TaxTMI 
TaxTMI 
2019 (9) TMI 1682
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....Creditor. The amount of default has been claimed at Rs. 11,06,15,268/-(Rupees Eleven Crore Six Lakh Fifteen Thousand Two Hundred Sixty Eight only) which comprises of Principal amount of Rs. 10,20,00,000/- (Rupees Ten Crore Twenty Lakh only) and Interest of Rs. 86,15,268/- (Rupees Eighty Six lakh Fifteen Thousand Two Hundred Sixty Eight only). The dates of default have been stated as 26th August, 2018 and 28th November, 2018. 2. The facts, in brief, are that the Financial Creditor, on being approached by the Corporate Debtor, gave an accommodation loan of Rs. 5,30,00,000/- (Rupees Five Crore Thirty Lakh only) to finance the set-top box installation infrastructure by the Corporate Debtor. The said loan had been provided for 11 (eleven) months against a security of 77,500 equity shares in the Financial Creditor, held by the Corporate Debtor. The rate of interest was agreed at 9.75% per annum, payable on monthly basis. The loan amount was transferred to Corporate Debtor on 11th April, 2017. The said shares were delivered to the Financial Creditor as a pledge for the security of the loan received. On 5th July, 2017, another sum of Rs. 1,00,00,000/- (Rupees One Crore only) was given to ....
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....the Corporate Debtor. He drew our attention to pages 62 and 63 of reply affidavit to show that invoices had been raised for the back-dated period but were submitted subsequently. In support of the claim of Corporate Debtor, he referred to pages 49 to 53 of reply affidavit. He specifically drew our attention to page 53 which comprised of the e-mail sent by Corporate Debtor to the Financial Creditor regarding non-acceptance of interest invoices raised by the Financial Creditor. He further contended that unilateral act of raising of invoices was done with a view to prevent the Corporate Debtor to get its nominees appointed on the Board of Directors of the Financial Creditor where Corporate Debtor held 48.14% of shares and its directors were holding around 6.21% shares. He also submitted that petition under Sections 241 to 242 had also been filed in July, 2019 by the Corporate Debtor which was also pending for disposal and because of this reason only the proceedings under Section 7 were initiated by the Financial Creditor so that Corporate Debtor could go out of existence and no change of management / other issues of Corporate governance could be raised against the Financial Creditor a....
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....e property of Corporate Debtor to Financial Creditor and it was not a case of advance against purchase of said property. To support this contention, the Ld. Senior Counsel stated that there were series of transactions of money being given to the Corporate Debtor and in case of first transaction, loan agreement had been executed; however, subsequent transactions were entered into on the basis of mutual understanding on the similar line which now the Corporate Debtor was disputing to evade its liability. He further submitted if the contentions of the Corporate Debtor regarding nature of transactions were to be accepted, then, it could be a rarest of the situation where full sale consideration had been given without entering into any MOU / Agreement to Sale. He further contended that only when invoices for interest were raised, the Corporate Debtor initiated steps to get the directors of the Financial Creditor removed by bringing in its own nominees and also filed petition under Section 241 / 242 and it was not a case where invoices were raised because of these proceedings. He further contended that all these judicial decisions regarding non-maintainability of petition under Section 7....
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....merely not accepted the invoices for interest being charged on the amount given by Financial Creditor to Corporate Debtor, but in such mail no claim as regards the nature of such amount being availed has been disputed i.e., that the amount so given was against the purchase of the property and not of the nature of loan. Accordingly, we find substantial merit in the claim of Financial Creditor that without any MOU full sale consideration would not have been given. Hence, in our considered opinion, claim of the Corporate Debtor that it was advance against property appears to be an afterthought. 9. Firstly, the aspect of time value of money needs to be considered. It has been claimed by the Corporate Debtor that due to no interest element being involved, hence, the transaction does not have an element of time value of money and, therefore, not a financial debt within the provisions of section 5(8) of IBC, 2016. Before proceeding further, we consider it pertinent to reproduce Section 5(8) of IBC, 2016 as under:- "5(8) "Financial debt" means a debt alongwith interest, if any, which is disbursed against the consideration for time value of money and includes- a. money borrowed against....
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....orily because the words "if any" have been used as suffix to words "means a debt along with interest" in section 5(8) of IBC, 2016. This view is fortified by the fact that clause (a) of section 5(8) provides separately that "money borrowed against the payment of interest" is a transaction of the nature of financial debt. Further, if main clause is read as a whole i.e., disbursement of debt against the consideration for time value of money and interest being optional, the obvious conclusion would be that time value of money is having larger compass and interest could only be one element of it. iii) Thus, as seen earlier, interest is not a pre-requisite to classify a transaction of disbursement of debt as of the nature of financial debt then what factors would lead to the conclusion that money has been disbursed against consideration for time value of money. Hence, we need to understand this concept. The concept of time value of money can be understood as a basic instinct of human being i.e., not to delay taking the amount owed to him or her as money you have in hand at the moment is worth more than the same amount you may get in future. Time value of money relates to three basic p....
