2019 (8) TMI 972 - Tri - Insolvency and Bankruptcy

Initiation of CIRP - financial creditor or not - Validity of cash transactions - finalization of resolution plan - Default in repayment of short term loans - Financial Debt - Whether the claims of the Applicant based on the cash transactions are admissible in the absence of any entry in the Books of Account of the Corporate Debtor? HELD THAT - The recitals of the agreements show that the Applicant agreed to provide the loan. In other words, it did not provide that the loan has been granted. Moreover, the Applicant claims that the loan has been paid in cash. There is nothing on record to suggest that the Books of Account of the Corporate Debtor are containing any of the entries in relation to the loan alleged to have been advanced to the Corporate Debtor. The narrations of the loan agreements and the MoU only promise to advance the loan. The Cash Vouchers and the Promissory Note are not corroborated with the Books of Account of the Corporate Debtor and it is also not known as to who has authorised the Internal Auditor of the Corporate Debtor viz., Mr. Golakh Parida to approach the Applicant for grant of the loan as claimed. It is also not understandable as to why the MoU, which is a promise to advance loan and render services to the Corporate Debtor, provides that even if the entire Stock of Iron Ore could not be liquidated still the Applicant will be entitled for the share of ₹ 3.60 Crores. It is noted that huge amount is stated to have been advanced to the corporate debtor in cash, which is in violation of Section 269SS of the Income-tax Act, 1961. In the case on hand the Applicant /financial creditor had submitted Form C and Affidavit alone to the Resolution Professional through electronic mode and all other documents were submitted by hard copy, which is in contravention to the requirements of Form- A Therefore, the claims filed by the Applicant/financial creditor before the Resolution Professional have rightly been rejected, as it is well settled proposition of law that if a statute provides for a thing to be done in a particular manner, then it has to he done in that manner and in no other manner . Thus, the documents placed on record and the submissions made by the applicant through her counsel, do not inspire the confidence of this tribunal to reach to the conclusion that any money except ₹ 90 Lakhs, has been advanced to the corporate debtor by the applicant. Therefore, the cash transactions claimed to have been made by the Applicant are sham, fraudulent and the same are declared as null and void - application dismissed.

Summary

Issues Involved:
1. Rejection of claims by the Resolution Professional (RP).
2. Compliance with Insolvency and Bankruptcy Code (IBC) and CIRP Regulations.
3. Allegations of fraudulent transactions.
4. Admissibility of cash transactions without entries in the Corporate Debtor’s books.
5. Legal validity of submitted documents and agreements.

Detailed Analysis:

1. Rejection of Claims by the Resolution Professional (RP):
The primary issue revolves around the rejection of claims by the RP, Mr. Vasudevan, submitted by the Applicant, Ms. Sujathaa Mehta. The claims were filed as a Financial Creditor and later revised from an Operational Creditor to a Financial Creditor. The Applicant contended that the RP did not admit her claims despite the submission of various supporting documents, including loan agreements, promissory notes, and cash vouchers. The RP rejected the claims citing several reasons, such as non-compliance with electronic submission requirements, undated demand notes, lack of witness attestation, and non-reflection of cash transactions in the Corporate Debtor's books.

2. Compliance with Insolvency and Bankruptcy Code (IBC) and CIRP Regulations:
The RP argued that the claims were not submitted in compliance with the IBC and CIRP Regulations, specifically Regulation 8, which requires the submission of proof of claims in electronic form. The Applicant's submission of Form 'C' and affidavit electronically, while other documents were submitted in hard copy, was deemed non-compliant. The Tribunal upheld this view, emphasizing the necessity of adhering to the prescribed manner of submission as per the statute.

3. Allegations of Fraudulent Transactions:
The RP alleged that the cash transactions claimed by the Applicant were fraudulent, involving the Corporate Debtor’s Internal Auditor, Mr. Golakh Parida. The RP contended that these transactions were not recorded in the Corporate Debtor’s books and appeared to be orchestrated to defraud creditors. The Tribunal found merit in these allegations, noting the lack of corroborative evidence in the Corporate Debtor’s financial records and the suspicious nature of the transactions.

4. Admissibility of Cash Transactions Without Entries in the Corporate Debtor’s Books:
The Tribunal scrutinized the cash transactions claimed by the Applicant, which were not reflected in the Corporate Debtor’s books. The Applicant provided agreements and cash vouchers as proof, but the Tribunal found these documents insufficient to establish the existence of a debt. The lack of entries in the Corporate Debtor’s financial records and the absence of any formal demand for repayment prior to the initiation of CIRP cast doubt on the genuineness of these transactions.

5. Legal Validity of Submitted Documents and Agreements:
The Tribunal examined the legal validity of the documents submitted by the Applicant, including loan agreements and an MoU. It was noted that the agreements were mere promises to advance loans and lacked essential corroborative evidence. The Tribunal also highlighted discrepancies in the documents, such as undated promissory notes and unverified cash vouchers. The agreements did not meet the criteria for financial contracts as per Regulation 8 of the CIRP Regulations.

Conclusion:
The Tribunal concluded that the claims submitted by the Applicant were not admissible due to non-compliance with the statutory requirements and the lack of credible evidence to support the alleged cash transactions. The Tribunal declared the cash transactions as sham and fraudulent, thereby rejecting the Applicant's claims. The RP's decision to reject the claims was upheld, and the Tribunal emphasized the importance of strict adherence to the procedural requirements under the IBC and CIRP Regulations. The order was pronounced in open court, affirming the RP's stance and dismissing the Applicant's claims.