TaxTMI 
TaxTMI 
2026 (2) TMI 24
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....Financial Creditors of the Corporate Debtor i.e., M/s. Global Syntex (Bhilwara) Limited, under Section 61 of the Insolvency and Bankruptcy Code, 2016 ('Code') against the Impugned Order dated 23.04.2024 passed by the National Company Law Tribunal, Jaipur Bench ("Adjudicating Authority") in I.A. 340/JPR/2020 in CP (IB) No. 79/7/JPR/2019. Mr. Prashant Agarwal, who is the Liquidator of M/s. Global Syntex (Bhilwara) Limited, is the Respondent No.1 herein. M/s Pammvi Consultancy Services Ltd., who is the Operational Creditor, is Respondent No. 2, herein. 2. The Appellants submitted that they are partly aggrieved by the Impugned Order dated 23.04.2024, which disallowed the entire interest component at 24% per annum on the principal loan amount advanced by them. This disallowance has directly prejudiced their recovery from the liquidation proceeds, warranting intervention by this Appellate Tribunal. 3. The Appellants submitted that they had advanced financial assistance to the Corporate Debtor to facilitate its business operations and discharge outstanding liabilities, with an understanding to create an equitable mortgage in favour of Appellant No. 1. Term sheets executed betw....
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....fully remitted by Appellant No. 1 to Respondent No. 1 on 28.09.2020, enabling distribution to eligible stakeholders in accordance with the waterfall mechanism under Section 53 of the Code. At this juncture, M/s. Paamvi Consultancy Services Limited (Respondent No. 2) filed Interlocutory Application No. 340/JPR/2020 in October 2020, manifestly at the fag-end of the liquidation process, seeking reliefs, namely: (a) setting aside the auction dated 31.08.2020 and ancillary processes as illegal, with directions to issue notices and cancel the same; (b) quashing the entire CIRP; (c) disallowing related-party transactions. Notably, the application contained no prayer whatsoever to scrutinize or disallow the interest component at 24% per annum as extortionate. 8. The Appellants submitted that the Adjudicating Authority, while upholding the validity of the CIRP and liquidation processes, impermissibly traversed beyond the Respondent No. 2's pleaded reliefs. In a suo motu exercise, the Adjudicating Authority declared the interest at 24% per annum "extortionate and illegal," disallowing it in toto from the Appellants' claims. The Appellants contended that the ....
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....olding 60% per annum extortionate, was wholly inapposite, as the instant 24% rate, agreed in 2015 (predating the two-year look-back under Section 50), reflects arm's-length bargaining in a high-risk unsecured lending scenario, not usury. 14. The Appellants submitted that the Impugned Order's blanket disallowance, without quantifying a "just and reasonable" rate (e.g., benchmarked to RBI guidelines or market equivalents for distressed lending), evinces non-application of mind and arbitrariness, the Appellants contended that the Authority provided no reasoned justification-factual, statutory, or precedential, for branding 24% extortionate, rendering the finding perverse and amenable to interference under Section 61(3). This lacuna vitiates the order's sustainability. 15. Concluding their arguments, the Appellants prayed this Appellate Tribunal to set aside the Impugned Order in entirety, restore the interest component at 24% per annum to their claims, and grant consequential reliefs including redistribution of proceeds under Section 53, with costs. 16. The Respondent No. 1 submitted that he does not want to file any reply as per the order dated 19.03.2025 passed ....
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....es, whereas the Liquidation Value was assessed at Rs.11.13 Crores. 22. The Respondent No. 2 submitted that in the first meeting of the SCC held on 25.06.2020, the Liquidator was authorised to sell the immovable properties. Accordingly: a) An e-auction was conducted on 31.07.2020 at a reserve price of Rs.11,13,42,501.50, which failed. b) Immediately thereafter, a second auction was conducted on 14.08.2020 after reducing the reserve price by 25%, which also failed. c) Without any justification, a third auction was conducted on 31.08.2020 with a further reduction of 10%, pursuant to which Appellant (Bhilwara Spinners Ltd.), being the sole bidder, purchased both properties for a paltry sum of Rs.7.51 Crores. 23. It is submitted by Respondent No. 2 that the conduct of Respondent No. 1 in conducting back-to-back auctions within a span of one month, during the first wave of the COVID-19 pandemic, is ex facie arbitrary and contrary to the object of the Code, which mandates maximisation of value of assets. The assets were neither perishable nor likely to deteriorate if the sale had been deferred. Despite this, the properties were sold at nearly half of their....