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....re giving zero interest or charging interest on deposits so that money is consumed to spur economic growth. Thus, time value of money is a dynamic concept and have got linkages with macro/micro economic principles and commercial objectives. iv) In economic sense, the above factors are associated with the concept of time value of money and used to arrive at monetary values at different points of time for a given sum of money. However, in business sense, there could be a situation where no interest element is involved and the money has been disbursed/borrowed to derive some commercial benefit or profit or capital gain. Further, the lender also takes risk of default by the borrower. It can be further stated that disbursement of debt against the consideration for time value of money has to be understood for both ends of the same transaction i.e., from the perspective of both lender and borrower because if borrower gets money without any charge (interest), he gains / benefits from non-payment of interest, whereas the lender in such a case has lost income because of foregoing of interest on such transaction as well as suffers adversely with opportunity cost of earning money on this inv....
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....ent, if it is assumed that it is a case of giving of advance against purchase of property, then also, it would be financial debt in view of clause (f) of section 5 (8) of the IBC, 2016, because the amount raised is having commercial effect of borrowing. For this reason also, the contention of the Corporate Debtor that it is not a case of a financial debt is liable to be rejected. 13. As regards the reliance placed by the Corporate Debtor on various other decisions, we most humbly submit that those decisions were given in the facts and circumstances as applicable to those cases which are distinguishable on facts of the case on hand, hence, ratio of those decisions is not applicable here. For example, in the case of B.V.S. Laxmi (Supra) Vs. Geometrix Laser Solutions Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 38 of 2017, order dated 22.12.2017, in para 30, the Hon'ble NCLAT observed as under "30. In the present case, the Appellant has failed to bring on record any evidence to suggest that she disbursed the money has been made against 'consideration for the time value of money'. There is nothing on the record to suggest that the Respondents borrowed the money. In ab....
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....pond to the crisis and in order to save the company they may infuse funds without claiming interest. In such situation such funds may be treated as long term borrowings. Once it is so, it cannot be said that the debt has not been disbursed against the consideration for the time value of the money. The interests of such stakeholders cannot be said to be in conflict with the interests of the company. Enhancement of assets, increase in production and the growth in profits, share value or equity ensures to the benefit of such stakeholders and that is the time value of the money constituting the consideration for disbursement of such amount raised as debt with obligation on the part of company to discharge the same. Viewed thus, it can be said without any amount of contradiction that in such cases the amount taken by the company is in the nature of a 'financial debt'." "10. Learned counsel for the Appellant relied upon judgments of this Appellate Tribunal rendered in 'Dr. B.V.S. Laxmi Vs. Geometries Laser Solutions Pvt. Ltd.', Company Appeal (AT) (Insolvency) No. 38 of 2017 decided on 22nd December, 2017 and 'Macksoft Tech Pvt. Ltd. & Ors. Vs. Quinn Logistics India....
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....t pertinent to mention that in the case of Religare Finvest Ltd. Vs. Bharat Road Network Ltd., Order dated 28/8/2019, this Bench has expressed a view that in such cases, the definition of'claim'as mentioned in Section 3(6) of the Act of IBC, 2016 would have to be considered. Relevant findings in the case are reproduced as under :- (i) It is noted that Financial Creditor is a registered NBFC with RBI having requisite authorisation to carry on business as NBFC. In the course of its business, it has granted short term loan to the Corporate Debtor. Such short term loan was given on interest and payable after one year as per the terms and conditions agreed by and between the parties, through Moil dated........................ The amount of loan and rate of interest is not in dispute. It is also not in dispute that the Corporate Debtor has failed to repay the loan along with interest accrued thereon. Hence, the Financial Creditor has filed an application for initiation of Insolvency Resolution Process under Section 7 of the IDC 2016. (ii) First preliminary objection raised by Corporate Debtor is that petition is not maintainable due to insufficient stamp-duty-being-p&id in re....
