TaxTMI 
TaxTMI 
2026 (2) TMI 609
X X X X Extracts X X X X
X X X X Extracts X X X X
....reby, the Insolvency Petition was dismissed by the Adjudicating Authority. Condonation of delay 2. Initially as per order dated 27.04.2023 in IA No. 1327 of 2023, this Appellate Tribunal had held that there is delay of more than 15 days in filing the appeal and accordingly the delay condemnation application was rejected and the memo of appeal was also rejected. Subsequently the appellant had taken up the matter before Hon'ble Supreme Court in Civil Appeal No. 5958 of 2023 dated 4th February 2025 and the application for condemnation of delay was allowed and this Appellate Tribunal was directed to proceed to decide the appeal in accordance with law. Briefly speaking 3. Briefly speaking on 21.07.2015, Nishu Finlease Private Limited ("NFPL"), a NBFC, had disbursed a loan of Rs. 40,00,00,000/- (Rupees Forty Crores) ("Financial Debt") to the Corporate Debtor under the Term Loan Agreement dated 21.07.2015 ("Loan Agreement"). As per the Loan Agreement, the Financial Debt was repayable by 21.07.2016, i.e., 12 months from the date of disbursement. The Financial Debt was secured by creating pledge over 1,32,33,328 equity shares of ABG Shipyard Limited ("Pledge Shares"). The pledge....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to the Corporate Debtor. Despite having unequivocally acknowledged the Financial Debt, the Corporate Debtor has failed to make any payments against the same. Accordingly, on 10.06.2019, the Appellant filed the Insolvency Petition under Section 7 of the Code before the Ld. Adjudicating Authority seeking initiation of Corporate Insolvency Resolution Process against the Corporate Debtor. Similarly, on account of default in payment of financial debt of Rs. 3,18,91,47,450/- by Perpetual Capital and Servicing Private Limited ("Perpetual"), a petition under Section 7 of the Code was initiated before the Mumbai Bench, NCL T. Pertinently, Perpetual was also a signatory to the Settlement Agreement. This Section 7 petition was allowed and Perpetual has been admitted into CIRP by. way of order dated 12.08.2022. 4. On 25.11.2022, the Ld. Authority erroneously dismissed the Insolvency Petition vide the Impugned Order despite clear existence of a financial debt and default. Pertinently, the Ld. Adjudicating Authority has misinterpreted the record in order to come to a conclusion that the Settlement Agreement superseded and hence subsumed the Loan Agreement, as a result of which, no standalo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hares of ABG Shipyard were merely being held by the Appellant under encumbrance. Neither has the pledge been invoked by the Appellant nor have the *pledged shares been sold to recover the amounts due from the Principal Parties. amounts in excess of INR I lakh would be owed by the Corporate Debtor to the Financial Creditor even despite alleged (and disputed) invocation of pledge against the shares provided as security against the loan of INR 40,00,00,000/- availed by the Corporate Debtor. • No concrete finding on the composite value of the ABG shipyard shares allegedly transferred in part satisfaction of the amounts owed by the Corporate Debtor to the Financial Creditor. Resultantly, there is no finding on whether the admitted default is against an amount in excess of INR 1,00,000/- as required under Section 4 of the Code. • The loan granted by NFPL to SCCPL and thereafter transferred to RFL gets subsumed into the Settlement Agreement by way of the recitals. The recital clauses are nothing but acknowledgement of the debt due by the principal parties, including SCCPL, to RFL and the settlement agreement specifically provides in terms of Clause 3.7 that all p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lt takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. "Default" is defined in section 3(12) in very wide terms as meaning non- payment of a debt once it becomes due and payable, which includes no-payment of a part thereof or an instalment amount ... " • Adjudicating Authority has erred in holding that there has been no default in repayment of debt despite recording a finding that no amounts have been tendered in terms of the Settlement Agreement. • Adjudicating Authority has erred in ignoring the fact that even though there was a recovery of around INR 13 crores which was deposited in the account of Appellant after selling the shares, which were pledged by 12 assigned borrowers, the receivables are not connected with the Corporate Debtor and have been appropriated against the outstanding dues under the Settlement Agreement in accordance with the prevalent law. No monies whatsoever have been deposited in the escrow account opened in terms of the Settlement Agreement. • Where the Debtors has omitted to indicate and there is no other circumstances indicate which debt payment/recov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....paid some alleged loan amount or in event of alleged default (ii) liquidate pledged shares. On 29th June 2016, the Financial Creditor choose the latter options and invoked the pledged shares. The Financial Creditor has consciously chosen to forfeit the right of claiming the alleged debt and instead invoked the pledge. 