (3) TMI 1417
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....- which constitutes a Financial Debt as defined under Section 5(8) of IBC. 3. The Applicants had disbursed a total amount of Rs. 1,75,23,133.00/- ("Debt Amount") under separate individual transactions of invoice-discounting on an online invoice-discounting platform with the domain name www.kredx.com("KredX"/"Invoice Discounting Platform") operated by one M/s. Minion Ventures Private Limited ("Minion Ventures"). 4. The brief facts of the case are as follows: i. Primary Transaction: a. That the Corporate Debtor had purchased certain copper products from one M/s. Ashoka Creations Private Limited (the "Seller"); b. That against the said goods, the Seller raised 5 (five) different invoices ("Invoices") for a total sum of Rs. 3,42,03,903/-; ii. Invoice Discounting: a. That Minions Ventures operates KredX as the Invoice Discounting Platform for facilitating invoice discounting and reverse invoice discounting transactions between sellers, customers and financiers registered on KredX. b. As such, for availing the Invoice Discounting Platform, the users have to get themselves registered on KredX. c. As is the case with trad....
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....e Corporate Debtor. iii. It is submitted that the default on the part of the Corporate Debtor in making the payment as per the Invoices read with COR Agreements occurred on 4 different dates, vis. 08.09.2019, 10.09.2019, 11.09.2019 and 06.12.2019, i.e., the due dates on which the payments against the Invoices fell due, iv. The Applicants has referred the example of the Applicant No. 1's case and submitted that the entire transaction of invoice-discounting and default committed by the Corporate Debtor can be understood by taking Applicant No. 1's case as an illustration: a. The Applicant No. 1 executed the COR Agreement dated 07.09.2019, whereby the Applicant No. 1 discounted the invoice bearing no. 82/19-20 for the invoice value of Rs. 40,00,000/- and paid consideration amount of Rs. 3,00,000/-. b. As per the COR Agreement, the Corporate Debtor was to pay a sum of Rs. 3,11,097/- (i.e., part of the invoice amount) to the Applicant No. 1 on 06.12.2019, i.e. the due date mentioned in the said COR Agreement. c. In respect of the same Invoice as well as other invoices as mentioned hereinabove, other Applicants being Applicant No. 2 to....
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....r did not rectify its defaults with the prescribed timelines. Minion Ventures was constrained to file a complaint, being PCR No. 56609 of 2019 before the Additional Chief Metropolitan Magistrate, Bangalore, under the provisions of section 138 of the Negotiable Instruments Act in respect of the dishonored Security Cheque. The said proceedings are presently pending against the Corporate Debtor. xiv. It is submitted that the default on the part of the Corporate Debtor is still continuing. 5. The total amount claimed to be in default is Rs. 2,27,40,735.08/- as on 09.09.2020. 6. The Fight to file reply of the respondent was closed vide order dated 18.11.2021 in the present petition but liberty was given to file written submissions. 7. The petitioners have jointly filed written submissions and additional written submissions and the scanned copies of the same are reproduced below: 8. The respondent has also filed written submissions and additional written submissions and scanned copies of the same are reproduced below: WRITTEN SUBMISSIONS BEHALF OF THE RESPONDENT The present Written Submissions are being filed on behalf of the Respondent pursuant to direct....
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....have heard the Senior Learned Counsels appearing for the applicants as well as the respondent and perused the averments made in the application, written submissions, additional written submissions filed by the respective parties. 10. Senior Learned Counsel appearing for the applicants has raised all the facts referred to in the application, written submissions and additional written submission. Similarly, the Senior Learned Counsel for the respondent has also raised all the facts and law referred to in the written submissions and additional written submissions filed on behalf of the respondent, therefore, it is needless to repeat the arguments of the parties. 11. On the basis of the averments made in the application, written submissions and additional written submissions filed on behalf of the respective parties, we notice that the claim of the applicants is that:-- i) applicants are the financial creditor in terms of Agreement for Creation of Rights (hereinafter refer to "COR Agreement") for creating rights in receivable under the invoices in favour of the applicants. 12. It is further contended on behalf of the applicants that the applicants have advanced money ....
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....ncial creditor, the assignee or transferee shall be considered an operational creditor to the extent of such assignment or legal transfer and by placing reliance upon this provision, the Learned Senior Counsel further contended that it is an admitted fact that the seller(s) have raised the invoices and transfer his or their right in favour of the applicants, who claimed themselves as a financial creditor, who finance the money and disbursed the money to the seller's account and in lieu of that, they are claiming the amount as per the agreement, from the Corporate Debtor, therefore, the applicants are the Operational Creditors. 20. It is further contended that there was a breach of terms and conditions and there are also some disputes raised by the corporate debtor with the Ashoka Creation with respect to the quality and quantity of the material supplied, there is also a dispute regarding the termination of credit facilities vide email dated 04th July, 2019 and these facts were suppressed by the applicants. 21. It is further contended that the applicants have taken "U" turn and distinguished the decision of Cooperative Rabo Bank, U.A. Singapore Branch V/s. m/s. Shailender ....
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....amount. 26. Now at this juncture, we would like to refer to the decision of the Hon'ble NCLAT in Company Appeal (AT) (Insolvency) No. 261 of 2018 in the matter of Cooperative Rabobank U.A. Singapore Branch V/s. M/s. Shailender Ajmera at page 8 of the written submission filed by the respondent on 11th December, 2021. The scanned copy of the relevant portion of Paragraphs, 7, 8, 9, 12, 13, 14, 16, 17, 18, 19, 21, 22 and 24 of the said order are reproduced below:- 27. Now, in terms of the judgement of Hon'ble NCLAT in Company Appeal (AT) (Insolvency) No. 261 of 2018 referred to supra, we consider the case in hand and we observe that here in the case in hand also, there is an agreement for sell and purchase between Ashoka Creation and the respondent and thereafter the applicants, respondent (customer) and the seller had also entered into for creation of right Agreement, which recorded the terms and conditions for Creation of Rights in favour of the Financial Creditor and pursuant to "COR Agreement", the invoices raised by the seller were listed on KredX and the same were discounted by the applicants and the payment disbursed to the Seller through and ESCROW account and in....
