TaxTMI 
TaxTMI 
2026 (5) TMI 1170
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....jender Prasad Mittal claims to be the Financial Creditor and states that it had advanced all loan of Rs. 6,86,44,042/- to the Corporate Debtor - M/s Jaikrishan Estates Private Limited in the Financial Year 2014-15. This loan was disbursed by the Financial Creditor from his personal bank account maintained with Axis Bank bearing A/c No. 913010031810470. 3. The Corporate Debtor repaid an amount of Rs. 3 Crores. However, an amount of Rs. 6,86,44,042/- against the principal is still outstanding. Appellant claims that it shows in the books of the Corporate Debtor under the head "long term borrowing". The Corporate Debtor has acknowledged the aforesaid amount in its balance sheet for the Financial Year 2016-17, 2018-2019, 2020-21, and 2022-23. 4. Since the Corporate Debtor did not pay back the money, the Financial Creditor preferred a petition under Section 7 of the Code seeking initiation of CIR Proceedings against the Corporate Debtor for non-payment of outstanding debt of the Financial Creditor. However, the Adjudicating Authority passed the impugned order dated 16.01.2024 rejecting the petition. 5. It is claimed by the Appellant that it was a Director in the Respondent - Cor....
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....he 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 ie. 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" b) Sailesh Sangani Vs. Joel Cardoso and Anr. in Company Appeal (AT) (Ins.) No. 616/2018, para 6. "6. A plain look at the definition of financial debt' brings it to fore that the debt alongwith interest, if any, should have been disbursed against the consid....
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.... K.K. Agro Foods and Storage Limited in Company Appeal (AT) (Ins.) No. 1126/2022, para 31. "31. The Adjudicating Authority, however, took a view that there should be financial contract between the parties which elucidate the rate of interest and date of repayment. The Adjudicating Authority took a view that there is no written agreement to establish the nature of transaction between the parties, hence, Appellant failed to prove the debt. We have already held that requirement of written financial contract is not a pre-condition for proving debt. When Adjudicating Authority itself given finding in Para 5-6 the disbursement was with interest and repayment was on demand, two essential conditions of financial debt were present with regard to time value of money. When the financial statement indicate amount with interest since the loan of Rs.75,00,000 increased in the FY 2017-18 and amount due was shown as Rs. 79,70,250, which clearly was after adding the interest, disbursement has to be held for time value of money. We, thus, are satisfied that all pre-conditions for establishing financial debt are proved by the Financial Creditor and the order of the Adjudicating Authority rej....
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.... licensee with material consideration or without material consideration, the expression 'licensee' in Section 41(1) was held to also include licensee'. a 'gratuitous 31. At the cost of repetition, it is reiterated that the trigger for initiation of the Corporate Insolvency Resolution Process by a Financial Creditor under Section 7 of the IBC is the occurrence of a default by the Corporate Debtor. 'Default' means non-payment of debt in whole or part when the debt has become due and payable and debt means a liability or obligation in respect of a claim which is due from any person and includes financial debt and operational debt. The definition of 'debt' is also expansive and the same includes inter alia financial debt. The definition of 'Financial Debt' in Section 5(8) of IBC does not expressly exclude an interest free loan. 'Financial Debt would have to be construed to include interest free loans advanced to finance the business operations of a corporate body." e) Mrs. Jayanthi G. Ravi Vs. Chemizol Additives P Ltd. in Company Appeal (AT) (CH) (Ins.) No. 553/2020, paras 9, 11, 17, 71. "9. It is represented on beh....
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....ve to be construed to include interest free loan advanced to finance the business operations of a corporate body." 71. Be that as it may, this Tribunal' taking note of the facts and circumstances of the instant case and also considering the fact that the first tranche of Rs. 2.50 Crores was disbursed by the 'Appellant' to the Respondent/Company on 01.12.2016, and the second tranche of Rs.1.60 Crores was Transferred from the Appellant/Applicant's 'personal Bank Account' to the 'Current Account' of the Respondent/Company and these transfers were recorded in the 'Minutes of the Meeting of the Board of Directors' on 23.02.2017 and 06.04.2017, that the Respondent/ Company had mentioned in its 'Balance Sheet' for 01.04.2016 to 31.03.2017 about the outstanding liability to the Appellant of Rs. 4.10 Crores, the 'Balance Sheet' of the Respondent/Company, (even after the resignation of the 'Appellant' from the Company) also mentions the factum of 'outstanding liability' to the 'Appellant' and in spite of several assurances made to the 'Appellant', the Respondent/Company had not repaid the due out....
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....mmediate effect on account of "some other engagement". Respondent was bound to accept the resignation of the Appellant with immediate effect from 21.20.2022. 9. Further no legally enforceable 'financial debt' exists between the Appellant and the Respondent within the meaning of Section 5(8) of the Code. The sums advanced by the Appellant were as per working capital requirement by a promoter-director, devoid of any interest, consideration for time value of money, or contractual repayment terms as elaborated hereunder. 10. The Respondent company was incorporated in 1997 as a company wholly owned and controlled by the Wadia Group (Group of companied promoted by Mr. Ashok Wadia and his family). However, in the year 2000, the ownership and control of the Respondent company was diluted in favour of the Appellant, Ravee Capitals Limited and Ravee Pro-Build Private Limited (collectively referred to as "Mittal Group") along with one, Mr. Amit Singla, APS Builders Private Limited and Singla Liquor Private Limited (collectively referred to as "Singla Group"). 11. Accordingly, Mittal Group and Singla Group were inducted as shareholders each holding 20% (i.e. Rs.3 crores each) ....