9. Respondent was a 'Financial Service Provider': No application under Section 7 of the IBC Code lies against a 'Financial service provider'. Further, the conditions precedent for maintaining an application under Section 7 of the IBC, 2016 are not being met as demonstrated and established. The Respondent namely Strategic Credit Capital Private Limited is a Private Company previously known as Kalinga Finlease Private Limited, was incorporated on 17th May 1996. The Respondent was registered as an NBFC (Category B) by the Reserve Bank of India ('RBI') vide Certificate of Registration ('CoR') number B-14.02569 dated February 26, 2002. After the Respondent's name changed from Kalinga Finlease Private Limited to Strategic Credit Capital Private Limited, the Ministry of Corporate Affairs issued a fresh certificate of incorporation and R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing financial service arrangement with the Corporate Creditor on or about July of 2015. This inter-alia involved Assignment Agreements in terms whereof the Corporate Creditor had unconditionally and irrevocably sold, transferred and assigned the loans granted by the Corporate Creditor to certain borrowers to the Respondent for a fixed amount. The said twelve loans were sold to the Respondent on the fraudulent misrepresentation of being arms-length transactions but in reality, the said loans turned out be related party loans which were a fund siphoning scheme adopted by the Corporate Creditor. The Respondent contemporaneously had entered into a Term Loan Agreement with one Nishu Finlease Private Limited which was a related party of the Corporate Creditor on July 21, 2015 seeking credit facility for the purposes of funding the structured financial services to be provided to the Corporate Creditor. The manipulation scheme adopted by the Corporate Creditor involved the 12 borrowing companies to serially trade shares of one 'ABG Shipyard Limited' in order to inflate the price of shares of ABG Shipyard, enabling ABG Shipyard to borrow upto Rs. 16000 Crores from various Lenders. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....art of the settlement agreement and any obligations arising later were assumed by the Trust and accepted by the Corporate Creditor. The above understanding is evidenced by the pass through certificate' issued by the Eleos Trust and accepted by the Corporate Creditor for settlement of all obligations and reducing them to receipts from the pass through certificate. It is pertinent to point out that the Corporate Creditor had recognised the transfer by the Respondent of all its rights and in favour of Eleos Finvestia Acquisition Trust. The Eleos Finvestia Acquisition Trust had issued a pass-through certificate to the Corporate Creditor for the settlement of all obligations and limited the obligation to receiving 50% of the net proceeds. 14. Failure by the Financial Creditor to meet its obligations: There are other suits/ litigations pending before various courts between the parties which involve the rights and obligations backing the financial services provided by the Respondent to the Corporate Creditor including assignment of the 'Religare' brand to the Respondent as security offered by the Corporate Creditor and its related entities for services to be rendered by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ional reply of CD, rejoinder of FC and reply of FC on additional affidavit of the CD -which was filed along with the appeal paper book. 16. Brief question before us is whether under the circumstances, Section 7 petition under the Code is admissible in this case or not. There are following ancillary questions which we need to answer: • Whether application under section 7 was hit by limitation or not • Whether FC had relinquished any rights • Whether Respondent-CD is a 'Financial Service Provider' • Whether the transactions are covered under the definition of 'claim' or not • Whether Dispute is of any relevance or not Limitation issue: 17. The respondent had claimed that the application under section 7 was hit by limitation as it was filed beyond 3 years and Article 137 of the Limitation Act gets attracted. "The right to sue", therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Section 137 of the Limitation Act. In the present case the limitation expired on 24th June 2019 while th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t in derogation of or mutually exclusive or as alternative to each other. Moreover, the shares of ABG Shipyard Ltd being held by the Financial Creditor as beneficiaries in their demat account pursuant to the Sale Agreement executed between the Financial Creditor and NFPL. were pledged as security to the Loan Agreement, and that ABG Shipyards has been under corporate insolvency resolution process, and consequently, the pledged shares of the said company could not be transferred and were otherwise of no marketable value. Thus, we find this argument of the Respondent also of no relevance in deciding the case of debt and default. Whether Respondent-CD is a 'Financial Service Provider' 19. Respondent claims itself to be 'Financial Service Provider' and thus claims exempted to be a corporate debtor per IBC provisions. In its rejoinder FC denied that the Corporate Debtor is a Financial Service Provider and thus was not exempted from the definition of corporate debtor as defined under the Insolvency and Bankruptcy Code, 2016 ("IBC"). 