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.... owned fully or partly by the financier alongwith one or more than one financier. We further observe that the goods are supplied by the sellers and not by the applicants. The Sellers have assigned the Right and interest receivable under invoice to the applicant. 35. Therefore, in our considered view, under the facts and circumstances of the case in the hand, the decision of the Hon'ble NCLAT is applicable. Admittedly, the debt is assigned to the applicants by the seller who have raised the invoice (s) and in lieu of that invoice(s) the applicants had paid the amount in the account of the seller and not in the account of the Corporate Debtor. Therefore, at this juncture, we would also like to refer to the decision of the Anuj Jain's case. The relevant portion of the decision of Hon'ble Supreme Court in Anuj Jain case is reproduced below:- "43. Applying the aforementioned fundamental principles to the definition occurring in Section 5(8) of the Code, we have not an iota of doubt that for a debt to become 'financial debt' for the purpose of Part II of the Code, the basic elements are that it ought to be a disbursal against the consideration for time val....
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.... vis-à-vis the Corporate Debtor. Therefore, for a person to be designated as a Financial Creditor of the Corporate Debtor, it has to be shown that the Corporate Debtor owes a financial debt to such person. Understood this way, it becomes clear that a third party to whom the Corporate Debtor does not owe a financial debt cannot become its Financial Creditor for the purpose of Part II of the Code. 46. Expounding yet further, in our view, the peculiar elements of these expressions "Financial Creditor" and "financial debt", as occurring in Sections 5(7) and 5(8), when visualised and compared with the generic expressions "creditor" and "debt" respectively, as occurring in Sections 3(10) and 3(11) of the Code, the scheme of things envisaged by the Code becomes clearer. The generic term "creditor" is defined to mean any person to whom the debt is owed and then, it has also been made clear that it includes a 'Financial Creditor', a 'secured creditor', an 'unsecured creditor', an 'Operational Creditor', and a 'decree-holder', Similarly, a "debt" means a liability or obligation in respect of a claim which is due from any person and this....
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....tence of Corporate Debtor, acquires unique position, who could be entrusted with the task of ensuring the sustenance and growth of the Corporate Debtor, akin to that of a guardian, In the context of insolvency resolution process, this class of stakeholders namely, Financial Creditors, is entrusted by the legislature with such a rote that it would look forward to ensure that the Corporate Debtor is rejuvenated and gets back to its wheels with reasonable capacity of repaying its debts and to attend on its other obligations. Protection of the rights of all other stakeholders, including other creditors, would obviously be concomitant of such resurgence of the Corporate Debtor. 47.1. Keeping the objectives of the Code in view, the position and role of a person having only security interest over the assets of the Corporate Debtor could easily be contrasted with the role of a Financial Creditor because the former shall have only the interest of realising the value of its security (there being no other stakes involved and least any stake in the Corporate Debtors growth or equitable liquidation) white the latter would, apart from looking at safeguards of its own interests, would al....
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.... 50. Much emphasis is laid on behalf of the respondents on the observations occurring in another three-Judge Bench decision of this Court in the case of Essar Steel and predominantly on the observation therein, that "secured creditors as a class are subsumed in the class of Financial Creditors', Again, the decisions of the Court are required to be understood with reference to the context In the case of Essar Steel, the questions before the Court related to the roles of resolution applicants, resolution professional and Committee of Creditors constituted under the Code and the Jurisdiction of Adjudicating Authority as also the Appellate Tribunal in questioning the resolution plans. The constitutional validity of the Insolvency and Bankruptcy (Amendment) Act, 2019 was also under challenge. The problem arose essentially with the decision of NCLAT holding that in a resolution plan, there could be no difference amongst the creditors in that, a Financial Creditor and Operational Creditor deserve equal treatment under a resolution plan. It was in the setup of such background that in Essar Steel, this Court made the observations relied upon by the respondents. 50.1. The ....
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....r wholly or partially. All these differences between financial and Operational Creditors have been reflected, albeit differently, in the judgment of Swiss Ribbons (supra)..... 50.2. In the relevant part, the Court found that NCLAT had fallen in grave error in reading paragraph 77 in Swiss Ribbons de hors the earlier paragraphs. In that context this Court said,- "56. By reading paragraph 77 de hors the earlier paragraphs, the Appellate Tribunal has fallen into grave error. Paragraph 76 clearly refers to the UNCITRAL Legislative Guide which makes it clear beyond any doubt that equitable treatment is only of similarly situated creditors. This being so, the observation in paragraph 77 cannot be read to mean that financial and Operational Creditors must be paid the same amounts in any resolution plan before it can pass muster. On the contrary, paragraph 77 itself makes it clear that there is a difference in payment of the debts of financial and Operational Creditors, Operational Creditors having to receive a minimum payment, being not less than liquidation value, which does not apply to Financial Creditors. The amended Regulation 38 set out in paragraph 77 again does n....
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.... is also looked at and gets taken core of...." 50.3. While strongly relying upon one of the observations occurring in Essar Steel, that secured creditors as a class are subsumed in the class of Financial Creditors, learned counsel for the respondents would assert that secured creditors do become Financial Creditors. The submission remains untenable for more than one reason. First, the submission itself proceeds on the same shortcoming as was existing in the NCLAT's decision that was disapproved by this Court in Essar Steel i.e., reading of a tine in a judgment distinct from the context. Secondly, in the decisions above-referred, this Court has never expanded the scope of financial debt' as envisaged by Section 5(8) of the Code. Thirdly, the case of an indirect secured creditor i.e., the person having in its hand only the security interest over the property of the Corporate Debtor but with no corresponding involvement in the finances and growth of the Corporate Debtor, was never under consideration in the said decisions. 50.4. We may usefully elaborate a little. On a contextual reading of the expositions in Essar Steel and Swiss Ribbons, it is but clear tha....
