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TMI Blog2024 (9) TMI 1421X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 of the Order has noticed the Balance Sheets maintained by the Corporate Debtor. Although the Balance Sheets have been noticed, but the Adjudicating Authority failed to notice that long-term borrowing and long-term liabilities have been mentioned under two different heads. Hence, non-mention of the amount of ₹1,00,00,000/- under the heading long-term borrowing has to be given some meaning and purpose. Long-term liabilities can be different kind of liabilities which may be an Operational Debt, Financial Debt or any other nature of debt. However, the real nature of transaction between the parties needs to be examined and adjudicated by the Adjudicating Authority before admitting Section 7 Application. In the present case, the Corporate Debtor unfortunately could not appear before the Adjudicating Authority to raise his defence, hence in the facts of the present case, the ends of justice be served in remitting the matter before the Adjudicating Authority for fresh consideration with liberty to the Appellant to file its Reply within three weeks. There is no appropriate consideration of the real nature of transaction on basis of which Section 7 Application was filed by the Adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Proceedings commenced against M/s. Kalibre Associates Pvt. Ltd. by Order dated 02.01.2020. Mohanlal Jain was appointed as Liquidator of the M/s. Kalibre Associates Pvt. Ltd. Another Notice dated 20.07.2020 was sent to the Corporate Debtor on behalf of M/s. Kalibre Associates Pvt. Ltd., requesting the Corporate Debtor to pay ₹1,00,00,000/- with 12% interest within seven days. vii. Liquidator had filed an Application before the Adjudicating Authority, seeking prior approval of the Adjudicating Authority for instituting suit/legal proceedings on behalf of the M/s. Kalibre Associates Pvt. Ltd. viii. Adjudicating Authority permitted the Liquidator to take all steps in accordance with provisions of law by Order dated 21.02.2022. ix. An Application under Section 7 was filed by M/s. Kalibre Associates Pvt. Ltd. against the Corporate Debtor, claiming a Financial Debt of ₹1,00,00,000 and `date of default was mentioned as 18.07.2019. x. The Application under Section 7 was filed by Liquidator of the M/s. Kalibre Associates Pvt. Ltd. on 04.01.2024. Notices were issued by Adjudicating Authority on 01.02.2024. Financial Creditor was directed to serve Notice on the Corporate Debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no Financial Debt nor any material was shown by Liquidator to prove the debt as Financial Debt. NeSL Certificate Report filed by the Financial Creditor mentioned deemed to be authenticated without their being any response by the Corporate Debtor. There was no Loan Agreement nor the disbursement for any time value of money. Adjudicating Authority committed error in admitting Section 7 Application. It is submitted that amount was given as security to the Corporate Debtor by M/s. Kalibre Associates Pvt. Ltd. for services which was rendered by the Corporate Debtor. 7. Mr. Anirban Bhattacharya Learned Counsel for the Respondent refuting the submission of the Counsel for the Appellant contends that Adjudicating Authority has rightly granted leave to the Liquidator under Section 33(5) of the Insolvency and Bankruptcy Code, 2016 (for short `The IBC or `The Code ) to institute suits/legal proceedings, including filing of Section 7 Application and the Application filed by the Liquidator under Section 7 against the Corporate Debtor was in accordance with the leave granted by the Liquidator and the Application cannot be said to be not maintainable. It is submitted that in the Balance Sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the bank statement of the Financial Creditor. A copy of the Bank Statement and copy of the Ledger of the Corporate Debtor as maintained by the Financial Creditor is annexed herewith and marked as ANNEXURE- 5. 2. AMOUNT CLAIMED TO BE IN DEFAULT AND THE DATE ON WHICH THE DEFAULT OCCURRED Amount Claimed to be in default: Rs. 1,00,00,000/- (Rupees One Crore Only). Date of Default: 18.07.2019 (Date of Demand letter issued by the IRP) Limitation in normal course would have ended on 18.07.2022. However, vide order dated 23.03.2020 the Hon ble Supreme Court of India in In Re: Cognizance for extension of limitation , the limitation period stopped running. Further, vide order dated 10.01.2022 passed by the Hon ble Supreme Court of India in Miscellaneous Application No. 21 of 2022 in Miscellaneous Application No. 665 of 2021 in SMW(C) NO. 3 OF 2020 In Re: Cognizance for extension of limitation para 5, the order dated 23.03.2020 was restored and in continuation of the subsequent orders dated 08.03.2021, 27.04.2021 and 23.09.2021, it was directed that the period from 15.03.2020 till 28.02.2022 shall stand excluded for the purposes of limitation as may be prescribed under any general or spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding filing applications under Section 7 of the Code for initiation of CIRP against the Companies/Borrowers of the Corporate Debtor having outstanding dues of above Rs.1,00,000 / (Rupees One Lakh Only) to Rs. 3,00,000 /- (Rupees Three Crores Only) for recovery of dues/default committed by such companies/borrowers in payment of their debt. Heard the Ld. Counsel appearing for the Applicant and perused the averments made in the application. Considering the submissions and the averments made in the application, we hereby allow the prayer. The Liquidator is directed to take all steps in accordance with the provision of law. With this, the present IA stands disposed of. 14. When we look into the Order, it is clear that prayers made in the Application has been allowed by the Adjudicating Authority, the prayers made in the Application has been noticed in the Order itself, were for granting prior approval to institute suits/legal proceedings on behalf of the Corporate Debtor, including filing of the Section 7 Application of the Code for initiation of the CIRP against the Company/borrowers of the Corporate Debtor, having outstanding dues . The approval granted by the Adjudicating Authority, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lected till 18.01.2019, that is when the provisional Balance Sheet was prepared prior to the initiation of the CIRP. The above facts make it clear that there was no interest component in the amount of ₹1,00,00,000/- since none of the Financial Statements, any interest provided for. 18. We are conscious that payment of interest is not necessary condition for a debt to be treated as a Financial Debt. Financial Debt can also be a debt without any interest. However, the precondition for amount to be treated as a Financial Debt is disbursement for time value of money. 