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....mounts purportedly advanced by the Appellant to the Respondent were infusion of working capital in the Respondent, which were infused by all shareholding groups in proportion of their shareholding in order to meet the cost of various goods and services being procured by the Respondent and in order to ensure statutory compliances and unhindered construction and delivery of units in the all projects being undertaken by the Respondent. There was no intent of any grant of any loan by the Appellant to the Respondent nor was the amount purportedly advanced by the Appellant be construed as loan which is clear from the actions of the Appellant and the Respondent. 16. It is further stated that in order to accept a loan from the director, the company is required to pass a resolution in a Board Meeting stating the same. Hence, the Hon'ble NCLT in the Impugned Order has rightfully noted that the Appellant herein in the documents submitted as part of the section 7 application bearing CP (IB) No. 850(ND)/2024 has failed to provide any document to show that the Appellant was granting any loan to the company in the form of the amounts purportedly transferred by the Appellant to the Responde....
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....the transfer should be in the nature of a debt. The purported transaction being alleged as financial debt by the Appellant herein clearly fails this test and hence cannot be categorized as 'financial debt' in terms of the Section 5(8) of the Code. The same has been rightfully held by the Ld. Adjudicating Authority vide the Impugned Order after careful examination of the documents presented by the Appellant herein. 22. The Hon'ble Supreme Court in Phoenix ARC Pvt. Ltd. v. Spade Financial Services, (2021) 3 SCC 475 while explaining the nature of financial debt has emphasized that in order to qualify as financial debt the amount must reflect time value of money. 23. The Appellant failed to establish a specific date of default, which is essential under Regulation 2D of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. This Hon'ble Appellate Tribunal in Mukul Kumar v. RPS Infrastructure Ltd., CA (AT) (Ins) No. 1050 of 2020 has held that a notice with no concrete acknowledgment or undisputed amount does not constitute default. Hence, the Appellant has failed to fulfil the threshold standard of proof ....
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....lesh Sangani, there was concrete evidence establishing the transaction as a loan, including acknowledgment by the Corporate Debtor of the specific transaction as a loan. In contrast, the present case lacks any contemporaneous loan agreement, promissory note, or board resolution categorizing the funds as loans rather than capital contributions. 29. The Respondent's reply dated 20.12.2021 explicitly characterized the transactions as proportionate capital infusions by all directors/promoters according to their shareholding patterns, which fundamentally distinguishes it from the Shailesh Sangani case where there was no dispute about the character of the transaction. 30. In Shailesh Sangani, the transaction was clearly recorded and classified as debt in the company's records with defined commercial parameters. In the present case, the Appellant has merely shown entries under "long-term borrowings" without establishing the commercial terms that would give the transaction the "commercial effect of borrowing" as required under Section 5(8)(f) of the Code. 31. The Appellant cites Agarwal Polysacks Limited v. K.K. Agro Foods and Storage Limited (Company Appeal (AT) (Insolven....
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....ansactions were loans or capital contributions proportionate to shareholding. 36. It is established principle of law that IBC is not intended to be used as a recovery mechanism for all types of claims, particularly those arising from the internal management of a company by its directors/promoters. Capital Contributions by Directors/Promoters Cannot Be Retrospectively Treated as Financial Debt. 37. This Hon'ble Appellate Tribunal in Neelkanth Township & Construction Pvt. Ltd. v. Urban Infrastructure Trustees Ltd., Company Appeal (AT) (Insolvency) No. 44 of 2017 has held that shareholders advancing funds for business purposes do not automatically become financial creditors. 38. While the Appellant cites Asset Reconstruction Company (India) Limited v. Bishal Jaiswal AIRONLINE 2021 SC 267 to argue that balance sheet entries constitute acknowledgment of debt, the Hon'ble Supreme Court in that case specifically held that such entries must be read in context of their creation and supporting documentation. Whereas in the present case, the Appellant has failed to provide any such supporting documents. 39. In Phoenix ARC Private Limited v. Ketulbhai Ramubhai Patel, AIR 20....
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....y any defect in the petition. The Ld. Adjudicating Authority had granted the same opportunity to the Appellant herein. However, the Appellant herein himself failed to provide the same and rectify the defects are there were no documents to establish that the funds were in the nature of a loan. This failure to comply with the order of the Ld. Adjudicating Authority has correctly been noted in paragraph 5 of the Impugned Order that despite an opportunity, the appellant herein failed to cure such defect, therefore, the appellant cannot at the appellate stage contest the same. The relevant portion of the is produced hereunder: "5. During the course of arguments, this Adjudicating Authority called upon the Applicant to file an affidavit with respect to the maintainability of the present application. However, Learned Counsel appearing for the Applicant/Financial Creditor refused to place on record all relevant documents and expressed that he would like to argue the issue of maintainability." Analysis 47. We have heard the counsels of both sides and also perused the material placed on record. 48. We find that there is an acknowledgment in the books of accounts of the Corp....