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....n and is valid. The learned trial Judge has held that for creating mortgage, the mortgagor must be a debtor and must have right to redeem mortgage on payment of the debt and since the present defendant was not the debtor, she could not create a mortgage in respect of that debt and that the mortgagor should be a debtor and there must be a relationship of debtor and creditor, the mortgage being a security for the debt The learned trial Judge has also held that there was no consideration for giving this promise of executing the mortgage. Both these aspects are interrelated. By making the promise by Ex. 20, defendant has agreed to provide collateral security of a legal mortgage to secure repayment of all the moneys due from Nitin Pharmaceuticals. Thus, the defendant has promised to discharge the liability of a third person (the debtor) in case of his default This guarantee is limited to the security offered by the promisor, namely, the mortgage and no further personal liability is taken by the promisor. Thus, the promisor has became a surety and this would be an agreement to offer security for due performance of that promise and to that extent Sections 126, 127 and 128 of the Contract ....
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....n the present case is that the loans advanced to the principal debtor who is the husband of the present defendant She has agreed to give collateral security to secure the dues in default of payment by her husband. Apart from the close relationship of husband and wife, there is substantial consideration by having advanced the loan. 21. Thus, the plaintiff not enforcing the claim against the principal debtor or even the third person may be sufficient consideration by the debtor or third person to give security for the debt and the consideration for such promise is that by such forbearance, the creditor is delayed and the debtor or third party is benefited. It is also seen that even in absence of express promise to forbear, a simple forbearance from enforcing the claim can be held to have been implied in the present case. This promise and agreement was given in 1975 and it is dear that thereafter for two years, the claim was not pressed which shows that there is actual forbearance against the principal debtor after this Ex. 20 was executed. Thus, even under the English Law, this consideration is held to be good and sufficient consideration. Under Indian Law, which is signific....
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....onspicuously omits mortgage; and which requires "disbursement" against "the consideration for the time value of money" as the lead elements. As said, the respondent lenders of JAL, while holding the mortgages in their hands, as said to have been executed by the Corporate Debtor JIL, may be carrying a security interest and may be the creditors who may claim to be falling within the terminology 'secured creditors', yet cannot become 'Financial Creditors' of the Corporate Debtor JIL who is not owing any 'financial debt' to them. The decision in Smt. Kusum does not make out a case in favour of the respondents, the lenders of JAL...." 36. Now we consider the submissions of the applicants in terms of the decision of Hon'ble Supreme Court referred to supra, and we observe, here in the case in hand also, there is no disbursal of the amount to the respondent rather the amount was disbursed to the third person. As we observed, the applicants are claiming the discounted invoices, therefore, in view of Section 21 (5) of IBC 2016, where an Operational Creditor has assigned or legally transferred any operational debt to a financial creditor, the assignee or transfe....
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....dual Financier Services Agreement" ("FSA") with Kred 6. In lieu of its aggregator services, KredX is paid a service fee under each SSA & FSA. 1. Creation of Rights Agreement(s) and flow of money 7. As aforesaid, TDT approached KredX to raise finances to make payments under the Invoices raised on it by the Seller. In furtherance of the same, separate "Creation of Rights Agreement" ["COR Agreement") were executed between TDT, each of the financiers (ie. the Petitioners), KredX and Seller, whereunder it was agreed as follows TDT was to upload the Invoices on to the Kredk platform. (Vol 2. Pg 211) b. Seller consents that TDT is to pay the Petitioners under the Invoices. (Vol2. Pg 212, See Clause 2.1) The payments due on behalf of TDT under the Invoices are financed (in part or whole) by the Petitioners (Vol2. Pg 212) and transferred to the Seller. d. KredX only acts as an administrator, is paid a service fee in lieu thereof, and has no interest in the payments under the invoices. (Vol 2 Pg 211 (recital D).212) As consideration, TDT is to pay the Petitioners a sum greater than the amount disbursed, with the due date of payment also specifi....
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....ounting of its invoices and assigned its rights to collect payment under the invoices to the assignee. In those facts, Hon'ble NCLAT held that an assignee of operational debt could not be considered a financial creditor. 17. However, as is evident from the COR Agreements, there is no assignment of any debt from the Seller to the Petitioners in the present case. In fact, the transaction begins at the behest TDT who approached the Petitioners (through KredX) (Vol 2. Pg 211,219) 18. Unlike the transaction in the Rabobank Judgement, the flow of money disbursed by the Petitioners is at the behest and for the benefit of the buyer le TDT, towards the discharge of TDT's liability to the Seller under the Invoices. 19. As consideration for the same, the Petitioners are to be repaid with interest and have a right to recourse against TDT, in the event of default in payment by TDT. 20. Thus, the decision in Rabobank Judgement is inapplicable to the matter at hand. Document 3 C. THE PETITION IS MAINTAINABLE UNDER SECTION 7 OF THE CODE 1. RE: Contentions about filing as a 'collection', filing through power of attorney holder, petitioners being invest....
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....ancial debt' by the Petitioners, applied for the benefit of TDT. In return, the Petitioners were to be repaid a larger amount by TDT and were vested with a right to recourse against TDT in the event of a default (Clause 1.3 of the COR Agreement Vol 2. Pg 212). 30. Thus, indisputably, TDT (Le. the buyer and not the Seller) is the Corporate Debtor, having admittedly defaulted in its payments to the Petitioners under the COR Agreements 31. Therefore, TDT's meritless allegations in this regard must be rejected. III. RE: Alleged wrongful termination of financial facility by KredX Document 4 32. It is submitted that TDT has taken recourse to entirely irrelevant contentions including inter alia that KredX has illegally terminated a financial facility to KredX. 33. Such contentions are extraneous and an attempt to mislead this Hon'ble Tribunal. 34. In this regard, it is submitted that the issue in the Petition arises out of TDT's admitted default in making payments of 'debts' to the Petitioners, in terms of COR Agreements. 35. Further, as repeatedly clarified by the Hon'ble Supreme Court, the only relevant consideration at this stage is whether t....
