TaxTMI 
TaxTMI 
2024 (4) TMI 632
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....24 for arguments in the matter. 2. Brief facts of the case to be noticed for deciding the Appeal are:- 2.1. The Directors of the Appellant incorporated a Company in USA by the name of M/s. Selma Precision Technologies, NC, LLC (hereinafter referred to as "SPT") with purpose to participate in bidding process for the auction of a U.S Company namely M/s. Sona BLW Precision Forge INC, 500 Oak Tree Drive, Selma LC 27576, USA. On 23.12.2017, a letter of intent was issued between the Financial Creditor- 'Surya Testing Services Limited' and Corporate Debtor- 'Warm Forging Pvt. Ltd.' agreeing for equal participation to restructure the entity M/s. Selma Precision Technologies, NC, LLC. A new company was proposed in the name M/s. MV Forge Inc. (MVF) or such other name as may be mutually agreed to take over the assets of M/s. Selma Precision Technologies. Financial Creditor- 'Surya Testing Services Limited' agreed to pay a token amount to M/s. Warm Forging Pvt. Ltd. for exploring and participating in business activity. The funds for the token amount of $ 1,00,000/- for the business evaluation process was to be transferred through the HDFC Bank account of M/s. Warm Forgings Pvt. Ltd. Lett....
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....e filed before the Receiver including the Claim 1 by Reckon Industries Ltd., Claim 2 by Amit Rajput, Claim 3 by Anamika Jain, Virat Jain, Ajay Jain, Surya Testing Services Ltd. and other two claims. The Receiver submitted a Report-1 disallowing the portion of the Jain Claim based on purported contributions of Surya to SPT. Certain recommendations was made in the report submitted by the receiver dated 21.09.2020. Supplement of claim was submitted by Jain Group including Surya on which further report dated 14.10.2020 was submitted by receiver. Receiver's report was responded by Jain Group. Jain Group thereafter did not participate in the proceeding and default judgment was delivered by Superior Court Judge dated 01.08.2023. 2.4. A Section 7 application CP No.(IB)- 92/7/JPR/2021 was filed by Surya Testing Services Limited against Warm Forging Pvt. Ltd. claiming debt and default of Rs.1,60,00,000/-. Date of default being mentioned as 22.05.2018. Application claimed the financial debt on the basis of amount transferred to Warm Forging Pvt. Ltd. totalling Rs.1,85,00,000/-. Receipt of the amount of Rs.25,00,000/- was also acknowledged on 27.05.2018 and hence, for balance due Rs.1,60,00....
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....ted any loan secured or unsecured to the companies and the appellant has been described as sundry debtor. There is no mention of any long-term loan and advances being given to the Appellant. When Jain Group failed to make an investment of $ 5.2 million, a complaint was filed by Amit Rajput and his family members against Ajay Kumar Jain etc. in the General Court of Justice, Superior Court Division, State of North Carolina where claims were invited by receiver. Receiver has observed that 15% ownership interest was held by Anamika Jain on 28.03.2018. As per contract dated 14.07.2018 amount of $ 0.8 million were never received by M/s. Warm Forging Pvt. Ltd. from 'Selma Precision Technologies NC, LLC', hence, there was no occasion for refund of amount of Rs.1,95,00,000/- as mentioned in the agreement dated 14.07.2018. The Financial Creditor has again submitted supplement to claims which claims have not been accepted. It is submitted that the U.S Court passed a default judgment in favour of the Plaintiff where it was observed that Anamika Jain holds a 15% ownership interest in SPT by virtue of payments made by 'Surya Testing Services Limited'. It is submitted that the judgment referred b....
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....a Precision Technologies NC, LLC', Amit Rajput and Ajay Kumar Jain, the financial creditor was not party to any of the agreements. Understanding as reflected in the letter of intent dated 23.12.2017 having not been fulfilled and was abandoned, a new agreement was entered on 14.07.2018. Agreement dated 14.07.2018 also records undertaking by the corporate debtor that it shall return amount of Rs.3.5 Crores to Reckon Industries and Rs.1.95 Crores to financial creditor. 6. Coming to the receiver report relied by Counsel for the Appellant. It is submitted that the receiver did not accept the claim of the financial creditor holding that there is no proof of any payment by financial creditor to U.S Company 'Selma Precision Technologies NC, LLC' and the claim on the basis of payments made to Warm Forging Pvt. Ltd. cannot be accepted. The rejection of the claim of financial creditor by receiver was also upheld by U.S Court. It is submitted that the Adjudicating Authority relying on the relevant documents filed before it has rightly come to the conclusion that the application filed under Section 7 is maintainable and there is no ground to reject Section 7 application as prayed by the corp....
