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2019 (9) TMI 1682

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..... safely be concluded as a transaction of financial debt involving time value of money. There are merits in the claim of the Financial Creditor that IBC, 2016 is not a recovery mechanism and, therefore, the provisions of The Bengal Money Lenders Act, 1940 being part of that legislation which operates in different field i.e. recovery of dues, could not be applied to proceedings under IBC, 2016. In any case, such provisions being contrary to the provisions of IBC, 2016 are not applicable in view of specific provisions of section 238 of IBC, 2016. The Corporate Debtor be admitted under CIRP as per the provisions of Section 7 of IBC, 2016. The Financial Creditor has suggested the name of Interim Resolution Professional which we approve. The petition is complete in all other aspects and complies with the requirements of IBC, 2016 and Regulations, hence, petition is admitted. The petition filed by the Financial Creditor under section 7 of the Insolvency Bankruptcy Code, 2016 for initiating Corporate Insolvency Resolution Process against the Corporate Debtor, Manthan Broadband Services Private Limited, is hereby admitted - moratorium declared. - CP (IB) No. 1634/KB/2018 and CA .....

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..... ,000/- (Rupees Ten Crore Twenty Lakhs only) was given. On 19th November, 2018, the Financial Creditor issued demand notice for payment of impugned outstanding amount along with interest thereon which the Corporate Debtor fail, hence, this petition. 3. The Ld. Senior Counsel for the Financial Creditor narrated the aforesaid facts and drew our attention to the various documents in support of its claim. Ld. Senior Counsel further claimed that invoices for the interest were also raised, however, the same remain unpaid. The Ld. Senior Counsel contended that there was a financial debt which was due and payable, but Corporate Debtor failed to pay, hence, initiation of CIRP was required. 4. The Ld. Senior Counsel appearing on behalf of the Corporate Debtor submitted that the first transaction was in the nature of loan which was executed through a Loan Agreement between Corporate Debtor and Financial Creditor. However, the second transaction of Rs. 1,00,00,000/- was not a loan transaction and it was without interest. As regards the amount of Rs. 10,20,00,000/-, he vehemently denied the claim of the Financial Creditor or the reason that such amount was, in fact, given as advance agains .....

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..... fall within the ambit of the definition of financial debt. 5. After controverting the claims of the Financial Creditor on factual basis, the Ld. Senior Counsel initiated his argument on legal aspects. His first plea was that loan could not be a transaction in unilateral manner way without mutual agreement as to terms and conditions of both the parties, hence, for want of mutual consent by the Corporate Debtor, such claim of the Financial Creditor was not valid. He further contended that to invoke the provisions of Section 7 of IBC, the pre-requisite was that the loan transaction must have time value of money and this transaction did not have any time value of money as it had no interest element, hence, this application was not maintainable. For this proposition, he relied on the following decisions:- (i) Shreyans Realtors Private Limited Anr. Vs. Saroj Realtors Developers Private Limited, in CA (AT) (Insolvency) No. 311 of 2018, Order dated 04.07.2018; (ii) B.V.S. Lakshmi Vs. Geometrix Laser Solutions Private Limited in Company Appeal (AT) (Insolvency) No. 38 of 2017; Order dated 22.12.2017; (iii) NCLT Kolkata Bench Order dated 26.04.2018 in CP(IB) No. 212/KB/2018 .....

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..... ndia Ors., Order dated 25/1/2019 could not be disputed and the said ratio did not further the cause of the Corporate Debtor in any manner. As regards the reliance placed by the Corporate Debtor on the provisions of the Bengal Money-Lenders Act, 1940, he submitted that the object of IBC, 2016 was insolvency resolution and not recovery of money, hence, the provisions of the Bengal Money-Lenders Act, 1940 were not applicable. He further submitted that such provisions being contradictory to the provisions of the IBC, 2016, hence, those could not be applied at all in view of the provisions of Section 238 of the IBC, 2016. He also contended that the Financial Creditor was not engaged in the business of financing / money lending in the ordinary course of its business and had no such transaction with many the parties and, therefore, for this reason as well, provisions of the Bengal Money-Lenders Act, 1940 were not applicable. He further contended that the transaction had involved time value of money and consequently, it fell within the ambit of the provision under Section 5(8) of IBC, 2016, hence, this petition was liable to be admitted as the Corporate Debtor had defaulted in respect of .....

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..... strument; d. the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; e. receivable sold or discounted other than any receivables sold on non-recourse basis; f. any amount raised under any other transaction, including, any forward sale or purchase agreement, having the commercial effect of borrowing; [Explanation. - For the purposes of this sub-clause, - (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect t of a borrowing; and (ii) the expressions, allottee and real estate project shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016, 2016 (16 of 2016);] g. any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; h. any counter-i .....