20. We find that on the date of filing of Section 7 application; Respondent is not an NBFC but on the date of alleged financial transactions ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 3(6) of the IBC. The definition of claim is as given hereafter: "claim" means - (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed legal, equitable, secured, or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;" 23. Respondent claims that the transactions were part of a structured debt servicing agreement between the respondent and the Corporate Creditor. It was part of a larger agreement which included financing to the sister company, Perpetual and it was the lawyers of the FC who had structured this 'complicated transaction' with inducements for the respondent and eventually the respondent learned that this was part of a complicated scheme to pass on fraudulent loans to the Respondent and therefore the Respondent terminated the agreement. Respondent has also produced the copy of the mail exchange between various stakeholders demonstrating that the proposed complex transaction w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was part of the original transaction structure, which was a non-recourse loan as per the committed understandings at the time. In any event, the loan from Nishu Finlease Private Limited was used to secure shares of ABG Shipyard and when the transaction unravelled the Nishu Finlease Private Limited loan was acquired by the Corporate Creditor and the shares stood invoked. The Settlement Agreement of July, 2017 captures the Nishu Finlease Private Limited loan as being part of the Settlement Agreement. The Settlement Agreement accomplished the following objectives: • Gave the Respondent a right to recover/ earn up to Rs 400 Crores [50% of the Rs. 800 Crores recovery], which was on a best efforts basis • settled all litigations against the Respondent and its related parties • obligated the Corporate Creditor-FC to provide complete support to the Respondent for recovery of the originals loans 25. Basis above background the Adjudicating Authority had come to the following conclusion: "16. We noticed that as between the parties herein the transaction has been going on for a long time and in different parts and the assignment of the NFPL lo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le and therefore other questions are only academic. But we are delving into other issues for sake of completeness. Dispute of any relevance: 27. Another ground which has been raised by the respondent is that the present petition is part of a deep or complex dispute. We note that unlike Section 9 of the IBC, dispute is of no relevance to a petition filed under Section 7 of the IBC. Consequently, presence of any alleged dispute between the parties has no bearing to the present petition filed under Section 7 of the IBC but in this case the petition itself is not maintainable as the Respondent at the relevant point of time was a FSP. 28. But what is the so called dispute? In the present case it is the case of Religare Finvest Limited - Financial Creditor that the loan agreement of dated 21.07.2015 read with the sale agreement dated 16.06.2016 constituted a valid financial debt which was disbursed against consideration for the time value of money and was supported by a pledge of shares. We note that the Appellant- FC had also assigned 12 loan accounts to the Respondent for recoveries vide assignment dated 25.07.2015. Later on, Appellant - Financial Creditor - Religare Finvest L....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vant portion of the order is as follows: "... 26. The Respondent in its reply alleged that the Petitioner had unconditionally and irrevocably sold, transferred and assigned the loans granted to certain borrowers, to the Respondent and SCCPL. Further, the Respondent submits that the loans sold turned out to be related party transactions and funds siphoning scheme adopted by the Petitioner which led to filing of multiple suits which ultimately resulted in Settlement and accordingly parties entered into Settlement Agreement. 27. The Respondent is not disputing the fact that the outstanding amount is due and payable to the Petitioner. Further, infact vide Settlement Agreement dated 01.07.2017 to which the Respondent is a signatory party acknowledged the debt of Rs. 260,00,00,000/- (Rupees Two Hundred and Sixty Crore Only) in Recital B at pages 70 of the Petition. 28. The Respondent contented that the subject debt is disputed and pending before Saket District Court for adjudication. We opine that as per scheme of the Code and plethora of landmark judgements i.e. E.S. Krishnamurthy vs Bharath Hi-Tecch Builders (P) Limited and Innoventive Industries (su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ections in the Escrow Account, and I or by disposal of co/laterals listed in Schedule C as contemplated in Clause 7.1 (iv)." Therefore, the Respondent is under a continuing obligation to pay the dues to the Petitioner. 33. The application made by the Financial Creditor is complete in all respects as required by law. It clearly shows that the Corporate Debtor is in default of a debt due and payable, and the default is in excess of minimum amount stipulated under section 4(1) of the IBC. Therefore, the debt and default stands established and there is no reason to deny the admission of the Petition. In view of this, this Adjudicating Authority admits this Petition and orders initiation of CIRP against the Corporate Debtor." 31. It is argued by the FC that this is also a fit case for Section 7 admission. But the Adjudicating Authority had not admitted the Section 7 petition against the Corporate Debtor - Strategic while deciding this case and had concluded as follows: "... 