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TMI Blog2023 (7) TMI 1242X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned Order") passed by the Adjudicating Authority (National Company Law Tribunal, Allahabad Bench) in CP (IB) No. 457/ALD/2019. By the impugned order, the Adjudicating Authority has dismissed the application filed under Section 7 of the IBC by the Appellant to initiate Corporate Insolvency Resolution Process ("CIRP" in short) against the Corporate Debtor/Respondent No.1. Aggrieved by this impugned order, the present appeal has been preferred by the Appellant. 2. Making his submission in person, the Appellant, Gp. Capt. Atul Jain (Retd.), submitted that on the request made by one Mr. D.K. Chaturvedi, ("DKC" in short) he agreed to providing a loan to help the Corporate Debtor-Tripathi Hospital Pvt. Ltd., ("THPL" in short) for construction of their hospital. It is the case of the Appellant that he transferred Rs.7.5 lakh, Rs.2.5 lakh and Rs.10 lakh to the bank account of DKC for advancing the above sum as loan to the Corporate Debtor at an agreed interest of 18%. It is claimed that with a view to generate a feeling of trust and confidence, it was proposed by DKC to give the above sum to his account who in turn was to transfer the same to the Corporate Debtor. It was further submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled against BKT and NT and the matter is still pending before the district court. These Respondents have not paid the outstanding due even after accepting their liability before the Hon'ble Allahabad High Court and hence it was erroneous on the part of Adjudicating Authority not to have admitted the Section 7 application. 4. It was asserted that BKT and NT were alter-egos of each other and the Corporate Debtor. Adding further it was mentioned that the postal and email address given by BKT-NT in their saving bank account maintained at Noble Bank, Noida is the same as that of THPL. Moreover, THPL maintained its current account in Corporation Bank wherein the particulars of postal and email address were the same as that stated in the Noble Bank account of BKT and NT. It was, therefore, contended that by inference it can be concluded that the savings bank account maintained in the Noble Bank was actually the THPL's account. It was, therefore, asserted that BKT was using his savings account in the Noble Bank as a mask of THPL and that the Noble Bank account was actually the operational account of THPL. It was, therefore, contended that there is a need to pierce the corporate veil sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of DKC while the rest of the monies as per bank statements had actually been transferred to one Mr. R.N. Chaturvedi (Rs.9 lakhs), M/s Srijan Developers Pvt. Ltd (Rs.6 lakhs) M/s JDS Design Execution (Rs.3 lakhs) and M/s Sthapana Architect and Engineers (Rs.1 lakh). Moreover, the money transfers were not even made from the account of the Appellant but done from other account holders. 8. It was further contended that even if for argument's sake it is accepted that certain sum of money was given to DKC, this cannot be a ground of initiation of CIRP against the Corporate Debtor since the sum was loaned to DKC and not to the Corporate Debtor. Similarly, the sum transferred to BKT and NT were to their personal accounts and hence the amount was transferred to them in their individual capacity and not as Directors of the Corporate Debtor. Hence, these sums not having been remitted to BKT-NT as "corporate person" under Section 3(7) of IBC also cannot be treated as loan to the Corporate Debtor. Thus, when no debts were owed by the Corporate Debtor to the Appellant, it did not constitute sufficient ground for initiation of CIRP of the Corporate Debtor. The Appellant has therefore fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany as defined in clause (20) of section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider; 3(8) "corporate debtor" means a corporate person who owes a debt to any person; 3(10) "creditor" means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder; 3(11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; 3(12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be; 3(33) "transaction" includes a agreement or arrangement in writing for the transfer of assets, or funds, goods or services, from or to the corporate debtor; 5(7) "financial creditor" m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Explanation.--For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. 