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TMI Blog2019 (3) TMI 1192X X X X Extracts X X X X X X X X Extracts X X X X ..... breakup showing the loan amount of ₹ 1,45,36,475/- in the name of Respondent No.1. In the face of this documentary evidence it is abundantly clear that the amount disbursed by Respondent No.1 to the Corporate Debtor was in the nature of debt treated as long term loan and not as an investment in the nature of share capital or equity. Such disbursement cannot either be treated as largesse. We are convinced that the aforesaid amount outstanding as against Corporate Debtor, default whereof is not in issue, has all the trappings of a ‘financial debt’ and falls within the purview of Section 5(8)(f) of the I&B Code and Respondent No.1 is covered by the definition of ‘Financial Creditor’. Appeal dismissed. - Company Appeal (AT) (Insolvency) No. 616 of 2018 - - - Dated:- 30-1-2019 - Mr S. J. Mukhopadhaya, Chairperson And Mr Bansi Lal Bhat, Member (Judicial) For The Appellant : Dr. U. K. Chaudhary, Senior Advocate assisted by Mr. Srisabri, Mr. Mahesh Agarwal, Mr. Rajeev Kumar and Ms. Swati Sinha, Advocates For The Respondents : Mr. Gaurav Mitra and Mr. Rohan Ganpathy, Advocates. JUDGMENT BANSI LAL BHAT, J. Appellant is Promoter/Shareholder/Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,45,36,475/- was a part of overall settlement and it was ready to settle the cross holding of shares and loans inter-se the Respondents. Respondent further contended that none of the loans under the quasi partnership arrangement inter-se the Respondents had any term for repayment or interest. The learned Adjudicating Authority found that the contention raised on behalf of Corporate Debtor was not plausible as the factum of amount advanced as loan by Respondent no.1 to Corporate Debtor was admitted and reflected in the accounts and confirmed by the Corporate Debtor. Learned Adjudicating Authority was of the view that the said amount was arrived at after the parties mutually agreed and the same was reflected in the books of the Corporate Debtor under the head long term borrowings , the amount of debt fell within the purview of financial debt notwithstanding the fact that no interest was payable. The contention raised by the Corporate Debtor was accordingly repelled. 3. Learned counsel for the Appellant submits that the learned Adjudicating Authority landed in error in holding that the amount claimed by Respondent No.1 for triggering Corporate Insolvency Resolution Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Debt . It is submitted that the Corporate Debtor owes a financial debt since the borrowing by the Corporate Debtor from Respondent No.1 is an amount raised under any other transaction....xxx... having the commercial effect of a borrowing, covered under Section 5(8)(f) of the I B Code. 5. We have gone through the record and given our anxious consideration to the submissions made at the Bar. For determination of the issue whether the amount claimed by Respondent No. 1 from the Corporate Debtor, default in payment whereof culminated in initiation of Corporate Insolvency Resolution Process, falls within the purview of financial debt as defined under Section 5(8) of the I B Code, be it seen that the legal expression debt , defined under Section 3 (11) means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. It is manifestly clear that the liability or obligation to pay must arise out of a claim due from a debtor/ borrower. The nature of obligation and from where it springs is immaterial. The obligation may be contractual or otherwise. Since, the legal expression debt includes a financial debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (a) to (i) of Section 5(8) embody the nature of transactions which are included in the definition of financial debt . It includes money borrowed against the payment of interest. Clause (f) of Section 5(8) specifically deals with amount raised under any other transaction having the commercial effect of a borrowing which also includes a forward sale or purchase agreement. It is manifestly clear that money advanced by a Promoter, Director or a Shareholder of the Corporate Debtor as a stakeholder to improve financial health of the Company and boost its economic prospects, would have the commercial effect of borrowing on the part of Corporate Debtor notwithstanding the fact that no provision is made for interest thereon. Due to fluctuations in market and the risks to which it is exposed, a Company may at times feel the heat of resource crunch and the stakeholders like Promoter, Director or a Shareholder may, in order to protect their legitimate interests be called upon to respond to the crisis and in order to save the company they may infuse funds without claiming interest. In such situation such funds may be treated as long term borrowings. Once it is so, it cannot be said that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,156 6,265,929 Total 34,966,465 28,234,310 SECURED LOANS SCHEDULE : C PARTICULARS 31.03.2009 31.03.2008 Yes Bank Limited Cash Credit 163,687 10,702,528 Citi Bank N.A. Cash Credit 16,384,038 - Citi Bank N.A- W.C.D.L. 30,000,000 - Provision for Interest on OD A/c 439,315 - (Secured against hypothecation of Stock Debtors) Vehicle Loan 1,724,811 - Total 48,711,852 10,702,528 UNSECURED LOANS SCHEDULE : D PARTICULARS 31.03.2009 31.03.2008 UNSECURED LOANS : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,00 I/We hereby confirm the above yours faithfully IT PAN No. ABUPC5468P Authorised Signatory 9. The balance sheet as on 31st March, 2017 at page 83 of the reply affidavit filed by Respondent No.1, inter alia, reflects a non-current liability of ₹ 4,72,76,182/- treated as long term borrowings and not treated as shareholder s funds. Same factual position is reflected in the communication made by the Company Auditor Ganesh Mehta , Partner Ganesh and Rajendra Associates addressed to Respondent No.1 in his communication dated 5th December, 2017 forming Annexure D to the reply affidavit of Respondent no.1 which is reproduced hereinbelow:- This communication reflects total unsecured loan of ₹ 4,72,76,182/- against the Corporate Debtor in the books of the Company as on 31st March, 2017, the breakup showing the loan amount of ₹ 1,45,36,475/- in the name of Respondent No.1. In the face of this documentary evidence it is abundantly clear that the amount disbursed by Respondent No.1 to the Corporate Debtor was in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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