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....benefit of financing from the Petitioners. It is contended that in lieu thereof, the Seller has 'assigned' to the Petitioners the right to collect monies due under invoices ("Invoices") issued by the Seller to TDT. 5. However, the aforesaid is contrary to the Creation of Rights Agreement ("COR Agreement"). 6. At the outset, it is to be noted that the transaction is initiated by TDT (and not the Seller) by listing the Invoices on the aggregator platform i.e. KredX ("KredX") (Recital C Vol2 Pg 211). 7. It is only after listing of Invoices by TDT, that the Petitioners, being financiers registered with KredX, advance monies towards payment of the same, on behalf of and for the benefit of TDT. 8. In this regard, it is imperative to note that TDT, and not the Seller, created an absolute and Indisputable right under the Invoices in favour of the Petitioners (Clause 3.2 (c), Vol 2 Pg 213). Further, TDT agreed to repay each of the Petitioners a sum greater than monies advanced by each of them on a specified due date' i.e. Interest (Vol 2 Pg 218, 226. etc). 9. By contrast, in a traditional discounting transaction, the seller approaches the financier and ....
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....disbursal by the Petitioners has 'commercial effect of a borrowing' 19. In view of the aforesaid, it is evident that the disbursal of money by the Petitioners, at the request and for the benefit of TDT constitutes financial debt' under Section 5(8) of the Code. CTDT'S RELIANCE ON THE DECISIONS IN COOPERATIVE RABOBANK U. A. SINGAPORE BRANCH V MR. SHAILENDRA AJMERA ("RABOBANK JUDGEMENT"), ANUJ JAIN V. AXIS BANK LIMITED & ORS (ANUJ JAIN") AND CLAUSE 2.4 OF COR AGREEMENT IS MISPLACED 20. TDT has erroneously placed reliance on the decisions in Anuj Jain, Rabobank Judgement and Clause 2.4 of the COR Agreement to claim that the Petitioners cannot be classified as 'financial creditor ("FC") and are operational creditors instead. Such contentions are entirely meritless. 21. A perusal of Clause 2.4 shows that the terms of COR Agreement (which clearly record disbursal of financial debt by the Petitioners) shall prevail over any arrangement between TDT and the Seller. Thus Clause 2.4 does change the underlying nature of the transaction ie financial facility availed by TDT (with interest) having the "commercial effect of borrowing". 22 Pertinently, in the ....
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....ute financial debt'as defined under Section 5(6) of the Code 33, Pertinently, TDT has accepted the factum of its default in making payments (Vol 3 Pg 447). on the due dates specified under the COR Agreements (Vol2 Pg 218, 226 etc) 34. In view of the aforesaid, it is submitted that the CIRP of the Corporate Debtor Le. TDT may be initiated as all requirements under Section 7 of the Code have been fulfilled. 120 Document 7 WRITTEN SUBMISSIONS ON BEHALF OF TOT COPPER LIMITED 4 5 7. 1, Mr. Avinash Ladha, Director of the Corporate Debtor, an adult Indian inhabitant having its registered address as mentioned in the cause title do hereby respond to the petition filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2018 and other applications as maybe filed therein, as under. T That vide order dated July 05, 2021 Russed in the present Petition by this Hon'ble Tribunal, the Respondent was directed to file is response to the Petition. The said order shall be referred at the relevant stage 2 3. That due to severe shortage of ....
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....40th largest corporation by sales) in 1997, based on Southwire Continuous Cast Rod System. That the Respondent is an operational company with its functional units and provided means to livelihood to more than 500 families directly and indirectly. That the Respondent is not a sick or insolvent company. 10. The Petitioners have filed the claim for a financial debt of an amount of Rs. Rs. 1,75,23,133.00 and claims that the Petitioners are financial creditors to the Respondent. 11. It is stated that the Respondent objects to the admission of the Petition inter- alia on the following grounds: A. Independent Creditors cannot file as a 'Collection' or 'Consortium of lenders'. a. The Corporate Debtor submits that upon a prima facie perusal of the Section 7 petition ("the Petition"), it is evident that the same has been filed by independent creditors, purportedly as Financial Creditors to the Respondent. This is done despite there being no privity of contract by and between the Petitioners and the Respondent. b. It is submitted that upon a perusal of the documents submitted by the independent Financial Creditors, it is evident that th....
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.... way of Power of Attorney. B. Petition filed by the Applicants through Power of Attorney is not allowed under IBC. a. The Corporate Debtor states that upon a perusal of Annexure Bas contained in the petition, it is evident that the Financial Creditors/Applicants have filed the present petition by entering and executing various Power of Attorneys purportedly giving all rights of filing the current case to one Mr. Manish Vishwakarma. It is to be noted that under the provisions of IBC, there is no specific clause. section or permission given to any creditor to file any kind of application through a Power of Attorney holder b. That it is a complete contravention of the provisions and practice of IBC for any creditor or for a purported collective union of creditors to file their claim through various Power of Attorneys given to a certain individual. c. It is imperative to note that if such kind of practice is allowed to be continued, it will raise grave concerns to the existence of various companies as various small creditors (creditors who do not meet the parameters of the threshold of claim as stipulated under the IBC whic....
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.... hence, there arises no cause of action upon the Corporate Debtor. E. Misjoinder of Parties a. The Corporate Debtor states that the entire case of the Applicants is that a collective investment has been made with the platform KredX in lieu of a certain transaction that ensued by and between M/s. Ashoka Creations Private Limited and the Respondent, with M/s. Ashoka Creations Private Limited being the seller' of certain copper materials being purchased by the Respondent. b. Even though the entire transaction was done by and between the seller and the Respondent, the credit period as agreed by and between the seller and the buyer has not been exhausted. As an immediate requirement to fulfil the running working capital condition of the seller, the seller approached KredX to lend a certain sum of money in terms of the agreement as may be entered by and between the seller and KredX According to the petition, the platform remitted an amount to the account of the seller thereby, according Document 13 F. to the Applicants, there arose a cause of action to recover the said amount from the Corporate Debtor herein. c. The Corporate De....
