TaxTMI 
TaxTMI 
2023 (8) TMI 481
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....vocates ORDER ( Physical Mode ) Justice M. Venugopal, Member (Judicial): IA No. 107 of 2023 in Comp. App (AT) (CH) (INS.) No. 30 of 2023: According to the Petitioner / Appellant, he is a 'Shareholder' and 'Suspended Director' of 'M/s. Golconda Textiles Private Limited' ('Corporate Debtor'), and that the 'Corporate Debtor' / M/s. Golconda Textiles Private Limited', is a family business of the 'Appellant', wherein, three brothers are 'Directors', as well as equal 'Shareholders', in the 'Company'. 2. It is represented on behalf of the Petitioner / Appellant that as per decision of Hon'ble Supreme Court of India, in Innovative Industries Limited v. ICICI Bank, reported in (2018) 1 SCC 407, a 'Promoter' / 'Shareholder' of the 'Corporate Debtor', may prefer an 'Appeal', assailing an 'Order of Admission', into 'Corporate Insolvency Resolution Process'. As such, the 'Petitioner / Appellant', seeks leave, to prefer the instant 'Comp. App (AT) (CH) (INS.) No. 30 of 2023 in IA No. 107 of 2023'. 3. This 'Tribunal', taking note of the fact that the Petitioner / Appellant, being a 'Shareholder and a Suspended Director' of the 'Corporate Debtor' / 'M/s. Golconda Textiles Priv....
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....reme Court of India, in Innovative Industries Limited v. ICICI Bank, reported in (2018) 1 SCC 407, a 'Promoter' / 'Shareholder' of the 'Corporate Debtor', may prefer an 'Appeal', assailing an 'Order of Admission', into 'Corporate Insolvency Resolution Process'. As such, the 'Petitioner / Appellant', seeks leave to prefer the instant 'Comp. App (AT) (CH) (INS.) No. 38 of 2023 in IA No. 133 of 2023'. 8. This 'Tribunal', taking note of the fact that the Petitioner / Appellant, being a 'Shareholder and Suspended Director' of the 'Corporate Debtor' / 'M/s. Golconda Textiles Private Limited', grants permission to him, to prefer the Comp. App (AT) (CH) (INS.) No. 38 of 2023, in respect of the 'Impugned Order', dated 24.01.2023 in CP (IB) No. 94 / 07 / HDB / 2022 (Filed by the '1st Respondent / Financial Creditor'), passed by the 'Adjudicating Authority' ('National Company Law Tribunal', Bench - II, Hyderabad), as an 'Aggrieved Person', in terms of Section 61(1) of the I & B Code, 2016, and 'allows', the 'IA No. 133 of 2023', but, without costs. IA No. 136 of 2023 in Comp. App (AT) (CH) (INS.) No. 38 of 2023: 9. According to the Petitioner / Appellant, the Copy of the '1st Respond....
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....pany Law Tribunal', Bench - II, Hyderabad). 13. Earlier, while passing the 'impugned order', dated 24.01.2023 in CP (IB) No. 94 / 07 / HDB / 2022, (Filed by the '1st Respondent / Financial Creditor), under Section 7 of the I & B Code, 2016), passed by the 'Adjudicating Authority' ('National Company Law Tribunal', Bench - II, Hyderabad), among other things, at Paragraphs 17 to 25, had observed the following: 17. ''At the outset it may be stated that, the plea that the financial creditor having failed to file the 'Record of Default' from Information Utility, in terms of the circular dated 12-05-2020, the present application is liable to be rejected, in our considered view is unsustainable, in as much as Section 7(3) (a) of the IB code, itself states that the Financial Creditor is required to furnish the record of default recorded with the information utility or such other record or evidence of default. That apart, the very initial order of the NCLT, viz. Order File No.25.02.2020-NCLT dated 12th May 2020 as relied by the Corporate Debtor has been struck down by the Hon'ble High Court of Calcutta in Univalue Projects Private Limited Vs. The Union of India & others vide orde....
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....e commercial effect of borrowing even if no interest is claimed on the same. 12. Thus the amount deposited by the respondent No.1 in the account of GNIDA to save the corporate debtor on account of financial crunch to save the allotment made in the name of corporate debtor falls within the ambit of ''financial debt‟. Admittedly, the amount has not been paid back, and there is a default. Consequently, the adjudicating authority had admitted the petition filed under Section 7 of the Insolvency & Bankruptcy Code, 2016. In the circumstance, as stated above, we do not find any justification for interfering with the impugned order. Therefore, the Appeal is dismissed. No order as to costs." 21. We find that the ratio of above judgement squarely applies to the facts of the present case. 22. That apart, a bare perusal of the undisputed the Audited Balance Sheet of the corporate debtor for the year ending 31st March 2021 discloses an unsecured loan of Rs.13,84,72,064.00. The undisputed certificate dated 08/05/22 issued by the Auditor of the corporate debtor clearly states that the unsecured loan shown in the balance sheet of the corporate debtor as on 31/03/20....
