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TMI Blog2024 (1) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... t is the Appellant No. 6 who has signed for the Corporate Debtor as may be seen at page 270 of the APB - there are no mistake on the part of the Adjudicating Authority in not relying on the FFA to prove the existence of debt. The other ground to prove existence of doubt which has been adverted to by the Appellants is that the financial debt is also disclosed in the provisional balance sheet dated 03.03.2022 as shared by the Respondent themselves vide their email dated 04.03.2022 - The Respondent failed to repay the said credit facilities and hence this is a clear case of debt and default. The Adjudicating Authority in the impugned order has noticed that the Appellants had sold their shareholding to OMAT by executing the SPA on 03.02.2022 after payment of a lumpsum amount settled between the two parties. The Adjudicating Authority after perusal of the SPA has further noted that Schedule 1A and 1B of the SPA shows that the new management of the Respondent had settled the deal with all the shareholders at a lumpsum amount of Rs.10.62 crore - the Adjudicating Authority has rightly concluded that it was not satisfied with the evidence produced before it by the financial creditor t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were to remain in control of the Corporate Debtor. It has also been submitted that the Appellants and the Corporate Debtor entered into two Finance Facilities Agreement (hereinafter referred to as FFA ) recording the terms and conditions for repayment of credit facilities advanced by the Appellants to the Corporate Debtor. The FFAs signify that the Corporate Debtor acknowledged the debts of the Appellants and undertook to discharge them. Further, in terms of the MoU and SPA, it had been agreed that the loans extended by the Appellants to the Corporate Debtor would be repaid by the Respondent on the closing date. As the Respondent had agreed to pay the unsecured loans by the closing date, cheques for an amount of Rs.1.66 crore were to be issued in favour of the Appellants by the Corporate Debtor towards discharge of the outstanding credit facilities. Pursuant thereto, cheques were prepared by the Corporate Debtor but were not counter-signed by Mr. Lokesh Garg, Authorized Representative of the Corporate Debtor for presentment and hence debt could not be discharged. Since these cheques were not counter- signed by the Authorized Representative and the Corporate Debtor failed to make r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the APB. 7. Given this position, we do not find any mistake on the part of the Adjudicating Authority in not relying on the FFA to prove the existence of debt. 8. The other ground to prove existence of doubt which has been adverted to by the Appellants is that the financial debt is also disclosed in the provisional balance sheet dated 03.03.2022 as shared by the Respondent themselves vide their email dated 04.03.2022. Furthermore, it has been contended that the Respondent after carrying out due diligence had admitted the balance sheet as on 03.03.2022 which reflects the credit facilities advanced by the Appellants. The Respondent failed to repay the said credit facilities and hence this is a clear case of debt and default. 9. Assertion has also been made by the Appellant that though the debt amounts got removed in the 04.03.2022 balance sheet, this nil statement occurred on account of cheques having been issued by the Corporate Debtor towards discharging the liability appearing in the balance sheet of 03.03.2022. It was contended that cheques for an amount of Rs.1.66 crore was prepared by the Corporate Debtor on 04.03.2022 which was sent for counter signature of their Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties made by the present Appellants, a legal notice was issued on 25.08.2022 invoking the right of indemnification as provided for in Clause 10 of the SPA seeking recovery of Rs. 10.94 crore paid in terms of SPA and seeking damages of Rs.3 crore. OMAT also terminated the SPA dated 03.02.2022 and resorted to arbitration in terms of Clause 12 of the SPA. Furthermore, the Corporate Debtor had received demand notices from four alleged Operational Creditors for a total amount of Rs.6.10 crore. On receipt of these demand notices, it came to the knowledge of the Corporate Debtor that the Appellants in their capacity as erstwhile shareholders had entered into certain transactions beyond the accounts date defined in the SPA. It was also pointed out before the Adjudicating Authority that the demand notices of the Operational Creditors were signed by none other than one of the Appellants (Rajesh Jain) on behalf of the Corporate Debtor post-execution of the SPA and that the Corporate Debtor was kept unaware of these transactions nor were the transactions carried out in the ordinary course of business. 13. In their defence before the Adjudicating Authority, the Respondent had also explained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts which reflects that no amount as claimed by them was due and payable. Once the closing had been achieved by the Corporate Debtor in terms of the SPA and the same had been acknowledged by the Appellants upon signing the balance sheet with nil statement, the issue with respect to any amount due and payable by the Corporate Debtor does not arise. 16. Coming to our analysis and assessment, it is well settled that in terms of Section 7 of the IBC, a Financial Creditor may file an application for the initiation of CIRP against a Corporate Debtor. However, Section 7(5)(a) provides that only upon the Adjudicating Authority being satisfied that default on a debt had occurred and that the threshold for filing such an application had been met and that the application under Section 7(2) was complete, it may then only admit the Corporate Debtor into CIRP. It has been well settled by the Hon ble Supreme Court of India in M/s Innoventive Industries Ltd. v. ICICI Bank in C.A. Nos. 8337-8338 of 2017 that upon the Adjudicating Authority being satisfied that a debt was due and that default had occurred, it was bound to commit the Corporate Debtor into insolvency. It may be relevant to notice th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed. 18. The Adjudicating Authority in the impugned order has noticed that the Appellants had sold their shareholding to OMAT by executing the SPA on 03.02.2022 after payment of a lumpsum amount settled between the two parties. The Adjudicating Authority after perusal of the SPA has further noted that Schedule 1A and 1B of the SPA shows that the new management of the Respondent had settled the deal with all the shareholders at a lumpsum amount of Rs.10.62 crore. It has also noted that the provisional balance sheet of the Respondent as of 04.03.2022 shows that unsecured loan owed to the directors and shareholders of the Respondent Company as nil and this document has been signed by Appellants No. 1 and 6. Cognizance has also been taken of the fact that the Corporate Debtor had received demand notices from four alleged Operational Creditors for a total amount of Rs.6.10 crore and hence they held back part of the consideration amount for purchase of shares. After making these observations, on the question as to whether debt and default was adequately demonstrated to the Adjudicating Authority, basis the records made available before it, the Adjudicating Authority has rightl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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