2023 (7) TMI 215 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - investment in equity of the Corporate Debtor as per informal understanding between the parties - Financial Creditors or not. Whether money contributed by the Respondent No. 1 along with her nominees was in nature of financial debt or investment by way of equity in the Corporate Debtor? HELD THAT - From the perusal of the record especially part IV of the application filed by the Respondent No. 1 before the Adjudicating Authority , it is seen that Rs. 4,41,25,000/- was disbursed to the Corporate Debtor from time to time starting from 05.12.2012 to 03.12.2018 and total amount claimed to be in default as on 30.06.2021 was Rs. 7,57,56,215/-, which included the interest from 01.04.2016 @ 12% p.a. We also note that the Respondent No. 1 is a shareholder of the Corporate Debtor holding 24.63% of equity capital. Admittedly by the Appellant and evidently from the records made available before us, the Corporate Debtor paid interest @ 9% to the Respondent No. 1 for the Financial Year 2016-17 and for the Financial Year 2017-18 the Corporate Debtor paid interest @ 12% to the Respondent No. 1 and a statement of confirmation of account was also issued accordingly by the Corporate Debtor to the Respondent No. 1 . It is evident that on failure to receive due money on time, the Respondent No. 1 wrote a letter on 19.09.2020 to the Corporate Debtor calling upon to return the outstanding principal amount along with interest and the same was replied by the Corporate Debtor on 27.10.2020 denying the liability and stating that payment was made towards share premium. This Appellate Tribunal observe that the Code no where prescribes that there should be a written agreement between the parties to prove the loan and its disbursement to be treated as financial debts. It is also observed that if there are acknowledgments by the Corporate Debtor and where the statements of accounts of the Corporate Debtor are in position to proof disbursement of loan and payment of interest, the absence of formal written agreement would not bar the Financial Creditor (the Respondent No. 1 herein) from initiating the CIRP. There have been clear acknowledgments which have been issued by the Corporate Debtor for the money received from the Respondent No. 1 which also mentioned the quantum of interest payment to be made by the Corporate Debtor to the Respondent No. 1. Similarly, we also take into account the fact that TDS was deducted regarding interest paid and the name of the Appellant as deductor and the name of the Respondent No. 1 as deductee is clearly evident. This does not give any scope for benefits of the Appellant - there was clear financial debt in form of loan given by the Respondent No. 1 to the Corporate Debtor and this could not have been treated in any way as equity infusion/ share premium in Corporate Debtor. Appeal dismissed.

Summary

Issues Involved:
The judgment involves determining whether the money contributed by the Respondent was a financial debt or an investment by way of equity in the Corporate Debtor.

Summary:

Issue 1: Nature of Contribution
The Appellant challenged the admission of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, arguing that the Respondent's contribution was an equity investment, not a financial debt.

Details:
The Corporate Debtor was engaged in real estate development, and the Respondent, along with others, invested in the company. The Appellant contended that the Respondent's investment was intended to be through equity participation, not as a financial debt.

Issue 2: Admissibility of Application
The Appellant claimed that the Adjudicating Authority erred in admitting the Section 7 application as a financial debt without a formal Loan Agreement between the parties.

Details:
The Appellant argued that since no Loan Agreement was executed, the Respondent's contribution should not be treated as a financial debt. However, the Respondent claimed that the investment was indeed a loan, supported by interest payments and TDS deductions by the Corporate Debtor.

Decision:
The Appellate Tribunal reviewed the evidence and found that the contributions made by the Respondent constituted a financial debt, supported by acknowledgments, interest payments, and TDS deductions. As a result, the Appeal was dismissed, upholding the Adjudicating Authority's decision to admit the application for CIRP against the Corporate Debtor.

This summary provides a detailed overview of the issues raised, arguments presented, and the final decision rendered by the Appellate Tribunal regarding the nature of the Respondent's contribution and the admissibility of the application under the Insolvency & Bankruptcy Code.