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.... liability in respect of debt payable to a financial creditor." 24. Thus, a financial debt of a sum over Rupees one crore due and payable by the corporate debtor herein stands acknowledged by the corporate debtor. As the said Debt, which we have categorically held to be a financial debt, since not discharged by the corporate debtor, the default stars at the corporate debtor. 25. Therefore, in the light of our discussions as above we are fully satisfied that the applicant has established existence of Financial Debt of a sum over Rupees One Crore due and payable, besides its default by the corporate debtor. We are also satisfied that the present application is complete and that there is no disciplinary proceedings pending against the proposed IRP.'' and 'admitted', the main 'Company Petition', declared 'Moratorium', and appointed the 'Interim Resolution Professional', etc. Appellants' submissions (in Comp. App (AT) (CH) (INS.) Nos. 30 & 38 of 2023: 14. The Learned Counsels for the Appellants, contend that the 'impugned order', dated 24.01.2023, in CP (IB) No. 94 / 07 / HDB / 2022, (Filed by the '1st Respondent / Financial Creditor'), passed by the 'Adjudica....
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....he Learned Counsels for the Appellants, refer to the Balance Sheet of the Corporate Debtor for the year ending, on 31.03.2020, which was signed by all the 'three Directors' (including the alleged 1st Respondent / Financial Creditor), and adverts to the Balance Sheet of the 'Corporate Debtor', as at 31.03.2020 (Page 104 of Vol. I of the Appellant's Appeal Paper Book at Spl.Pg: 108, wherein at 'Note 4.1 to the 'Long-term Borrowings', which runs as under: 4.1 ''Loans from directors and directors relatives are treated as long term as no terms of repayment are fixed and the Company is not expecting to pay any amounts in the next financial year.'' [Emphasis Supplied] and the very same 'Note', was appended for 'Long-term Borrowings', in the Balance Sheet, ending on 31.03.2021 (vide Vol. I of the Appellant's Paper Book at Spl. Pg: 147). 22. The Learned Counsels for the Appellants, proceed to point out that the 1st Respondent / Financial Creditor / Petitioner', had secured the 'Term Loan', in his 'individual capacity', from the Adarsh Co-operative Urban Bank Limited, for INR 4 Crores on 24.01.2021 and the purpose of 'Loan', was mentioned at Serial No.4 as ''for inves....
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....ivate Limited, 2018 SCC OnLine Cal 3977 (vide Paragraph 4). 27. The Learned Counsels for the Appellants, contend that there is a clear distinction, between 'Debt' owed and 'Debt' due, as per decision in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth Tax (Central) 1966 2 SCR at Page 688 (vide Paragraph 20). 28. The Learned Counsels for the Appellants, submit that the 'Balance Sheet' of the 'Corporate Debtor', ending on 31.03.2020, was signed by all the 'Three Directors', including the 'alleged Financial Creditor', and it is acknowledged by the '1st Respondent', that 'no terms of repayment are fixed, for the 'Long-term Borrowings'. As such, the '1st Respondent' / 'Financial Creditor', is estopped from contending that there is a 'Fixed Term of Payment' or that 'Money', was 'due and payable', by the 'Corporate Debtor'. 29. The Learned Counsels for the Appellants, bring it to the notice of this 'Tribunal', that in terms of the ingredients of Section 134 of the Companies Act, 2013, the 'Financial Statements' of a 'Company', are required to be signed by the 'Two Directors', including the 'Managing Director' ('Mahmood Alam Khan', in the instant case), and there....
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....effect to'. 35. The Learned Counsels for the Appellants, therefore, pray for 'allowing', the instant 'Appeals', by this 'Tribunal', in as much as, the 'Adjudicating Authority' / 'Tribunal', had committed an 'error', in passing the 'impugned order', dated 24.01.2023, in CP (IB) No. 94 / 07 / HDB / 2022 (Filed by the '1st Respondent / Financial Creditor'), holding that 'there is a 'Financial Debt', which has not been, discharged by the 'Corporate Debtor'. 1st Respondent's Contentions (in Comp. App (AT) (CH) (INS.) Nos. 30 & 38 of 2023): 36. According to the 1st Respondent / Financial Creditor / Petitioner, the 'Corporate Debtor', was under an 'immense financial pressure', and on 25.01.2021, the 1st Respondent / Financial Creditor, had advanced a Sum of Rs.3,97,85,000/- to the 'Corporate Debtor', and this 'Sum', was utilised by the 'Corporate Debtor', to 'Repay the Loans', taken by the 'Company', from State Bank of India (Erstwhile State Bank of Hyderabad), under the 'One Time Settlement Scheme', offered by the 'Bank', to save the 'Corporate Debtor', from the 'Liquidation' and 'Attachment'. 37. The Learned Counsel for the 1st Respondent / Financial Creditor, contends that ....