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..... Opportunity cost refers to the loss of investment opportunities and the benefit associated with them due to the commitment of money to another investment for a specific period of time. Risk relates to the investment risk that investors undertake when putting their money into investment assets. Further, in any time-value relationship, there are following components:- (a) Present value - a value today called 'present value'. When a future payment or series of payments are discounted at the given interest rate to the present day to reflect the time value of money, the resulting value is called present value. For example, if we have to pay Rs. 10000/- in one year and the bank offers an annual percentage rate of interest of 10% on any money you deposited with bank, you must deposit at least Rs. 9091/- today which is the present value of Rs. 10000/- to be paid in one year. (b) Future value - a value at some future date is called future value. Future value is the amount that is obtained by enhancing the value of present payment or a series of payments at the given interest rate to reflect the time value of money. In the example given hereinbefore, the future value .....

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..... ebt meaning thereby that focus is on lender of money only but it is not so if we even cursorily look at various clauses of section 5(8) which list the transactions of borrowing/ raising of money as of the nature of financial debt. For example, clause (a), clause (b), clause (c) and clause (f) of section 5(8) relate to borrower's initiative / requirements. Thus, time value of money is not an economic concept solely dependent on interest earning or paying factor, but it is a combination of economic, business, investment, finance and commercial considerations inextricably linked with time duration. These factors have duly been incorporated in section 5(8) of IBC, 2016 as evident from the structuring of the said section. Accordingly, we are of the view that any money transaction between two parties would require analysis based on above considerations to arrive at a conclusion whether such transaction has got the element of time value of money or not instead of looking at the same with interest aspect only. 11. In the present case, it is not in dispute that first transaction has been of loan carrying interest at a specified rate payable by the borrower. Subsequently, Financial Cr .....

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..... nt case, however, there is no dispute as regards the fact of borrowing of money by the Corporate Debtor, even first transaction is evidenced by agreement which contains provision for interest also. The Corporate Debtor has failed to controvert this claim of the Financial Creditor. 14. We find further support from the decision of the Hon'ble NCLAT in the case of Shailesh Sangani Vs. Joel Cardoso Anr. in Company Appeal (AT) (Insolvency) No. 616 of 2018, wherein the Hon'ble Appellate Tribunal held as under:- 6. A plain look at the definition of 'financial debt' brings it to fore that the debt alongwith interest, if any, should have been disbursed against the consideration for the time value of money. Use of expression 'if any' as suffix to 'interest' leaves no room for doubt that the component of interest is not a sine qua non for bringing the debt within the fold of 'financial debt'. The amount disbursed as debt against the consideration for time value of money may or may not be interest bearing. What is material is that the disbursement of debt should be against consideration for the time value of money. Clauses (a) to (i) of Section .....

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..... d judgments in 'Dr. B.V.S. Laxmi (Supra)', wherein this Appellate Tribunal noticed that there was nothing on record to suggest that the Corporate Debtor borrowed the money and the creditor failed to establish that the Corporate Debtor had raised the amount under any other transaction having commercial effect of borrowing. The judgement relied upon, on facts, is distinguishable and is not attracted to the facts of instant case. In 'Macksoft Tech Pvt. Ltd. Ors. (Supra)', this Appellate Tribunal held as under:- 37. Grant of loan and to get benefit of development is object of the Respondent -(Financial Creditor), as apparent from their 'Memorandum of Association'. Thus, we find that there is a 'disbursement'made by the Respondent - ( Financial Creditor') against the 'consideration for the value of money'. The investment was made to derive benefit of development of 'Q-City', which is the consideration for time value of money. Thus, we find that the Respondent - ( Financial Creditor') come within the meaning of 'Financial Creditor' and is eligible to file an application under Section 7, there being a 'debt' and .....

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..... kh of default for initiating insolvency and liguidation of Corporate Debtors. As per section 6, when a Corporate Debtor commits a default, a Financial Creditor or Operational Creditor or the Corporate Debtor may initiate Corporate Insolvency Resolution Process (CIRP) in respect of such Corporate Debtor. Thus, on occurrence of a default, the outcome is initiation of CIRP and the rationale behind for fixing such mandatory threshold limit is to detect, at early stage, the signs of insolvency and take corrective measures to secure the interest of various stakeholders. As per provisions of Section 7(1), Insolvency Resolution Process can be initiated against a Corporate Debtor when a default has occurred and the Financial Creditor files evidence of default along with the application. As per section 3(12) of I B Code, 'default' means non-payment of a debt which has become due and payable and is not paid by the Corporate Debtor. 'Debt' as per clause 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. This takes us to look at the meaning of 'claim' which is defined in section 3(6 .....

