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TMI Blog2020 (7) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... entation and misappropriation, fabrication of documents and accounts etc. It is a settled position of law that the provisions of the Code cannot be invoked for recovery of outstanding amount but can be invoked to initiate CIRP for justified reasons as per the Code. The Hon'ble Supreme Court in the case of MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED [2017 (9) TMI 1270 - SUPREME COURT] , has inter alia, held that Code, 2016 is not intended to be a substitute to a recovery forum and cannot be used to jeopardize the financial health of an otherwise solvent company by pushing it into insolvency. Section 7 (5) of the Code uses the term may , which gives this Adjudicating Authority the option to weigh the pros and cons of initiating a CIRP against the Corporate Debtor. In the circumstances stated above, it is not considered justifiable to send the Respondent into CIRP, as that would have serious socio-economic repercussions on an Export oriented Company with huge foreign funding, and of the stature mentioned above, especially on the hundreds of employees and other stakeholders and customers, and that too when the Respondent Company is undergoing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... types of additives, petroleum products, lubricants, etc. (3) It is stated that the Financial Creditor and her husband were the promoters of the Corporate Debtor having subscribed to 5,000 Equity Shares each. As on 31.03.2018 the issued, subscribed and paid up capital of the Corporate Debtor is ₹ 12,37,31 ,570/- (Rupees Twelve Crore Thirty Seven Lakh Thirty One Thousand Five Hundred and Seventy Only) as seen from standalone financial statement of the Corporate Debtor for the period from 01.04.2017 to 31.03.2018. (4) It is stated that the Financial Creditor and her husband are no longer either the Shareholders or Directors of the Corporate Debtor. The husband of the Financial Creditor had resigned as the Director of the Corporate Debtor and had transferred his shareholdings around the year 2009. In the 78th meeting of the Board of Directors of the Corporate Debtor held on 06.04.2017, a resolution amongst others was passed accepting the resignation of the Financial Creditor as a Director of the Corporate Debtor and had further permitted her to continue as a Non-Executive Director until the new Board would take over the management of the Corporate Debtor. (5) It is stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the date of the meeting. (9) The Loan disbursed by the Financial Creditor is covered under the definition of a Financial Debt as defined in Section 5(8)(a) of the Code and further the Petitioner herein is a Financial Creditor as defined in Section 5(7) of the Code. (10) Further, the Financial Creditor along with her Application has placed on record the standalone financial statement of the Corporate Debtor for the period from 01.04.2016 to 31.03.2017 and 01.04.2017 to 31.03.2018. The loan advanced by the Financial Creditor amounting to ₹ 4.10 Crore has been reflected in the Balance Sheet as Short Term Borrowings. (11) The Corporate Debtor was under a legally binding obligation to repay the said loan within a period of 60 days from 06.04.2017 along with an interest calculated at 7.5% p.a. The period of 60 days expired on 05.06.2017. The Corporate Debtor has failed to repay the said loan within the stipulated time period and thus it has committed a default as defined in Section 3(12) of the Code. The Financial Creditor has addressed a letter to the Corporate Debtor on 25.07.2017 and 13.03.2018 calling upon the Corporate Debtor to repay the said loan along wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btor does not have any objection for admission of the current Petition. 4. The Respondent filed additional facts and submissions dated 11.07.2019 contending that the statement of objections filed by the previous representative of the Respondent Company i.e. PCS, was not signed by any of the Directors of the Respondent, but by the representative himself. As the Chairperson stayed out of India, there was an inevitable communication gap which has now been resolved by the new Indian Management. It is contended that the allegations by the Petitioner are false and are denied. The Petition is not maintainable either under law or on facts of the case. It has cited Rule 14 of the NCLT Rules, 2016 to state that there can be a communication gap between the Respondent Company and the previous Representatives which can be exempted in order to render justice. It has further contended as under: (1) That the Respondent Company was incorporated by the Promoters Mrs. Jayanthi G. Ravi and her husband Mr. G.S. Ravi, who are also Promoters and Directors of the M/S. Standard Oil Services Private Limited. Mr. S.Jairaj was the Statutory Auditor of M/S. Chemizol Lubricants Private Limited for the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the same day one of the Directors Mr. S. Jairaj's resignation was accepted which was tendered on 31.03.2017 and in the same Board meeting new Directors were appointed and given authority to sign the cheques and various agreements on behalf of the Company. During the aforesaid meeting, the Board decided to change the designation of the Petitioner from the position of Executive Director to Non-Executive Director. Subsequently her interest was reduced in the Respondent Company which ultimately led to her resignation on 25.07.2017. (6) The Balance Sheets, placed on record, were prepared at the time when the Petitioner was exercising control over the Respondent Company before her resignation. It was observed that many documents were fabricated against the Respondent Company on absolute personal vendetta of the Petitioner and she has filed this Petition in order to disturb the entire projects of the Respondent Company before it comes into operation under the new management. (7) The Petitioner filed this Petition U/s 7 of the Code claiming herself to be a Financial Creditor, but records show that the Petitioner had sent a notice dated 26.09.2018 to the Respondent U/s 