TaxTMI 
TaxTMI 
2025 (7) TMI 1146
X X X X Extracts X X X X
X X X X Extracts X X X X
....- has been dismissed. 2. The case set up by the Appellant is that the CD is in the business of sea foods processing and exports. The business of the CD suffered because of the death of one of the promoters of the CD which led to classify the account of the CD with secured creditors as NPA. It is alleged that on the request of the CD, the Appellant agreed to disburse inter corporate loan to discharge the liabilities of the other secured financial creditors. The loan advanced by the Appellant did not bear interest and was to be repaid after the settlement of the secured financial loans of the CD under the one time settlement scheme but when the CD failed to repay the loan after settlement of the secured loans, the Appellant issued notice dated 20.08.2019 and recalled its loan of Rs. 4,43,50,000/- to be repaid within 15 days. The Appellant has alleged that the amount of loan is reflected in the financial statement of the Respondent as unsecured loan. 3. On the other hand, the case set up by the Respondent is that the loan, if any, advanced without interest is not a financial debt. There was no agreement between the parties for disbursement and no due date was fixed for repayment. It....
X X X X Extracts X X X X
X X X X Extracts X X X X
....43,50,000/- is admitted by the CD in its own balance sheets for the financial year 2017-18 and 2020-21 as unsecured loans. It is reiterated that the CD sought financial assistance in terms of an inter corporate interest fee loan repayable within two years from the last date of disbursement or after completion of debt settlement and acquisition of plant and machinery from bank or six years from the first date of disbursement or on demand whichever is earlier. The Respondent has also filed the sur-rejoinder. 5. The Tribunal on the pleadings of the parties framed three questions for determination of the application filed under Section 7 of the Code, namely, whether the CD owed a financial debt of Rs. 4,43,50,000/- to the Appellant, whether loan given in violation of section 186 of the Act is void and whether the Appellant has not complied with the requirements of Section 7(3)(a) of the Code? If yes what are its consequence? 6. In so far as the first point is concerned, the Tribunal has answered the same in the following manner:- "14. For financial debt the following elements are necessary (i) Disbursement and (ii) the disbursement must be against the time value of money and for co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is that the amount in question is not the loan amount but it was disbursed out of amount paid by the developer Oorijit Project Pvt. Ltd. to the Respondent through the Appellant on the basis of internal family arrangement. 11. Counsel for the Appellant has argued that the amount in question has been reflected in the financial statement of the CD as unsecured loan. In this regard, he has referred to financial statement of the year 2016-17 in schedule 3A under the heading unsecured loans towards Pancham Studio of an amount of Rs. 4,42,50,000/-. Similarly, in the financial statement of the year 2017-18 in schedule 3A under the heading unsecured loan the amount in the name of Pancham Studio is Rs. 4,43,50,000/- and in the financial year 2020 to 21 the same entry is repeated. It is contended that the amount in question has been reflected as unsecured loan from the FC in the financial statement of the CD at all relevant times and particularly on and from financial year 2016 -17 to 2020-21. These entries are without any qualification and / or caveat whatsoever, therefore, it has been admitted by the CD as unsecured loan having the commercial effect of borrowing. It is also submitted that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ty borrower. In this regard, he has referred to a decision in the case of Sarveshwar Creations Pvt. Ltd. Vs. Union Bank of India, CA (AT) (Ins) No. 1003 of 2020 in which it has been held that "l. As far as the issue of contravention of provision of Section 185 of the Act prevailing as on that date (pre -07.05.2018 amendment to the Act) is concerned, it is very much clear that this is the provision which the company has to comply internally and if they fail to comply the necessary punishment is available in the same section i.e. Section 185, both monetary penalty and /or imprisonment. As far as bank is concerned, they have been provided time to time the Board Resolution showing the approval of the Board. Hence, if there is any irregularity then for that the Members of the Board are responsible. If the official of the bank have committed some irregularity, then it is the Bank who has to prosecute these officers against the provisions laid down under the law applicable to them. Bank is required to investigate internally. However, as far as the public fund with the public sector bank is concerned, the "Doctrine of Indoor Management" will be wholly and exclusively applicable" 14. Couns....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... evidence of default by financial creditor. We have also noticed that the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 which are Rules framed by the Central Government provides for filing of the application under Section 7 in Form-1 and under Form-1, Part-V under 'particulars of financial debt (documents, records and evidence of default)', it is not only the record of default with information utility but other record of default has also been contemplated. We have noticed that Regulations framed by the Board as per Section 240(1) has to be consistent with provisions of the Code and the Rules. If Regulation 20(1A) is to be read as Regulation now mandating the Financial Creditor to file only the record of default in the information utility, the said Regulation will not be consistent with provision of Section 7(3) of the Code and Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 which provides that what documents have to be filed by the Financial Creditor. Sub-rule (1) of Rule 4 provides for documents and records required therein and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is "due" i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise." 16. On the other hand, Counsel for the Respondent has submitted that the disbursement of loan was in violation of Section 186 of the Act as per which no company can directly or indirectly give any loan exceeding 60% of its paid up share capital without prior approval by means of special resolution passed in the general meeting and loan cannot be granted without interest or at a less rate of interest. It is argued that no general meeting at all and the loan was also interest free. In this regard, he has relied upon a decision in the case of M Sai Eswara Swamy Vs. Siti Vision Digital Media Pvt. Ltd., CA (AT) (Ins) No. 706 of 2021. 17. Counsel for the Respondent, havin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Ld. Tribunal that there is no board resolution authorising the petitioner to file the petition, therefore, the petition is not maintainable". It has also held that with the aforesaid we are of the view that the Tribunal has rightly held that the petition is not maintainable, therefore, no interference is called for in the impugned order. The said appeal was dismissed summarily and no reasoning was given in this regard that if there is violation of Section 186 then the CD can take the plea that the transaction has become void and is not liable to repay the same. 24. The argument of the Respondent that a written financial contract is necessary for providing debt has been negated by this Court in the case of M/s Agarwal Polysacks Ltd. (Supra) in which the following observations has been made :- 11. We need to test the submission of learned counsel for the Respondent that the written financial contract is necessary for proving debt. A financial contract supported by financial statements as evidence of the debt is one of the documents contemplated in Regulation 8(2) but that is not exclusive requirement for proving existence of debt. Financial contract thus can very well be furnis....