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.... be repaid, on demand', as pointed out in the 'Judgment' of this 'Tribunal', dated 30.01.2019, in Shailesh Sangani v. Joel Cardoso & Anr. (vide Company App (AT) (INS.) No. 616 of 2018), wherein, at Paragraphs 3 & 9, it is observed as under : 3. ''Learned counsel for the Appellant submits that the learned Adjudicating Authority landed in error in holding that the amount claimed by Respondent No.1 for triggering Corporate Insolvency Resolution Process, in respect whereof default on the part of Corporate Debtor was alleged, was not a 'Financial Debt' as defined under Section 5(8) of the I&B Code despite the admitted position that there was no consideration for the time value of money in the transaction. It is further submitted that learned Adjudicating Authority failed to notice that no interest was ever claimed by the Respondent No.1 or paid by the Corporate Debtor to Respondent No.1, that no TDS amount was ever deducted in respect of the part payments made, that there was no tenure for the repayment of amounts granted by Respondent No.1 to Corporate Debtor and that there was no time value of money in the transaction and no consideration for the time value of the mon....
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....garwal v. Anurag Gupta & Anr., wherein, at Paragraphs 11 and 12, had observed the following: 11. ''.......... In the instant case, the Respondent No.1 has advanced various sums to the Corporate Debtor B.K. Educational Society to ease its liquidity crunch, thereby improving its economic prospects and to save the allotments by making direct payment to the GNIDA for the plot allotted in the name of Corporate Debtor. The para 6 of the judgment in Shailesh Sanganiv (supra) of this Tribunal it is held that the monies advanced by a Director to improve the financial health of the Company would have the commercial effect of borrowing even if no interest is claimed on the same. 12. Thus the amount deposited by the respondent No.1 in the account of GNIDA to save the corporate debtor on account of financial crunch to save the allotment made in the name of corporate debtor falls within the ambit of financial debt. Admittedly, the amount has not been paid back, and there is a default. Consequently, the adjudicating authority had admitted the petition filed under Section 7 of the Insolvency & Bankruptcy Code, 2016. In the circumstance, as stated above, we do not find any justifi....
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....he 'Adjudicating Authority' / 'Tribunal', the '1st Respondent / Financial Creditor / Petitioner', in CP (IB) No. 94 / 07 / HDB / 2022 (Filed under Section 7 of the I & B Code, 2016, read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, under Part II Column, had mentioned the name of the 'Corporate Debtor' as 'M/s. Maruti Rich Ventures Limited', and later, amended the name of the 'Corporate Debtor', as 'M/s. Golconda Textiles Private Limited' (as per Order dated 28.04.2022 in IA No. 418 of 2022), passed by the 'Adjudicating Authority' / 'Tribunal' (vide Page 241 of Vol. II of Appeal Paper Book in Comp. App (AT) (CH) (INS.) No. 30 of 2023 dated 01.02.2023 - Diary No. 109). 55. According to the '1st Respondent / Financial Creditor / Petitioner', the 'Total Amount of Debt', granted was Rs.13,84,72,064/-, vide Part -IV of the Section 7 Application (Amended fair copy). The amount Claimed to be in 'Default' was Rs.18,28,95,628/-, out of which, Rs.13,84,72,064/-, was towards 'Principal Sum', disbursed by the '1st Respondent / Petitioner', whereas the 'Balance of Rs.4,44,23,565/-', was towards 'Interest' at 14% per annum, from the respecti....
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.... 13,84,72,064.00 2 Deccan Safety Match Industries 9,62,930.00 3 Elegant Packaging Industries -5,13,290.00 4 GB Bakers Industries Pvt. Ltd. 4,20,07,147.00 5 Golconda Match Industries -19,20,000.00 6 Mahmood Alam Khan Loan A/c -50,39,760.00 7 Mustafa Alam Khan Loan A/c 1,68,06,163.00 8 Super Dairy Farm -2,43,28,205.00 TOTAL 16,64,47,049.00 60. According to the 1st Respondent / Financial Creditor / Petitioner, he is a 'Shareholder', holding 33.33% of Shares in the Equity of the Company and the Act of Advancing the 'Unsecured Loans', to the 'Company' protects and enhances the 'Value off his Shareholding', which would be the consideration for the 'Loans', advanced. Besides this, even an 'Interest Free Term Loan', constitutes a 'Financial Debt', under the I & B Code, 2016. 61. The 1st Respondent / Financial Creditor / Petitioner, in its 'Rejoinder' (before the 'Adjudicating Authority' / 'Tribunal'), had pointed out that he demanded 'Interest' on the 'Unsecured Loans', and the 'Loans', advanced are in the 'nature of commercial borrowing', by the 'Corporate Debtor', and it is consideration of the 'Time Val....