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....inancial Creditors as mentioned in the present petition, the debt of which is not due and payable and hence premature. b. Moreover, vide email dated September 18, 2019, KredX threatened to initiate legal proceedings against the Respondent. c. The Corporate Debtor states that as the termination itself was premature and illegal, which thereby caused the filing of the present petition against the Corporate Debtor, the consequences of which has caused tremendous financial and name and reputation loss to the Respondent which cannot be quantified and the Respondent hereby reserves its rights to file a claim for damages caused upon them. Document 15 1. Corporate Debtor is not a guarantor. a. The Corporate Debtor states that it is not a guarantor for the amount to be recovered essentially from the seller, ie., M/s Ashoka Creations Pvt. Ltd. b. That even though they may have been various agreements as such that has been entered and executed by and between the Corporate Debtor, KredX, the Financial Creditors, the seller, it is essentially the seller who has availed financial facilities from KredX and not the Corporate Debtor herei....
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....hat the company is an operational entity and is conducting business with many workers being involved. The act of the Applicants in filing the present application under section 7 of the IBC is bad in law and void ab-initio and is further made to disrupt the working of the company. 13. Furthermore, the Applicants have not submitted and presented to the Respondent any evidence as to the directions of this Hon'ble Tribunal with respect to the order dated January 08, 2021 of whether there exists any applicability of Section 10A of the Code in the present petition Document 17 i. The agreement has been entered into between all four parties Le. Applicants, Ashoka Creations, Respondent and KredX (Pg 211 Vol II) and records the rights and obligations of all four parties towards each other. ii. The Recitals of the Agreement as well as Clause 1.2 of the Agreement records that KredX provides a platform for facilitating the creation of rights in respect of the financier, customer and seller and that it is not a borrowing arrangement. (Pg211 and 212 Vol 11) iii. Cl 2,4 clearly records that the terms and conditions of the agreement for sale of prod....
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....herein was that its sole consideration in discounting BOE was discount interest and commission earned based on the maturity period which is the time value of money. According to it, such discounting facilities were akin to money lending for earning interest and were therefore purely financial in nature. Document 18 Rejecting the contention, the Ld. NCLAT held as follows: "17. Section 5(20) of the Code defines an "Operational Creditor' to mean not only a person to whom an 'Operational Debt is enved but also a perum to whom such operuilonal debi" is assigned. In other words, the 'Auvant' having transferred its right to collect payment due towards the sale of goods to any person, including the Appellant bank, under a Bill of Exchange, the transferee Appellant bank will also remain as an 'Operational Creditor", and cannot become a 'Financial Creditor 18. The aforesaid proposition of love is also evident from Sub-section (5) of Section 21 of the I& Code, which reads as follows:- "21. (5) Where an operational creditor has assigned or legally transferred any operational debt to a financial creditor, the assignee or transferee shall be cons....
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....eliance on the judgment of the Hon'ble Supreme Court in the case of Anuj Jain, IRP for Jaypee Infratech Ltd. vs Axis Bank Ltd, and Aur. (2020) 8 SCC 401 wherein on the question of who would fall under the definition of a financial creditor, the Court held as follows: Document 19 "53.4. We may usefully elaborate a hule. On a contextual reading of the expositions in Essar Steel Essar Steel (India) Ltd Committee of Creditors v. Satish Kumar Gupta (2020) 8 SCC 5311 and Swiss Ribbons (Swiss Ribbons (P) Lud. v. Union of India, (2019) 4 SCC 17), it is but clear that the Court had examined the status of direct secured creditor of the corporate debtor and there had not been any occasion to examine the features related with an indirect secured creditor, who is neither involved in assessing the viability of the corporate debtor nor in lending finances to the corporate debtor for setting up the business is noticed the prime tuther only, area of interest of such indirect secured creditor is in recovery of its debt and not in reorganisation of the corporate dehior's business. Thus understood, is absolutely clear that the class of secured creditors indicat....
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.... clear that in Pioneer Urban this Court has not enunciated that the scope of the expression. "financial debt" be read as if to encompass any debt of whatsoever nature. (Para 44.1.6 of Jaypee Infratech) Document 20 13. Further, as stated above, apart from a common composite agreement namely the Creation of Rights Agreement between the aforesaid four parties (Vol II), there were separate individual agreements between the said parties. All these agreements are interconnected and define the corresponding rights and obligations of the parties and therefore, have to be read together for the purpose of determining any claims/counter claims arising between the parties. In fact, Clause 1) of the Creation of Rights Agreement defines "Transaction Documents" to mean "this Agreement and such other agreement as may be entered into by the Customer, a Seller and a Financier in connection with the transactions contemplated to be undertaken on the Platform." (Pg 212 Vol II) Clause 2.4 mentions that rights and interest accruing to the Applicant would also be as per terms and condition contained in the Transaction Documents.(Pg 212 Vol II) However, only t....
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....n of CIRP. This may also impose additional burden upon the Adjudicating Authority to hear objections to heavily disputed applications. The Committee noted that this may be antithetical to the value of a time-bound resolution process, as the already over-burdened Adjudicating Authorities are unable to list and admit all such cases filed before them. It was felt that a CIRP should be initiated only where there is enough number of such creditors in a class forming a critical mass that indicates that there is in fact large-scale agreement that the issues against a corporate entity need to be resolved by way of a CIRP under the Code Copy of relevant portion of the Insolvency Law Committee Report February 2020 is annexed hereto and marked as Annexure D. (@Pg174-176 of Written Submissions) C. DISCREPANCIES IN DEBT AMOUNT 1. Pertinently, by Order dated 16.02.2021, this Hon'ble Bench had directed the Applicants to convince the court on Section 10A of the Code. In pursuance of the Order dated 16.02.2021, the Applicant had filed Additional Affidavit dated 15.03.2021 to give clarification on Sec. 10 A of the Code. 2. It is submitted that the A....