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..... h may or may not be legal. On the face of it appears as if both legal and illegal claims can be considered but, in our view, this definition cannot be extended to include debt/claim arising out of contract/obligations relating to illegal activities or activities which are of criminal nature under any law for the time being in force as debt/claim arising out of such activities are against public policy and void ab initio and only covers other infirmities which result into non-enforceability of contracts in civil laws such as legal incapacity of the person executing a contract or insufficiency of stamp duty paid on the instrument or lack of valid license, registration, authorization or Board resolution or other technical breach/defects etc. which would not absolve the corporate debtor under IBC2016 from facing OR Process. It is further noteworthy that enforceability subject to limitations of Public Policy and agreement being void au initio has not been made a pre-condition in IBC, 2016 as Financial Creditor as per section 5(7) means only person to whom a financial debt is owed. Financial debt as per section 5(8) means a debt along with interest, if any, which is disbursed against tim .....

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..... pect of the corporate insolvency resolution process of [name of corporate debtor]. The details for the same are set out below: Relevant Particulars Name of the financial creditor Identification number of the financial creditor (If an incorporated body, provide identification number and proof of incorporation. If a partnership or individual provide identification records* of all the partners or the individual) Address and email address of the financial creditor for correspondence Total amount of claim (including anv interest as at the insolvency commencement date) Details of documents by reference to which the debt can be substantiated Details of how and when debt incurred Details of any mutual credit, mutual debts, or other mutual dealings between the corporate debtor and the creditor which may be set-off against the claim Details of any security held, the value of .....

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..... nd correct to my knowledge and belief and no material fact has been concealed therefrom. Verified at... on this.............. day of..........., 20................ (Signature of claimant) [Note: In the case of company or limited liability partnership, the declaration and verification shall be made by the director/manager/secretary/designated partner and in the case of other entities, an officer authorized for the purpose by the entity.] (vii) Thus, it can be seen, OR Process con be initiated on the basis of records available with an information utility or other relevant documents as mentioned hereinbefore which include financial statements showing that debt had not been paid. Similarly, in Form C, the claim can be substantiated in the same manner. On the basis of this analysis, it can safely be concluded that purpose of documents is extremely limited and restricted only to prove the existence of debt and default thereof. (viii) Another aspect relating to the term claim is that right to payment may be an equitable claim. The term 'equitable' has not been defined under IDC, 2016, hence we have to look the meaning of the term in the common parlance or, as has .....

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..... hereunden- 3. On looking at the terms and conditions galore in the deed of guarantee, there could not be any speck of doubt about the binding nature of the guarantee deed upon these corporate debtors. For that matter, any agreement consciously and voluntarily executed between parties is sacrosanct, upon which whole society running from thousands of years, unless such trust and belief is not present, we can't survive even for a single day, some are explicit, some are implicit, but fact of the matter is, every second of us is run on trust upon each other, wherever it is broken, there is a dispute, there is a pain to the doctrine of trust and belief, therefore before going any further, I must say that the discretion given to the courts is to see as to whether the agreement entered in between the parties is prohibited under law or as to for any other reason the agreement is invalid for the reason of incompetency of parties, unlawful object or fraud, but these reasons have to be proved to the hilt by the person assailing it, not by the person asking relief basing on the agreement. The only ground that has to be proved by the party asserting it is execution of the agreement, if e .....

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..... made by the opposite party. The Corporate Debtor has admitted the fact of loan, rate of interest payable by the Corporate Debtor thereon and also default committed by the Corporate Debtor in repayment of impugned loan in its audited financial statements, hence, there is no need to look into the aspect of nature of MoU or its enforcement due to insufficiency of stamp duty. Accordingly, based upon these findings, the decision of NCLT in the case of Ranual Technology Pvt. Ltd. (supra) relied on by the Corporate Debtor does not come to its rescue. 16. We further find merits in the claim of the Financial Creditor that IBC, 2016 is not a recovery mechanism and, therefore, the provisions of The Bengal Money Lenders Act, 1940 being part of that legislation which operates in different field i.e. recovery of dues, could not be applied to proceedings under IBC, 2016. In our considered view, in any case, such provisions being contrary to the provisions of IBC, 2016 are not applicable in view of specific provisions of section 238 of IBC, 2016. 17. In view of the above facts and legal position, we hold that the Corporate Debtor be admitted under CIRP as per the provisions of Section 7 o .....

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..... n till the completion of the corporate insolvency resolution process. viii) Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of Section 31 or passes an order for liquidation of corporate debtor under Section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. ix) Necessary public announcement as per Section 15 of the IBC, 2016 may be made. x) MR. SHASHI AGARWAL, IRP Registration No. IBBI/IPA-001/IP-P00470/2017-18/ 10813, E-mail: [email protected] residing at Subarna Apartment (Opp. Udayan Club), 21N Block-A, New Alipore, Kolkata-700 053, is appointed as Interim Resolution Professional for ascertaining the particulars of creditors and convening a Committee of Creditors for evolving a resolution plan. xi) The Financial Creditor to pay sum of Rs. 5,00,000/- (Rupees Five Lakh Only) to IRP as advance fees as per Regulation 33(3) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulation 2016 which shall be adjusted from final bill. xii) The Resolution Professional .....

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