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2022 (5) TMI 812 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - HELD THAT - It is evident that the Income Tax Authority in a search action under section 132 of the Income Tax Act on Banka Group had come to a conclusion that the accounts of the Banka Group reflects an accommodation entry of worth Rs.25,00,000/- to the Corporate Debtor from the A/C no. 01900210012390 maintained with the UCO Bank by the Financial Creditor, one of the group companies of the Banka Group. As per the Assessment Order dated 30 March, 2022 (para 5) the Income Tax Authority has categorically stated that the transaction received from the Financial Creditor is nothing but the Corporate Debtors own fund which was routed through the account of the lender i.e., the Financial Creditor. Further, the Corporate Debtor also failed to establish the business utility of unsecured loan and even failed to establish the genuineness of the credit worthiness of the Financial Creditor. On the other hand, the Authority noticed from the post search enquiries that the Financial Creditor is engaged in providing accommodation entries by way of bogus unsecured loan entries and is a shell company. A company petition under section 7 of the Code cannot be maintained and deserves to be dismissed.
Issues involved:
1. Company Petition filed under section 7 of the Insolvency and Bankruptcy Code, 2016. 2. Default in payment by the Corporate Debtor to the Financial Creditor. 3. Dispute over the nature of the transaction between the parties. 4. Allegations of the Financial Creditor against the Corporate Debtor. 5. Application under section 60(5) of the Code by the Corporate Debtor against the Financial Creditor. Analysis: 1. The Company Petition was filed by the Financial Creditor under section 7 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor due to default in payment of a loan amount of Rs.25,00,000/- along with interest. The Financial Creditor claimed a total default amount of Rs.25,25,000/- including interest as on 31 December, 2019, with a default date of 28 August, 2019. The authorized share capital of the Corporate Debtor was mentioned as Rs.3,00,00,000/- with paid-up capital of Rs.2,95,00,000/-. 2. The Financial Creditor, engaged in investment and corporate finances, provided a loan to the Corporate Debtor, engaged in crop cultivation, which was not repaid as agreed. Despite several reminders and a dishonored cheque, the Corporate Debtor failed to settle the debt. The Financial Creditor issued a notice under the Negotiable Instruments Act, but the Corporate Debtor did not make any payment, leading to the petition. 3. The Corporate Debtor argued that the transaction did not constitute a financial debt under the Code and accused the Financial Creditor of breaching trust by depositing the cheque. The Corporate Debtor also highlighted payments made towards interest until September 30, 2020, and raised concerns regarding the Financial Creditor's activities and lack of disclosure of regulatory approvals. 4. An application under section 60(5) of the Code was filed by the Corporate Debtor against the Financial Creditor, seeking clarification on issues raised by the Income Tax Department, including a demand notice and assessment order. The Corporate Debtor requested to adjust the assessed amount against the payable sum to the Financial Creditor due to concerns about the Financial Creditor's legitimacy and tax implications. 5. The Income Tax Authority's findings revealed discrepancies in the transaction between the Financial Creditor and the Corporate Debtor, indicating potential accommodation entries and unsecured loans. The Corporate Debtor's inability to justify the funds received and establish the Financial Creditor's credibility led to the dismissal of the Company Petition under section 7 of the Code. The application under section 60(5) was also disposed of, allowing the parties to pursue legal remedies independently.
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