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2023 (8) TMI 481 - AT - Insolvency and BankruptcyCIRP - Legality of admitting Section 7 Application - Existence of Financial Debt - Time Value of Money - no Privity of Contract between the Corporate Debtor and the 1st Respondent / Financial Creditor / Petitioner. - Nature of loan / money borrowed from bank to pay / settle the dues of another bank. - Scope of Article of association - Delegation of power to Directors / Borrowing Powers of Directors. Aggrieved person being Shareholder and Suspended Director - the Corporate Debtor, is a family business of the Appellant. HELD THAT - There is no embargo in Law, for a Director of a Company, to infuse the Funds, into the Company, with a view to rescue a Company from Financial Distress / Crisis, and the monies advanced clearly come within the umbrage of Section 5(8) of the Code. - It cannot be gainsaid that a Financial Debt , is to be understood to include Interest Free Loans, given to a Company / Entity , for its Business purpose / Operations , as the case may be. It is brought to the fore on behalf of the 1st Respondent / Financial Creditor / Petitioner , that a Sum of Rs.3,97,85,000/-, was advanced to the Corporate Debtor , by the 1st Respondent / Financial Creditor / Petitioner , and the same was used by the Corporate Debtor , to repay the Loans , taken by the Corporate Debtor / Company , from the State Bank of India (earlier State Bank of Hyderabad), under the One Time Settlement Scheme , provided by the Bank , to save the Corporate Debtor , from distress . In reality, the State Bank of India / Lender , had issued a No Due Certificate , dated 30.01.2021. Suffice it for this Tribunal , to point out that a Sum of Rs.3,97,85,000/- advanced to the Corporate Debtor , by the 1st Respondent / Financial Creditor / Petitioner , was through numerous Bank Transactions and all these, would unerringly prove the Existence of a Financial Debt of an Amount of Rs.1 Crore , Due and Payable , by the Corporate Debtor , to the 1st Respondent / Financial Creditor / Petitioner . If the Articles, have a provision which prohibited the Directors , from delegating their power , to Borrow Monies , does not prevent them from empowering one of the Directors , to execute a Mortgage Deed . - It is not necessary that while specifying the Borrowing Powers of a Company , the Articles , should state the manner, in which, the Borrowing , is made. Notice of Default - HELD THAT - The question of whether, there is a Debt and Default , can be looked into, only, if the Corporate Debtor , disputes the Debt or takes a stand that there is no Default , although, there is Debt . - An Adjudicating Authority , this Tribunal , pertinently points out is to see the Records of Information Utility or other evidence , produced by a Financial Creditor , to satisfy itself, that a Default , has occurred. The other factors, such as, the Existence of a Dispute or Discrepancy , are not Germane , as long as, it has not been Disputed , that the same Debt , is Due and is Payable , to the Financial Creditor , and the Corporate Debtor , has Defaulted . This Tribunal, taking note of the contentions, advanced on respective sides, considering the surrounding facts and circumstances of the instant case, in a holistic manner, comes to an irresistible and inescapable conclusion that the aspect of Debt and Default, committed by the Corporate Debtor, were established by the 1st Respondent / Financial Creditor / Petitioner, to the subjective satisfaction of this Tribunal. Appeal dismissed.
Issues Involved:
1. Leave to prefer appeals 2. Admission of additional documents 3. Existence of financial debt and default 4. Validity of the impugned order admitting the insolvency resolution process Summary: Issue 1: Leave to Prefer Appeals The Petitioner/Appellant, a Shareholder and Suspended Director of M/s. Golconda Textiles Private Limited (Corporate Debtor), sought leave to prefer appeals against the impugned order dated 24.01.2023. The Tribunal granted permission to the Petitioner/Appellant to prefer the appeals as an Aggrieved Person in terms of Section 61(1) of the I&B Code, 2016, allowing IA No. 107 of 2023 and IA No. 133 of 2023 without costs. Issue 2: Admission of Additional Documents The Petitioner/Appellant requested permission to submit additional documents, including ledger accounts, balance sheets, and bank statements, which were deemed relevant and material for proper adjudication of the appeals. The Tribunal allowed IA No. 110 of 2023 and IA No. 136 of 2023 to receive these additional documents, citing the decision of the Hon'ble Supreme Court in North Eastern Railway Administration, Gorakhpur v. Bhawan Das, to secure the ends of justice. Issue 3: Existence of Financial Debt and Default The Tribunal evaluated whether the amounts advanced by the 1st Respondent/Financial Creditor to the Corporate Debtor constituted a financial debt. The Tribunal noted that the definition of financial debt under Section 5(8) of the I&B Code includes interest-free loans advanced to finance business operations. The Tribunal found that the Corporate Debtor had acknowledged the unsecured loan of Rs.13,84,72,064/- in its audited balance sheet and that the 1st Respondent had advanced significant sums to the Corporate Debtor to ease its financial distress, which were utilized for repaying loans under a One-Time Settlement with SBI. The Tribunal concluded that the amounts advanced by the 1st Respondent constituted a financial debt, and the Corporate Debtor had defaulted on repayment. Issue 4: Validity of the Impugned Order Admitting the Insolvency Resolution Process The Tribunal addressed the Appellants' contentions that there was no privity of contract, no agreement or document proving the loan, and that the amounts advanced were not for commercial lending but for family business purposes. The Tribunal rejected these arguments, emphasizing that the amounts advanced by the 1st Respondent were acknowledged in the balance sheets and were repayable on demand. The Tribunal affirmed that the debt and default were established, and the Section 7 application was complete. Consequently, the Tribunal upheld the impugned order dated 24.01.2023, admitting the insolvency resolution process against the Corporate Debtor. Disposition: The appeals, Comp. App (AT) (CH) (INS.) No. 30 of 2023 and Comp. App (AT) (CH) (INS.) No. 38 of 2023, were dismissed. The connected pending IAs were closed.
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