9(2), U/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the above said amounts were transferred by the Petitioner was not in existence as it was already dissolved by Hon'ble High Court of Karnataka vide its Order dated 11.08.2016. (11) It discloses that the Petitioner's loan to the Respondent Company is creative, pretend and false and for misuse of funds categorically name on of the Corporate Debtor, by the Financial Creditor when herself was the active Director of the Respondent Company and again demanding the said amount from the Respondent Company through Code is nothing but misleading this Adjudicating Authority. (12) The amount being claimed does not fall within the definition of a Financial Debt. That there is no Demand Promissory Notice, or any agreement, or any other material evidence for payment of any debt and interest, except a Board Resolution which were also managed during the period in which the Petitioner as a Director. That as per her earlier submissions also, the so-called debt was utilized for the payment of pending salaries, tax dues and other expenses which comes in to the meaning of 'Operational Expenses'. (13) The Respondent has relied upon the judgment of Hon'ble NCLAT in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling to ₹ 1 Crore) from Chemizol Additives Pvt. Ltd. Bank Account No.00000033397432229 to the bank A/c of Chemizol Lubricants Private Limited bearing Account No.32783696451 and further stated that there was a merger of M/s.ChemizoI Lubricants Private Limited into Chemizol Additives Private Limited vide order of Hon'ble High Court of Karnataka dated 11.08.2016. 5. The Respondent has further filed Written Arguments dated 28.11.2019 by inter alia contending, in addition to what has been stated earlier, as follows: (1) The Petitioner had issued a Demand Notice as per Rule 5 of the (AAA) Rules, 2016 wherein Petitioner pretending herself as an 'Operational Creditor' and the debt as an 'Operational Debt' but in contrary she filed this present Petition indicating that the debt is a financial debt and mentioned herself as Financial Creditor. It is evident that the alleged debt is a creative one but not genuine one and also proves that she is categorically trying to mislead this Adjudicating Authority. The Petitioner has not filed any documentary evidence such as a valid contact or any form of Agreement between the parties to substantiate her claim of being F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any default was committed by the Respondent in the absence of a valid Demand Notice being served, under the provisions of the Code. In a case of similar facts before the Hon'ble Mumbai bench of this Tribunal vide its decision dated 08.02.2019 in Sanaya Tea Private Limited v. Vinergy International Pvt. Ltd., the Petition was dismissed on the ground of prima facie contradictions in that the Petition was filed as an Operational Creditor while the Demand Notice was sent as a Financial Creditor. This defective Petition is liable to be dismissed on this ground itself. 8. In the instant case, the amounts are stated to be given at a time when the Petitioner was a Director in the Respondent Company, for the purpose of keeping the Company running and meeting the Company's funding requirements. As per the Petition, the Petitioner herself informed the Board about the fund requirement. That was as much in the interest of the Petitioner herself as of the Respondent Company, as she was a Director. She then advanced the amounts on 01.12.2016 and 18.01.2017 in two tranches, totalling ₹ 4.10 crore. In the Board Meeting of 23.02.2017, another Director Sri S Jairam, a close associate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . All actions regarding the loans in question were taken unilaterally by the Petitioner. In addition there was lack of clarity as to whether it was in the nature of a Financial debt or an Operational debt. A borrowing may be reflected in the Balance Sheet, as pointed out by the Petitioner, but the same may not constitute a Financial Debt that could be enforced as per the Code. As held by the Hon'ble NCLAT in the case of Dr. BVS Lakshmi v. Geometrix Laser Solution Pvt. Ltd. dated 22.12.2017, in such circumstances it cannot be said the amounts stated to have been given acquired the nature of a financial debt and the Petitioner cannot be termed as a Financial Creditor. The Petition becomes liable to be dismissed on this ground as well. 10. Proceedings under the Code are summary proceedings, where even if there was a debt, the same should be undisputed and the default, as defined under section 3(12) of the Code should be clearly established. While the amounts had been given in December 2016 and January 2017, and became due by June 2017, the demand notice (under section 9 and not under section 7 of the Code) was sent by the Petitioner only on 26.09.2018, that is, after a lapse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s attempted to use these proceedings only for recovery of its claimed amounts. 12. Proceedings under the Code are for initiation of Insolvency proceedings, when a Corporate Debtor is found to be completely unable to repay its debts, a situation compelling enough for this Adjudicating Authority to order a CIRP. No case has been made out in the Petition that the Respondent Company is Insolvent. The Respondent Company is 99.99% wholly owned subsidiary of M/S. OnChamp Investments Limited, a foreign Company which has made huge Foreign Direct Investments in to the Corporate Debtor. Further, it is a 100% Export Oriented Unit and is committed to continue its regular operations and also to support hundreds of its employees. It has total assets of Rs. as at 31.03.2018, and net worth of ₹ 132.5 Crore with few liabilities. It has an investment in Land and Buildings of about ₹ 136 Crore. It was therefore a solvent Company, though there may have been temporary cash flow issues. 13. Section 7 (5) of the Code uses the term may , which gives this Adjudicating Authority the option to weigh the pros and cons of initiating a CIRP against the Corporate Debtor. In the circumstances st ..... X X X X Extracts X X X X X X X X Extracts X X X X
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