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....on of the term "claim". To establish existence of right to payment, one of the tests which has been evolved by Courts is "the conduct test". Under the conduct test, a right to payment arises when the conduct giving rise to the alleged liability occurred. Another test is "the pre-petition relationship test" which requires some pre-petition relationship such as contract, exposure, impact or privity, between debtor's pre-petition conduct and the claimant in order for the claimant to hold a section 3(6) claim. (iv) It is further apparent that the term 'claim' has been defined in widest possible manner so that lender's right to receive payment can be enforced in variety of situations or conversely it contemplates that all obligations to the extent possible of the corporate debtor would be dealt within the insolvency and bankruptcy proceedings. For example, on occurrence of default, even if a claim is disputed, financial creditor can seek refuge under I&B Code to initiate CIRP process. Similarly, whether loan is secured or unsecured, in both these situations CIRP process can be initiated when a default occurs in repayment of loan. (v) 'Claim' has been defined ....
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.... said clause 8(2) is reproduced hereunder:- "8(2) The existence of debt due to the financial creditor may be proved on the basis of- (a) the records available with an information utility, if any; or (b) other relevant documents, including - (i) a financial contract supported by financial statements as evidence of the debt; (ii) a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor; (iii) financial statements showing that the debt has not been paid; or (iv) an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any. Form Chas been prescribed in this regard which is reproduced as under :- FORM C SUBMISSION OF CLAIM B Y FINANCIAL CREDITORS (Under Regulation 8 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016) [Date] From [Name and address of the financial creditor, including address of its registered office and principal office] To The Interim Resolution Professional / Resolution Professional, [Name of the Insolvency Resolution Professional / Resolution Pr....
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....low: [Please list the documents relied on as evidence of claim]. 3. The said documents are true, valid and genuine to the best of my knowledge, information and belief and no material facts have been concealed there from. 4. In respect of the said sum or any part thereof, neither I, nor any person, by my order, to my knowledge or belief, for my use, had or received any manner of satisfaction or security whatsoever, save and except the following: [Please state details of any mutual credit, mutual debts, or other mutual dealings between the corporate debtor and the creditor which may be set-off against the claim]. 5.1 am/1 am not a related party of the corporate debtor, as defined under section 5 (24) of the Code. 6.1 am eligible to join committee of creditors by virtue of proviso to section 21 (2) of the Code even though I am a related party of the corporate debtor. Date: Place: (Signature of the claimant) VERIFICATION I, [Name] the claimant hereinabove, do hereby verify that the contents of this proof of claim are true and correct to my knowledge and belief and no material fact has been concealed therefrom. Verified at... on this.............. day of..........., ....
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....hich he could only be entitled on the footing that it is valid, and then turn around and say it is void for the purpose of securing some other advantage. In the instant case, it is the Corporate Debtor who has purchased the stamp paper for the execution of said Moil, meaning thereby that stamp duty for execution of MoU has been borne by the Corporate Debtor. It is settled judicial proposition that insufficiency of a stamp duty is a curable defect which can be cured by making up for the deficiency, hence, if the Corporate Debtor wishes to pay the stamp duty not paid, then nobody can stop but, at this stage, the Corporate Debtor being a wrongdoer at one end cannot be allowed to take advantage of its own wrong. For this reason also the claim of the Corporate Debtor regarding enforceability of MoU is liable to be rejected. (x) To strengthen our this view, we draw support from certain observations of NCLT Mumbai Bench in the case of Bank of India vs. Gupta Infrastructure (India) Pvt. Ltd., Order dated 01.02.2018 which is reproduced hereunden- "3. On looking at the terms and conditions galore in the deed of guarantee, there could not be any speck of doubt about the binding nature of ....
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....legislation is brought in, therefore discretion in between left to this Bench is judicial discretion, not to wedge into any other perception into it. Why conventional method of trial has been taken out from IBC proceedings is one - obviously to expedite the process and two -perhaps on the reason that parties cannot deny at least the entries showing in the records of companies. (xi) From the above discussion, it can be fairly said that where Corporate Debtor has obtained a loan having time value of money or on interest, enjoyed it on the basis of subject MoU, it is both a legal and equitable obligation of a Corporate Debtor and, simultaneously, legal and equitable right of the Financial Creditor to initiate OR process under IBC 2016 in case of default by the Corporate Debtor in repayment thereof. (xii) We are further of the view that admitted facts need not be proved and when it is so that is, when proof of document is not required, then, there is no need to revisit the validity of document bypassing the admission already made by the opposite party. The Corporate Debtor has admitted the fact of loan, rate of interest payable by the Corporate Debtor thereon and also default commi....
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....l, arbitration panel or other authority; b) Transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; c) Any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); d) The recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. v) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated, suspended, or interrupted during moratorium period. vi) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. vii) The order of moratorium shall have effect from the date of admission till the completion of the corporate insolvency resolution process. viii) Provided that where at any time during the corporate insolvency resolution process period, if the A....