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....n 22.05.2018 (B) (25,00,000/-) Net Total Amount in Claim (A-B) 1,60,00,000/- 9. The bone of contention between the parties is regarding the nature of such disbursement. Appellant's case is that the said disbursement was made by the financial creditor for obtaining equity in the U.S Company M/s. Selma Precision Technologies, NC, LLC and the said was not a financial debt extended by financial creditor to the corporate debtor. Both the parties have advanced various submissions in support of their respective case. There are several documents and materials brought on record by both the parties which need to be noticed for finding out the nature of transaction. We have already noticed the letter of intent dated 23.12.2017 entered between the corporate debtor and the financial creditor. It is useful to extract the entire letter of intent which is as follows:- "Date: December 23, 2017, Letter of Intent (LOI) for M/s. MY FORGE Inc., Selma, NC, USA This LOI is between: 1. M/s. Surya Testing Services Ltd., 23/3 East Patel Nagar. New Delhi 110008. * Represented by: Mr. Ajay Kumar Jain & Mr. Virat Jain. 2. M/s. Warm Forgings Pvt.....
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....bsp; Mr. Virat Jain 2. M/s. Warm Forgings Pvt. Ltd., Bhiwadi, Rajasthan, India. Mr. Amit Rajput Mrs. Anupam Chauhan Mr. Mayank Rajput" 10. It is the case of the financial creditor that it could not obtained permission from RBI to send money abroad, hence, the money could not be transferred by the financial creditor abroad. Admittedly, the money was disbursed to the corporate debtor which disbursement has already been noted above and accepted by the Adjudicating Authority. There are two other subsequent agreements which have been referred to and relied which need to be noticed. The agreement dated 14.02.2018 was entered between SPT, Amit Rajput and Ajay Kumar Jain. The said agreement was to acquire 50% ownership of 'Selma Precision Technologies NC, LLC' by third party i.e. Ajay Kumar Jain. The amount of 2 million USD was to be remitted by the third party and its family members and relatives within six months from February, 2018 to August, 2018. The said investment was to be made in 'Selma Pre....
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....and has invited Third Party to buy shares of the same as the Second Party does not have adequate capital at this stage. Based on the representations of the Second Party, the third party has agreed to enter into this venture by having 50% holding in the First Party. NOW THIS AGREEMENT WITNESSETH AS FOLLOWS: 1. That to acquire 50% ownership units in the first party, the third party or his relatives, associates or his companies have agreed to invest 2.25 million USD in the First party. 2. That further, this 2 million USD has to be remitted by the third party and his family members and relatives within six months as per the following schedule By Feb 2018 500000 USD March 2018 500000 USD April 2018 250000 USD May 2018 250000 USD June 2018 250000 USD July 2018 250000 USD August 2018 250000 USD 3. That the First Party, on receiving the funds as stated above, will utilize funds as under- (A) For repayment of existing short-term loansas stated above. (B) For Electricity connection USD 175000 (C) For payment of Expenses USD 50000 for repayment of EMI of Utica....
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.... representations of the Second Party is found to be false/untrue at a later stage, the Third Party shall have a right to claim back all the amounts invested/given on the representations of the Second Party. In such case, the Third Party shall demand any/all amounts paid by it under this agreement and the Second Party shall refund the same without any protest. 11. This Agreement shall be governed by laws of India and the courts at Gurgaon only shall have sole and exclusive jurisdiction in relation to any matters, dispute arising under this Agreement. 12. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes any prior oral or written agreements, commitments or understandings with respect to the matter provided for herein. 13. That this agreement is executed in duplicate and each party shall retain one original copy." 11. From the above agreement, it is clear that the financial creditor i.e. 'Surya Testing Services Limited' was not a party to the said agreement and the said agreement was between three different parties which are neither the financial creditor nor the corporate ....