16. We noticed that as between the parties herein the transaction has been going on for a long time and in different parts and the assignment of the NFPL loan is one such transa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the settlement agreement, we find at Clause 3.4 that the principal parties which include both perpetual and Strategic Credit Capital Private Limited were to procure repayment recovery of all amounts dues by / borrowers and were to be deposited in the escrow account. It was also agreed to procure on best effort basis at least Rs. 400 Crores within a period of 9 months from the execution paid. Also, Clause 3.7 provides that the obligations of the principal parties to pay the second parties dues shall be a continuing obligation and the Principal Parties shall not be discharged of their obligations to Second Party until the entire Second Party Dues are paid in full, including by way of collections in the Escrow. And the appellant relies very heavily upon this clause 3.7. While clause 3.7 is relevant but when we peruse the background in which the "debt" has been created and the settlement agreement between the parties, it raises many unanswered questions for it to fall in the category of debt. Most importantly, the Respondent being a Financial Service Provider (FSP) shuts the case being non-maintainable. 34. As noted herein earlier. there is a fundamental question of the maintainabil....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hen a clear debt was involved and there was a default, one could have considered the admission under Section 7. But this case appears to be a deep and complicated set of transactions which have been orchestrated by collusion of the FC (claimed by FC to be by erstwhile management) and the Respondent [FSP]. Admittedly, Respondent [FSP] was induced by the fees for the transactions. On one side there is acceptance for fees and on the other side there is deep and complicated history of creation of debt. We find tacit understanding of both sides. FC cannot be given shelter of wrong-doings of erstwhile management and the Respondent [FSP] was also equally at fault when they allowed their company to be used (abused) by the FC. It is not a clean case of loan and creation of debt and default. Without going into the details, we find that if there was a direct linkage of loan between the Financial Creditor and the Corporate Debtor, it could have been explicitly worked out in a bilateral settlement agreement. But the settlement which is relied upon by the Financial Creditor is a convoluted route to settle and is not helpful for Section 7 admission as debt and default is not clearly established. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is a private limited company, incorporated under the Companies Act, 1956 on 17.05.1996 bearing Corporate Identity No. U65929DL1996PTC078967 and having its Registered Office at A-49, Mohan co-operative Industrial Estate, Mathura Road, New Delhi - 110044. A copy of the Certificate of Incorporation of the Corporate Debtor and Company Master Data of the Corporate Debtor available on the website of Ministry of Corporate Affairs has already been annexed as Annexure E and Annexure F respectively. Copies of the Memorandum of Association and the Articles of Association of the Corporate Debtor are annexed herewith collectively and marked as Annexure- H Colly. 6. The Financial Creditor submits that the Corporate Debtor is indebted to the Financial Creditor for a total sum of Rs. 60,97,80,821.86 Rupees Sixty Crores Ninety Seven Lakh Eighty Thousand Eight Hundred and Twenty One and Eighty Six as on 31.05.2019. Therefore, the Corporate Debtor is liable to pay total outstanding amount of Rs. 60,97,80,821.86 Rupees Sixty Crores Ninety Seven Lakh Eighty Thousand Eight Hundred and Twenty One and Eighty Six along with pendente lite and future interest which is further accruing on a day to da....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... amount along with accrued interest and other charges, aggregating to Rs. 45,00,00,000- Rupees Forty Five Crore Only. Copy of the Notice issued by the Financial Creditor dated 24.06.2016 is attached herewith and marked as Annexure - K. 10. However, the Corporate Debtor failed to pay the Financial Creditor the outstanding debt due and payable under the Loan Agreement. The parties then entered into discussions to settle the payment of the outstanding dues. Pursuant to the discussions, the Financial Creditor and the Corporate Debtor entered into a Settlement Agreement dated 01.07.2017 executed, inter alia, between the Financial Creditor and the Corporate Debtor for payment of the outstanding debt due and payable to the Financial Creditor. The Corporate Debtor acknowledged its liability to pay the outstanding loan amount of Rs. 40,00,00,000- Rupees Forty Crore Only in the Settlement Agreement. A copy of the Settlement Agreement dated 01.07.2017 is attached herewith and marked as Annexure- L. 11. However, no payment has been made by the Corporate Debtor towards the dues owed by it to the Financial Creditor till date. As such, the Financial Creditor is left with no othe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Loan Amount is the date of issuance of the Termination cum Loan Recall Notice dated 24.06.2016 by the Financial Creditor to the Corporate Debtor, by virtue of which the entire loan amount together with stipulated interest became due and payable. The working for the computation of amount of Rs. 60,97,80,821.86 (Rupees Sixty Crores Ninety Seven Lakh Eighty Thousand Eight Hundred and Twenty One and Eighty Six) as on 31.05.2019 in tabular form is attached herewith and marked as Annexure - N." 38. In the background of the above case as noted herein earlier, we find that this is a complicated settlement which had been willingly entered into between the Financial Creditor and various borrowers in which the Corporate Debtor [FSP] is also one of the parties. The matter has been examined in detail by the Adjudicating Authority and it has come out with the finding that: "16. We noticed that as between the parties herein the transaction has been going on for a long time and in different parts and the assignment of the NFPL loan is one such transaction. We would have accepted the FC request for treating it as debt and default, but for the settlement agreement dated 01.....