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....ore, the Applicants have suppressed their Agreement with KredX. They have not even filed the agreement between Ashoka Creations and the Respondent which stands incorporated into the Creation of Rights Agreement. The Applicants have not paid/loaned any money to the Respondent. The monies have only been disbursed to Ashoka Creations which has assigned/transferred its debt to the Applicant. Further, the Respondent has disputes with Ashoka Creations. 3. Further it is submitted that Petitioners have cleverly filed a Section 7 Petition only with a view to deprive the Respondent the opportunity from claiming that there are pre-existingdisputes in respect of the provisions of goods and services. It is submitted that had a Sec. 9 Petition been filed then the Respondent would have got an opportunity to put its defences. 4. Lastly, reliance is placed on the judgment of the Hon'ble Supreme Court in the case of Innoventive Industries Ltd. vs ICICI Bank Ltd. (2018) 1 SCC 407 Para 30 where the Hon'ble Court has held that the adjudicatory authority has to satisfy itself whether a default has occurred and that the debt has become 'due' i.e. payable un....
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....imary transaction on the basis of which the Sec. 7 Petition is filed is essentially a transaction for provisions of goods and services wherein the Respondent purchased certain goods from one Ashoka Creations ("Seller") and invoices were raised by the Seller upon the Respondent against the supply of goods(Pg 6 Vol I). 6. The CoR agreement merely captures the assignment of an operational debt by the Seller in favour of the Applicants in lieu of discounting of invoices and creation of right to receive payments under the invoices from the Customer/Respondent in favour of the Applicants (See recitals @ Pg 211, C1 2.1 @Pg 212, C1 24 @Pg 212 Vol II). (Clause 1(j) @Pg 212,Clause 2.4 @Pg 212 Vol II) 7. Further, CoR agreement holds Ashoka Creations liable if the non-payment to the Applicants is on account of breach of agreement by Ashoka Creations. (CI 5(g), el 5), el 6.1 (iii) @215 Vol II). 8. Therefore, the contention of the Petitioners that the entire transaction was only at the behest of TDT with the Seller having no role to play is liable to be rejected. Further, it is denied that the Seller has not been paid discounted value of the invoice It is deme....
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....the goods and therefore we hold that the Appellant is not a Financial Creditor' but at best.com.claim to e an Operational Creditor as held by the Adjudicating Authority "Emphasis supplied! It is submitted that the facts and contentions of the aforesaid judgment are almost identical to the facts and contentions of the present case and therefore the law laid down therein is squarely applicable to the case in hand. Therefore, the present Application under Section 7 is not maintainable. 12. The Respondent also seeks to place reliance on the judgment of the Hon'ble Supreme Court in the case of Anuj Jain, IRP for Jaypee Infratech Ltd. is Axis Bank Ltd. und Anr. (2020) 8 SCC 401 wherein the Court in Para 53.4 has held that financial creditors, is only that of such reced creditors who are directly engaged in mancong craft to the corporate debior and other creditors who had extended for facific to a third party but had taken a security from the corporate debtor, whose resolution is under consideration. In the present case also, admittedly, the Applicants have not made payments to the Respondent herein but to Ashoka Creations. Thus, the Applicants ca....
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....to the Applicant. Further, the Respondent has disputes with Ashoka Creations. 4. Further it is submitted that Petitioners have cleverly filed a Section 7 Petition only with a view to deprive the Respondent the opportunity from claiming that there are pre-existing disputes in Document 25 respect of the provisions of goods and services. It is submitted that had a Sec. 9 Petition been filed then the Respondent would have got an opportunity to put its defences. 5. Further the Applicants do not have a money lending license under the Kamataka Money Lending Act and therefore cannot be considered to be a financial creditors. 6. In view of the aforesaid, it is submitted that the present Petition is liable to be dismissed. Document 26 b. Against the said goods, the Seller raised 5 (five) different invoices ("Invoices) for a total sum of Rs.3,42,03,903/-(Rupees Three Crores Forty- Two Lakhs Three Thousand Nine Hundred and Three only); 5. Invoice Discounting As is the case with traditional invoice discounting facility, the kinds of participants that are involved in the invoice discounting include the purchasers, the sellers, the financiers and the fac....
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.... Agreements] for creating rights in the receivables under the Invoices in favour of the Applicants All such COR Agreements were executed by the parties electronically on KredX's Invoice Discounting Platform. A copy of all such COR Agreements executed by all the parties are annexed herewith as Annexure (Cally.) k. Upon execution of the COR Agreements, the Applicants Document 28 discounted the Invoices and deposited the amounts into an escrow/nodal account maintained by KredX Escrow Account") maintained with an escrow/nodal agent namely, Yes Bank Limited ("Yes Bank). The said amounts were then disbursed by Yes Bank into the bank account of the Seller In accordance with clause 5.2 of the COR Agreements. Upon receiving such amounts, the Seller transferred its right to receive the money under the Invoices in favour of the 'financiers'/Applicants. Thus, the Applicants became entitled to the Debt Amount from the Corporate Debtor, PARTICULARS OF FINANCIAL DEBT 2 AMOUNT CLAIMED TO BE IN The total amount claimed to be default DEFAULT AND THE DATE ON WHICH is Rs.2,27,40.735.08 (Rupees Tw....