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.... a subsidiary of Appellant No. 2, and the directors of Appellant No. 3 are interested in Appellant No. 2. Further, the balance sheet of Appellant No. 3 categorically records the Corporate Debtor as an entity in which its directors are interested, clearly establishing that the Appellants are related parties of the Corporate Debtors. 31. The Respondent No. 2 submitted that the Corporate Debtor had been non-operational since 2002. It is inconceivable that unsecured loans were advanced on an unstamped term sheet to a dormant entity. No interest was ever paid, nor was any interest reflected in the books of accounts of Appellants. The CIRP was initiated solely on the basis of acknowledgment of liability, thereby raising serious doubts regarding fraud in obtaining the CIRP and liquidation orders. 32. The Respondent No. 2 submitted that it is a settled principle of law that any order obtained by fraud is non-est in the eyes of law. The Hon'ble Supreme Court in A.V. Papayya Sastry & Ors. v. Govt. of A.P. & Ors. [(2007) 4 SCC 221] has categorically held that such orders are nullities and cannot be allowed to stand. 33. Thus, the Respondent No. 2 requested this Appellate Tribunal to:....
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.... Plot no. SPL-1, at industrial area, biliya extension, Bhilwara having area of 26,800 sq. mtr. Freehold Agriculture Land Situated at Araji No. 1442/135 & Araji No. 135 adjacent to industrial land at industrial area, biliya extension, Bhilwara. Current Assets Cash at Bank amounting to Rs. 12,714/- 38. It will be pertinent to note that the E-auction was conducted on 31.072020 at reserve price of 11,13,42,501/- which failed and subsequent to which the reserve price was reduced by 25% to Rs. 8,35,06,876/- which also failed and the reserve price was further reduced by 10% to Rs. 7,51,56,188/-. We note that M/s Bhilwara Spinners Limited, the Appellant No. 1 herein, itself submitted its bid at reserve price and was declared successful by the CoC and approved by the Adjudicating Authority. Subsequent to this, M/s Bhilwara Spinners Limited, Appellant No. 1 herein, paid complete consideration and the sale proceedings were distributed among the creditors of the Corporate Debtor as per Waterfall Mechanism in the following manner: - S.No Stakeholder under Section 53(1) Amount Admitted Amount Distributed Percentage 1 CIRP Cost 7,51,316 7,51,316 ....
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....re the Resolution Professional :- Sr. No Name of Financial Creditor Amount Claimed Amount Admitted Principal Component 1 Shree Bharka Synthetics Limited (Respondent No. 2) 1,28,05,494 1,28,05,494 40,00,000/- 2 Ahinsa Infrastructure and Developers (Respondent No. 3) 4,18,47,903 4,18,47,903 17,00,000/- 3 Bhilwara Spinners Limited (Respondent No. 4) 10,23,84,512 10,23,84,512 4,09,00,000 Total 15,70,37,909 15,70,37,909 4,66,00,000 42. It is noted that all these three Financial Creditors' disbursed total loan of Rs. 4.66 Crores i.e., Shree Bharkha Synthetics Limited Rs. 40 Lakhs, M/s Bhilwara Spinners Limited Rs. 4.09 Crores and Ahinsa Infrastructure and Developers Rs. 17 Lakhs. It is noted that interest chargeable was @18% p.a for first year and thereafter the interest rate was enhanced to 24% compounded monthly. Thus, the principal advance of Rs. 4.66 Crores became Rs. 15,70,37,909/- as seen from the above table mentioned in the Adjudicating Authority. 43. The Adjudicating Authority considered all facts and treated the interest rates as exorbitant and found in nature of extortionate and illegal for....