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....nd payable 'on demand', made by the 'Creditor', in the considered opinion of this 'Tribunal'. 66. For the 'Notice / Letter', dated 17.11.2021, issued by the '1st Respondent / Financial Creditor / Petitioner', to all the Directors of the Corporate Debtor, there was no 'Reply', from the 'Appellants, and there is 'non-payment of Debt', by the 'Appellants', and they have committed 'Default', coming within the purview of Section 3(12) of the I & B Code, 2016, as held by this 'Tribunal'. 67. There is no embargo in Law', for a 'Director of a Company', to infuse the 'Funds', into the 'Company', with a view to rescue a Company from 'Financial Distress / Crisis', and the monies advanced clearly come within the umbrage of Section 5(8) of the 'Code'. 68. In the present case on hand, the '1st Respondent / Financial Creditor / Petitioner', in its 'Application', under Section 7 of the I & B Code, 2016 in CP (IB) No. 94 / 07 / HDB / 2022, is to prove the 'Existence of Debt', which is due from the Corporate Debtor. No doubt, the 'Corporate Debtor' or its 'Directors', can point out that the 'Debt', is not 'Payable', by the 'Corporate Debtor', in 'Law', and also in 'Fact'. 69. In a Sectio....
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....ide CP (IB) No. 94 / 07 / HDB / 2022). 76. To put it succinctly, it is not the plea of the 'Corporate Debtor', before the 'Adjudicating Authority', that the 'Directors' of the 'Company', who had infused money to the 'Corporate Debtor' (whenever required), the said 'Money', was not be 'repaid' because of the fact that it had no 'fixed period / term'. 77. According to the 'Black's Law Dictionary', the term 'Loan', means 'Lending', delivery by one party to and receipt by another party of a 'Sum of Money', upon a 'Agreement', express or implied to repay it with or without interest. 78. It is to be remembered that the essential requirement of 'Loan', is 'advancement of money' (or some 'Article'), upon an 'Undertaking', that it shall be returned and it may or may not carry any 'Interest'. 79. Where a 'Loan', was shown as 'Debt', in the 'report' of the 'Directors to the Shareholders', while submitting the 'Auditing Accounts', it is held that even though, the managing 'Agent', had acted beyond its 'Powers', while contracting 'Loan', if there was a ratification of 'Loan', by the 'Directors', it will bind the 'Company'. 80. Where the 'Articles of a Company', contain a provisio....
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....onversion of cotton and or other fibers will be made by delivering the Converter from time to time on payment of conversion charges subject to the clauses mentioned therein. 7. The agreement between the parties shows that the said arrangement made to make the 'Corporate Debtor' a 'Start-up' w.e.f. 9th August, 2006. The Respondent- (Converter) in its term is entitled to receive and take delivery of the yarn by making their own arrangements for transport to any of their destinations. All those provisions show that there is 'disbursement' of money by the Respondent for which the 'consideration is time value of money' which the Respondent is entitled to as a Converter by receiving the yarn. 8. In view of the aforesaid specific provision, we hold that the Respondent comes within the meaning of 'Financial Creditor' and the Adjudicating Authority has rightly admitted the application under Section 7. 9. Learned counsel for the Appellant submitted that pursuant to agreement dated 3rd August, 2006, a letter of exchange for appointment of Arbitrator of Respondent was issued on 5th February, 2008, but such ground cannot be taken in a defeating an application under Se....
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....Audited Balance Sheet', in respect of the Year ending 31.03.2021, exhibits an 'Unsecured Loan' of Rs.13,84,72,064/- and even the 'Certificate of the Auditor', dated 08.05.2022, also mentions the 'Unsecured Loan', described in the Balance Sheet of the Corporate Debtor as advanced / given by the '1st Respondent / Financial Creditor', and also this 'Tribunal', bearing in mind, yet another fact that the 1st Respondent / Financial Creditor / Petitioner, on 25.01.2021, had advanced a Sum of Rs.3,97,85,000/-, to the 'Corporate Debtor', for the purpose of satisfying 'One Time Settlement Offer', given to the 'Corporate Debtor', by the 'State Bank of India', and the said amount was disbursed through Banking Transactions, all these would go to establish in a crystalline manner that there is a 'Financial Debt' of 'more than Rs.1 Crore', 'Due and Payable', by the 'Corporate Debtor', to and in favour of the '1st Respondent / Financial Creditor / Petitioner'. 93. In the light of foregoing detailed discussions, this 'Tribunal', taking note of the contentions, advanced on respective sides, considering the surrounding facts and circumstances of the instant case, in a holistic manner, comes to an ....