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....e presented for payment to the Corporate Debtor and were dishonoured due to non-payment af 10. Learned counsel for the Appellant submitted that the Resolution Professional has accepted and admitted Appellant's claim USD 107,36,972.90 alongwith interest and other charges. However, attempt Document 31 is being made to classify the debt as an 'Operational Debt' and not a 'Financial Debt' despite the pure financial nature of the payments. 11. It was submitted that Bill of Exchange is an independent contract under the provision of Negotiable Instruments Act, 1881 INI Act). As per Section 32 and 37 of the NI Act, upon acceptance of Bill of Exchange, the acceptor Le. Corporate Debtor becomes the Principal Debtor of the amount due under the Bill of Exchange. Under the law, unless agreed to the contrary, the drawer would continue to remain liable. However, in the present case, the Bill of Exchanges were discounted without recourse to the Drawer i.e. 'Avanti Industries Pvt. Ltd. Reliance has been placed on the decision of Hon'ble Supreme Court in "American Express Bank Ltd. Vs. Calcutta Steel Co. (1993) 2 SCC 199" 12. It was further submit....
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....om such operational debt is assigned. In other words, the 'Aavanti' having transferred its right to collect payment due towards the sale of goods to any person, including the Appellant bank, under a Bill of Exchange, the transferee Appellant bank will also remain as an 'Operational Creditor', and cannot become a Financial Creditor. 18. The aforesaid proposition of law is also evident from Sub-section (5) of Section 21 of the I&B Code, which reads as follows:- "21. (5) Where an operational creditor has assigned or legally transferred any operational debt to a financial creditor, the assignee or transferee shall be considered as an operational creditor to the extent of such assignment or legal transfer." 19. Therefore, it is clear that an 'Operational Creditor', who has assigned. or legally transferred any 'Operational Debt' to a 'Financial Creditor', the assignee or transferee shall be considered as an Operational Creditor' to the extent of such assignment or legal transfer, Document 34 20. Section 3 (37) of t&B Code provides that the words and expressions used but not defined in the Code have the same meaning as defined in other ....
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....Drumcu do not pay the Curbing Secarity on the maturity de asigando de Rea of (1)ditioningency, it being wound up 12) cacy ober el proton inped by the over of the cory whereas in pncipi pace of busi bonader the derlying Secry of redu dinafter deribel s pr The and of this Mae Agreement shall apply to each othe phase of chat down on any of the afat Dane Accept it between the sad condom of this Master Agreeme and those of the othe 16) with the flying the The Armed rack Request all be governed by the laws of Sin partir to the eff IN WEDNESS Read this Meter & by the f COOPERATIEVE CENTRALE RAIFFEISEN BOERENLEENBANK LA TRADING AN HABOBANK INTERNATIONAL, SINGAPORE BRANCH hiper Лабовали опиÑани V NOTAR Document 38 22 The Deed of Exchange has also been enclosed, which is between "Aavanti Industries Pte Ltd., Singapore' and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank Nederland) Singapore Branch'. THIS DEED is made BETWEEN let July 2018 O AVANTI INDUSTRIES PTE LTD, REG. NO. 19604717, company incorporated in Singapore and having register....
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....4/2013 and having its registered office at A- 203, alkapuri Arcade C Dutt Road, alkapur.vadodara, Vadodara, Gujarat Pincode: 390007 thereinafter referred to as the "Seller", which expression shall, unless repugnant to the context or meaning thereof, mean and include its successors-in- interest and permitted assigns) 2. VR Ashok Rao, V R Ashok Rao, aged 41, holding PAN card AVR2580H residing at Apsara Apartments, Old No 9. New No 13/3, Ponnappa Street. Damodaramurthy Lane, Klipauk, Chennai, Tamil Nadu, Pincode: 600010 thereinafter referred to as the "Financier, which expression shall, unless repugnant to the context or meaning thereof, mean and include its successors-in-interest and permitted assigns) and 3. TDT COPPER LIMITED, is a private limited company incorporated under the provisions of the Companies Act, 1956/2015 and having its registered office at 512- 512a, Tolstoy House,tolstoy Marg, Janpath, Connaught Place,, New Delhi, Delhi, Pincode: 110001 (hereinafter referred to as the "Customer, which expression shat, unless repugnant to the context or meaning therear, mean and include its successors-in-interest, affiliates and permitted....
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.... undiscounted (rights to receivable are not purchased) genuine eoice raised by the Selter on the Customer, duy accepted by the Customer and listed by such Sellers on the Platform, the details of which are provided in Aure A b) Invoice Receivables" shall mean all or such part of receivables under an Invoice, as may be agreed to be acquired by the Financier, for the Consideration listed on the Platform, herein mencioned in Annexure A d) Financier Account" means the bank account of the Financier as registered in the records of Kred. Financier Services Agreement" means the Financier services agreement entered into between the Financier and KredX. el "Financier Service Fee shall mean the fee payable to KredX by the Financier for the provision of services, as provided in the Financier Services Agreement Seller Account" means the bank account of the Seller as registered in the records of Kredx, hi Settlement Escrow Account" means the virtual bank account of the Seller maintained with the Escrow Agent operated and managed by Kred Service Fee" means the amoure to be paid by the Customer to Kred for the provision of services by Kred....
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.... owner of the Invoice Receivable (d) The sale made by the Seller is on recourse basis, that is to say, where the Customer does not pay the Invoice Receivables by the Due Date, the Sale shall stand terminated and the Financier shall be entitled to receive the amounts as set out in Clause 5 of this Agreement 24. The Parties agree that the right and Interest in the Invoice Receivables under the Invoice stands created in favor of the Financier to such extent and on the terms and conditions as contained the Transaction Documents. On and from the Effective Date, the terms and conditions of the agreement for sale of products or provision of services between the Customer Document 42 and Seller shall be deemed incorporated mutatis mutandis into this Agreement to the extent a such terms are not contradictory to the terms set out herein 2.5 Kred shall not appropriate the Consideration and the Invoice Receivables. In any other manner, other than the manner specified herein and as provided under the Transaction Documents. With the exception of any Service Fee due to Kreek under the Transaction Documents, Kredx is merely acting in the capacity of an ad....