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.... assured the Third Party that there is no other loan/liability except as mentioned above. On receipt of 0.80 million USD, Warm Forging shall return the amount of Rs. 3,50,00,000/- (Rupees Three Crore Fifty Lacs only) to Reckan Industries Limited and Rs. 1,95,00,000/- (Rupees One Crore Ninety Five Lacs) to Surya Testing services Pvt Ltd. The same is confirmed by the Second Party who is Director in Warm Forgings Pvt Ltd. 2. The Second Party agrees to indemnify, defend and hold harmless the Third Party, affiliates, directors, officers, representatives, employees and agents (collectively, the "Indemnified Persons"), from and against any and all claims, actions, suits, proceedings, costs, damages, judgments, amounts paid In settlement and expenses (Including - without limitation reasonable attorneys' fees and reasonable disbursements at actual) (collectively, "Loss") asserted against or incurred by the Indemnified Persons, to the extent directly suffered (excluding consequential or special losses), as a result of, arising from, or in connection with or relating to any matter inconsistent with, or any breach or Inaccuracy of any representation, warranty, covenant or....
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....he Balance Sheet of the Corporate Debtor for the year 2017-18. In the Balance Sheet of the Corporate Debtor under the classification of 'Borrowing' as 'Unsecured Borrowing, the borrowings for the year ending on 31.03.2017 is Rs. 3,50,00,000/- (Rupees Three Crores Fifty Lakhs Only) and for the year ending on 31.03.2018 is Rs. 5,35,00,000/- (Rupees Five Crores Thirty-Five Lakhs Only). The increase in the borrowings as reflected in the balance sheet is directly proportional to the amount disbursed by the Financial Creditor in the account of the Corporate Debtor i.e. the amount of Rs. 1,85,00,000/- (Rupees One Crores Eighty-Five Lakhs Only). It is an admitted fact that later, the Corporate Debtor returned the amount of Rs. 25,00,000/- (Rupees Twenty-Five Lakhs Only) on 22.05.2018, hence, the same is not reflected in the Balance Sheet for the year ending on 31.03.2018. The said disbursal is corroborated by bank entries filed by the Financial Creditor. Moreso, the Corporate Debtor has not denied the receipt of the amount by the Financial Creditor. 17. Combined reading of the Agreement dated 14.07.2018, as well as Balance Sheet for the year 2017-18 and the Bank statem....
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....t Rajput and his family with regard to 'Selma Precision Technologies NC, LLC' in U.S. Court. 19. We now proceed to notice the receiver report as well as order of the U.S Court relied by the Appellant. As noted above, the complaint was filed by Amit Rajput and his family against Amit Jain and others alleging breach of contract with respect to 'Selma Precision Technologies NC, LLC' and claimed amount. Receiver was appointed by the court with regard to 'Selma Precision Technologies NC, LLC' and the receiver invited claims with regard to 'Selma Precision Technologies NC, LLC'. In the report submitted by the receiver dated 21.09.2020, in paragraph 7, receiver has noted five groups of the claim in which Claim No.3, name of Surya Testing Services Ltd. has also been noticed. Paragraph 7 of the receiver's report as follows : - " 7. The Receiver received five groups of claims. These claims include the following : a. Claim No. 1: Reckon Industries, Ltd. ("Reckon"), J.P. Aggarwal, Sandeip Aggarwal, and Sumitra Aggarwal (collectively, the "Reckon Group") in the amount of $6,809,124 based upon contributions by them for an equity interest in SPT, demands for refund of those c....
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....rya Testing Services Ltd. to 'Warm Forging Pvt. Ltd.'. The General Court of Justice, Superior Court, State of North Carolina, County of Johnston passed an order on 01.08.2023. In paragraph 9 of order dated 01.08.2023, receiver's recommendation has been noticed. Paragraph 9 of the order is as follows:- "9. Though not under oath, certain claims were submitted to the Receiver by various parties. The Receiver's recommendations per the Receiver's Report #1, as amended by the Receiver's Report #2 dated July 24, 2023, were as follows:- Claimant Amount Claimed Recommendation Anamika Jain $340,000 Disallow Virat Jain $325,700 Disallow Ajay Jain $54,800 Disallow Himani Jain $250,000 Allow V.P. Industries Ltd. $10,000 Disallow Surya Testing Services Ltd. $300,000 Disallow Meghna Venhateshwar $6,879 Disallow Mettu Venkateshwar $20,163 Disallow Akhil Nigam $16,587 Disallow Rinki Jain $26,100 Allow Vikas Jain $152,414 Allow Manish Jain $38,350 Disallow Pooja Jain $35,500 Disallow Anamika Singhal $24,100 Allow Divyank Goswami $31,021 Allow Ger....