13. It is pertinent to note that Section 7(1) clearly spells out that a Section 7 application can only be initiated only by a Financial Creditor either by itself or jointly. A perusal of the definition of expression 'Financial Creditor' would show that it refers to a person to whom a financial debt is owed and includes even a person to whom such debt has been legally assigned or transferred to. The trigger for initiation of the corporate insolvency resolution process by such a Financial Creditor under Section 7 of IBC is the occurrence of a default by the Corporate Debtor above a prescribed threshold limit. Default in the IBC framework means the incidence of non-payment of debt in whole or in part when the debt has become due and payable, in law and in fact. Debt means a liability or obligation in respect of a claim whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ah vs. Teco Industries in Company Appeal (AT) (Ins) 470/2022 wherein it has been held that in the case of a Corporate Debtor who commits a default of a financial debt, the Adjudicating Authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It was added that not only there is no need to produce any document or agreement or written contract to adduce proof of loan given by the applicant to the Corporate Debtor, but that the "Deemed to be Authenticated" default report contained in the NeSL/Information Utility Report in respect of the Corporate Debtor was sufficient evidence of loan and default. It was also pointed out that a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the Corporate Debtor in terms of the explanation clause to Section 7 and hence the Appellant was entitled to factorize the debt owed by the Corporate Debtor to others also. 17. It is also the Appellant's contention that WhatsApp messages and SMS being admissible legal evidence when read with admission of debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undamental basis for a creditor to be treated as a financial creditor for the purpose of Section 7 in Part II of the IBC requires that a financial debt is owed to that person in terms of Section 5(7) of IBC. Such a financial debt could cover any of the transactions outlined in Section 5(8) (a) to (i) of the IBC. That being so, the basic requirement of existence of financial debt being owed by the Corporate Debtor to the Financial Creditor has to be first satisfied and cannot be overlooked. 20. The precise question before us to be answered is, therefore, whether the Appellant had made any disbursement to the Corporate Debtor against the consideration for the time value of money. In the present facts of the case, it is an undisputed fact that the Corporate Debtor has neither admitted to owing a financial debt to the Appellant nor has the Appellant been able to successfully substantiate that he directly disbursed any sum of money against the consideration for time value of money to the Corporate Debtor. We also do not find any material to have been placed on record by the Appellant wherein the Corporate Debtor can be said to have unambiguously admitted the debt claimed by the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... frayed to the Appellant qua the transactions have also not been done by the Corporate Debtor but from the personal accounts of BKT. 23. In our considered view, therefore, we have no hesitation in holding that the Appellant does not meet the specific and distinct connotations required to be treated as a Financial Creditor qua the Corporate Debtor. Since the Appellant is not a Financial Creditor of the Corporate Debtor and the transactions in question are not in the nature of financial debt owed by the Corporate Debtor, there is no error in the judgment of the Adjudicating Authority that no case has been made out against the Corporate Debtor for initiation of CIRP. 24. This now brings us to the other limb of argument of the Appellant that in the interest of justice, the corporate veil must be lifted to bring the Appellant under the definition of Financial Creditor in terms of Section 5(7) of IBC. The Appellant has placed reliance on several judgments of the Hon'ble Supreme Court and this Tribunal in this regard. Specific reference was made to the judgment of Hon'ble Supreme Court in LIC vs. Escorts (1986) 1 SCC 264 wherein the Apex Court has held that a "corporate veil may be lifte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any stage. The transactions have remained limited to DKC, BKT-NT in their individual capacity or with entities like RN Chaturvedi, Srijan Developers, JDS Design Execution, Sthapana Architect and Engineers as may be seen from pages 58-65 of Appeal Paper Book ("APB" in short). These borrowers have either received money from the Appellant or certain other unidentified accounts. Under these circumstances the liability of BKT-NT in their individual capacity cannot be automatically fastened on the Corporate Debtor. We also cannot but observe that the transactions claimed by the Appellant to have been made with the Corporate Debtor are themselves shrouded in mystery being a labyrinthine trail. Given the fact that the Appellant has failed to establish that he had given any loan to the Corporate Debtor directly, it does not stand to reason for him to press for piercing the corporate veil to alleviate the burdens of his financial misadventure. We do not countenance the urge expressed by the Appellant to pierce the corporate veil. That being so, we are satisfied with the findings of the Adjudicating Authority that the Section 7 application filed by the Appellant before it was not liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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