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....m is beyond the purview of the look-back period as provided under Section 50(1) of the IBC. However, keeping in view the rates of interest charged on the loan and its compounding on delays, we are of the opinion that the interest charged on the loans is extortionate in nature and thus illegal for the reasons mentioned in Para 22 and 23. However, Respondent No. 2, 3, and 4 are entitled to the Principal Amount as shown in the balance sheet of the Corporate Debtor. 22. A perusal of the records of the Corporate Debtor would reveal that the Financial Creditors advanced loans to the Corporate Debtor which ceased to be an operational entity since April 2002. The aforesaid loans were advanced on the term sheets that were not duly stamped. Further, there is no evidence on record to show that the Corporate Debtor was in need of the loans disbursed by the Financial Creditors. Moreover, there is no document to prove that the Board of the Corporate Debtor resolved to take the loans with an interest of 18% P.A. for the first year and 24% P.A. compounded monthly for the remaining duration. 23. Due to the exorbitant interest charged by the Financial Creditors on the total princip....
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....spondent Amount Required to be returned M/s Shree Bharka Synthetics Ltd. (Respondent No. 2) 18,88,371 M/s Ahinsa Infrastructure and Developers Ltd. (Respondent No. 3) 1,75,54,611 M/s Bhilwara Spinner Ltd. (Respondent No. 4) 61,47,967 TOTAL 2,55,90,949 52. We note that the Corporate Debtor ceased to be as operational units since April 2002, whereas these loans were given to Financial Creditor's in 2014. 53. We put a direct query to the Appellants on this issue, as to what prompted them to advance financial advances to the Corporate Debtor who was not operating since last more than one decade before loans were granted. The reply of the Appellants was that it was their commercial decision and no fraud/ extortionate acts could have been attributed towards them. We also put query to the Appellants as to why they had charged two different interest rates i.e., 18% for the first year and 24% per annum compounded monthly for remaining duration. The answer of the Appellants again was that it was commercial decision. The Appellants further stated that although the term sheet provided interest rate @24%, reasonable amount over and above principals' debt could b....
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.... Notwithstanding anything to the contraly contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of (a) any application or proceeding by or against the corporate debtor or corporate person; (b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and (c) any question of priorities or any question of law or facts, arising of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this code. " 23. In the present case, Respondent No. 1 herein made an Application to the Adjudicating Authority by invoking Section 60 Sub-Section 5 read with Section 22 of the IBC (Annexure R-8, page 90 of Reply) which in our opinion is in accordance with law and the Respondent No. 1 rightly invoked the jurisdiction. 26. In so far Appellants No. 1, 5 & 8 are concerned, though technically they may not be covered under Section 50(1) of the IBC. However, keeping in view that the rates of interest which they charged are exorbitant, we are ....
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....registered. Note C also stipulates that no interest has been provided in the books of the Corporate Debtor. Interestingly, Corporate Debtor candidly acknowledged the fact that the terms of repayment is NIL. It means that repayment terms neither finalized nor repayment seems contemplated. Thus, the interest of loan especially interest rate which stood enhanced to 24% p.a. compounded monthly seems not appropriate in given circumstances. In this background, we tend to agree with the finding of the Adjudicating Authority as contained in the Impugned Order. We do not find any rational for Corporate Debtor for acknowledging interest liability but not account for same in its own financial statements, which is against the established accounting norms and standards. 60. Incidentally, we take into account the term-sheet annexed as Annexure 4 in the appeal paper book and find that not even the place has been mentioned, where the term sheet was signed and kept as blank. This is also does not augur well for the cause of the Appellants. 61. Based on above detailed analysis, we do not find any error in the Impugned Order. The Appeal devoid of any merits stands rejected. No Cost. I.A., if an....