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.... nothing that may affect the validity, enforceability, recoverability, and value of any invoice Receivables. The Customer wil net assert any claim, dispute, defence, etc. or otherwise impair the timely payment of the Invoice Receivables in full and there is no claim, set off relief, right, mutual obligation, contest, counter claim or other receivable that the Customer has against the Seller, which may be deducted, or claimed by the Customer to be deductible against the Invoice Receivables. hl The Seller and Customer hereby represents and warrants confirming to the Financier that during the validity of this Agreement if it comes to the notice of the Seller that there exists related party transaction as mentioned in Section 188 of Companies Act 2013. the Seller and Customer undertakes to Inform the Financier and Kredx accordingly on immediate basis. 3.3. Covenants of KredX. (al Kredx does not have any proprietary interest in the invoices and merely provides a platform for the Seller, the Customer and the Financler to enter into transactions with respect to creation of nights in respect of an Invoice. No act of KredX as a facilitator sha....
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.... Agreement in the manner provided under the Transaction Documents, and Kredx and the Financier exercise the remedy available under Cause for recovery of the balance Invoice Receivables payable to the Financier and () Where the right and interest in the receivables under the Invoice, other than the Invoice Receivables, is created in favor of any other Financier ist registered on the Platform Kredx shall issue instructions to the Escrow Agent to disburse to the Financier in the manner provided under the Transaction Documents, such amount from the amount transferred by the Customer into the Settlement Account in the same proportion as against the Invoice Receivables value. procured by the Financier is including the Financier, under the Invoice, Kredx and the Financler shall exercise the remedy available under Clause 5 for recovery of the balance invoice Receivables payable to the Financier. (c) in either case, the Financier Service Fee along with applicable GST and TDS shall be deducted by Kredx only when the Financier receives the entire Invoice Receivables payable under the Invoice 4.4. It is hereby expressly clarified that Kredx is me....
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....the Financier. In the event the Security Document is unable to be encashed exercised by Kredx, the obligation of the Customer to undertake the Restitution shall survive. (d) if the Customer fals to remit the Invoice Receivables and Late Payment Fee mentioned within a period of 30 thirty) Business Days from the Due Date Into the Settlement Account, KredX shall, for the benefit of the Financier, 1) encash exercise the Security Document to the extent of the Restitution Amount: (i) notify the Financer of the encashment and D) issue instructions to the Escrow Agent to transfer the Restitution Amount to the Financier Account, after deduction of the Financier Service Fee (0) Unless encashed /exercised as provided in Clause 5.1(d) of this Agreement, Kred within 10 (en) Business Days from the receipt of the Restitution Amount, transler into the Satiament Account (0) in the event Kredx is unable to encash /exercise the Security Document due to lack of sufficient funds in the Customer's account or for any other reason, the Parties agree that Kredx shall have the right to initiate proceedings against the Customer under Section 138 of the Negotiab....
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.... expiration or termination of this Agreement. The expiration or termination of this Agreement shall not releve either Party of as obilgations under this Agreement. 7. INDEMNITY 7.1. Without prejudice to any other remedy that the Financier may have in law or equity or under this Agreement, the Customer hereby agrees to Indemnity, defend the Financier, its employees, directors, shareholders and affiliates and shall always keep and hold the Financier harmless against any liabilities, costs, charges, expenses including reasonable attomey fees, claims, demands, actions, direct damages or losses of any nature whatsoever which may, at any time, be incurred or suffered by or Imposed on the Financier as a result of any breach by the Customer and/or Seller of the representations, warranties, terms and conditions contained under this Agreement Document 45 It is hereby expressly clarified that Kredx is merely an administrator and shall not be sable to either Party under this Agreement in any manner whatsoever and in no event shall the ilability of Kredk exceed the Service Fee paid by the Customer to Kred & GOVERNING LAW. JURISDICTION AND DISPUT....
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....nd effect to such legal, Invalid or unenforceable provision as may be possible, 9. Relationship between the Parties. This Agreement is being entered into an a principal to principal basis. Except as stated in this Agreement, nothing in this Agreement or in any document referred to in it shall constitute any Party or Kreda partner of the other or Kredx, as the case may be, nor shall the execution, completion and implementation of this Agreement confer on any Party or KredX'any power to bind or Impose any obilgation of the other Party or Kredx, as the case may be or to pledge the credit of the other Party 9.7 Survival. The provisions of this Agreement, which expressly or by its nature survives, shall survive the expiration or termination thereof 9.3. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all of which shal constitute one and the same instrument 9.5. Stamp Duty. The Customer that ensure that all requisite taxes including stamp duty, etc. as payable under this Agreement are duly paid. Document 46 NWITNESS WHEREOF, WE THE PARTIES HERETO HAVE S....
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....lement of amounts between The Soler and such Customer and such Financier, governing the terms and conditions with respect to Pw cruallon of rights in favour of the Financier (a) "Due Date shall mean the date on or before which the receivables under en Invoice are payable, es sel out on the Platform, which shall be no less than 90 days from the date of the Invoice (n) "Escrownedal Agent" Escrownodal Agant means ICICI Bank Limited, a company incorporated under the Companies Act 1956 and a banking Document 48 company under the Banking Regulation Act, 1949 having its registered office at Landmark, Race Course Circle, Vadodara 390 007 and acting through its office, ICICI Bank Limited, 1st Floor West Wing, No.1, Commissariat Road, Shobha Pearl Towers, Bangalore 560025 and Includes its successors and assigns and Nodal Bank means YES Bank Limited having registered address as 9TH FLOOR, NEHRU CENTRE, DISCOVERY OF INDIA, DR. ANNIE BESANT ROAD, WORLI, MUMBAI MH 400018 IN and acting through its office: at Ground Floor, Prestige Obelisk, Municipal No 3. Kasturba Road, Bangalore, Karnataka 560001 (1) "Escrow nodal Agreement" shall mean the escrow....