19. Section 5(8) provide as follows: 5. In this Part, unless the context otherwise requires, (8) financial debt means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor as well as NeSL Report. 22. The amount of ₹1,00,00,000/- given to the Corporate Debtor, was under the heading loans and advances, to prove that the said amount was loan. There is no other material available on the record nor any Loan Agreement or any other acknowledgement by the Corporate Debtor. 23. The Appellant has also brought on the record the Financial Statement of Corporate Debtor which has also been referred to in the Section 7 Application filed by the Respondent Company. Financial Statement of the Corporate Debtor, there is Note No. 3 which deals with long-term borrowings and Note 4 deals with the other long-term liabilities. Note 6 deals with the short-term borrowings. It is useful to extract the Balance Sheet of the Corporate Debtor as on 31.03.2019, Note 3 to Note 9 which is as follows : NOTE NO. 3 LONG TERM BORROWINGS 31st March 2020 in Rs. 31st March 2019 A. Term Loans B. Deposits: a) From Related Parties: S.C. Garments Pvt Ltd 14685000.00 14658000.00 Sewa International Fashions Ltd. 20684100.00 20570800.00 b) From others Nischay Finvest Pvt Ltd 500000.00 500000.00 Total Long Term Borrowings 35869100.00 35755800.00 NOTE 4 As at As at OHER LONG TERM LIABI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales Promoter of the beer manufactured by a corporate debtor, only a sum of Rs. 4,000/- per month was made payable to the first respondent. Apart from the sum of Rs. 4,000/- per month, there is no commission payable to the first respondent on the quantity of sales. Clause (6) provides for termination of the appointment by giving thirty days' notice. Though clause (10) provides for the payment of the security deposit by the first respondent, it is pertinent to note that there is no clause for the forfeiture of the security deposit. The amount specified in clause (10) has no correlation whatsoever with the performance of the other conditions of the contract by the first respondent. As there is no clause regarding forfeiture of the security deposit or part thereof, the corporate debtor was liable to refund the security deposit after the period specified therein was over with interest @21% per annum. Since the security deposit payment had no correlation with any other clause under the agreements, as held by the NCLAT, the security deposit amounts represent debts covered by subsection (11) of Section 3 of the IBC. The reason is that the right of the first respondent to seek a refun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court was rendered after considering the Written Agreement between the Parties and considering the terms and conditions, one of the Agreements term was that the minimum security of ₹53,15,000/- with a Company which will carry interest @ 21% p.a. and further interest was to be provided on ₹7,85,850/- @ 21%. In the present case, there is no consideration of transaction as a Security Deposit by the Adjudicating Authority and without there being any consideration by the Adjudicating Authority on the nature of the transaction, we are not able to accept submission of the Counsel for the Respondent that even if the amount is treated as a Security Deposit, it will be a Financial Debt. As held by the Hon ble Supreme Court in `Global Credit Capital Ltd. Anr. (Supra), the real nature of the transaction has to be found out before coming to the conclusion that whether debt is a Financial Debt or not? 28. In the facts of the present case, the Adjudicating Authority in the Impugned Order has relied on record of default by NeSL and held that Report is sufficient evidence to arrive at the conclusion to an amount of debt. There can be no dispute that report of NeSL is an important p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm Borrowings - Unsecured loan from Related Parties . This clearly evidences that the disbursal was a loan. Even the notice sent by the Respondent No. 1 on 20.02.2018 as placed at pages 58- 59 of the APB clearly stated that they had extended a loan to the Corporate Debtor to meet its working capital requirements repayable on demand at an interest rate of 15% p.a. Keeping in mind that there was no document/agreement in respect of the loan amount, it is quite natural that there was no document/agreement which determined the payment of interest and the rate of interest but that cannot be a ground for assuming that the loan was not interest- bearing. It is an undisputed fact that the Respondent No. 1 has not placed on record any document which shows that the disbursal made was in the nature of loan wherein interest was specifically payable. Be that as it may, we are of the considered opinion that the IBC does not provide for any prescriptive requirement for the Financial Creditor to place on record formal written agreements/documents between the parties to establish that the disbursal made was in the form of loan with interest. Given this background we therefore find that the Adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any default and a Corporate Debtor is always at liberty to disapprove the statement as contained in the information utility record. 34. The Adjudicating Authority has to advert to nature of transaction for coming to the conclusion that there is a Financial Debt on basis of which Section 7 Application can be admitted. More so, when in the present case, it is not even the case of the Respondent that there was any interest payable, no material has been shown to prove that the amount given to the Corporate Debtor of ₹1,00,00,000/- was disbursement towards time value of money. Amount is of ₹1,00,00,000/- is shown right from 2010 to 2020 and in the Balance Sheet of the Corporate Debtor, the amount is shown as Security amount as long-term liability. 35. From the facts as noticed above, we are satisfied that ends of justice be served in remitting the matter for fresh consideration before the Adjudicating Authority, with liberty to the Appellant to file a Reply within 3 weeks from today. 36. In result, Appeal is allowed Order dated 06.03.2024 is set aside. Appellant is allowed three weeks time to file a Reply to Section 7 Application before the Adjudicating Authority. The Res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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