Athena Construction Private Limited vs M/S Parorch Developers LLP

[PER: SANJIV DUTT, MEMBER (TECHNICAL)]

This Application bearing C.P.(IB) No.539MB/2024 was filed by Athena Constructions Limited, the Financial Creditor on 14.06.2024 under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "the Code") read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (hereinafter referred to as "the AAA Rules") through its Director and Authorised Representative, Mr. Ravikant Ramgopal Rathi for initiating Corporate Insolvency Resolution Process (hereinafter referred to as "CIRP") in respect of Parorch Developers LLP, the Corporate Debtor. 1.2 The total amount claimed to be in default, as per Part-IV of the Application, is Rs. 17,87,42,416/- (Seventeen Crore Eighty-Seven Lakhs Forty-Two Thousand Four Hundred and Sixteen Rupees) in respect of the Inter Corporate Loan advanced to the Corporate Debtor by the Financial Creditor during the period from March, 2022 to October, 2022. 1.3 Despite duly acknowledging and admitting its liability towards the outstanding debt, the Corporate Debtor failed to discharge the same. Consequently, the Financial Creditor has approached this Tribunal, seeking initiation of CIRP against the Corporate Debtor.

During January, 2022, Mr. Girish Amonker, Director of M/s Amonker Trading Private Limited (one of the partners of the Corporate Debtor) who has a long-standing association with the directors of the Financial Creditor, approached the Financial Creditor for financial assistance as the Corporate Debtor was facing financial constraints and was unable to proceed with the redevelopment of a Slum Rehabilitation Authority (SRA) project, namely "Trinity Tower" located at Adi Shankaracharya Road, Powai, Mumbai – 400076.

The Financial Creditor agreed to provide short-term financial assistance in the form of an Inter-Corporate Loan amounting to Rs.12,00,00,000/- (Twelve Crore Rupees) to the Corporate Debtor at an interest rate of (24%) per annum for a tenure of six months. Accordingly, the Financial Creditor disbursed the Inter Corporate Loan to the tune of Rs. 11,53,00,000/- to the Corporate Debtor from March, 2022 to October, 2022 in various tranches. 2.3 The said entries have been reflected in the bank statements of the Financial Creditor and also been recorded in the ledger accounts of the Corporate Debtor in the books of the Financial Creditor. However, the Corporate Debtor defaulted in its repayment after a period of six months on 13.04.2023. 2.4 Thereafter, upon the request of the Corporate Debtor, the Financial Creditor granted an extension of five months till 13.09.2023. However, despite the extension, the said amount remained unpaid. In these circumstances, the Financial Creditor, vide letter dated 29.09.2023, called upon the Corporate Debtor to repay the inter-corporate loan along with interest at the rate of (24%) per annum within a period of 15 days failing which the Financial Creditor would be constrained to initiate legal proceedings against the Corporate Debtor. However, the amount due still remained unpaid by the Corporate Debtor.

The Corporate Debtor, vide its letter dated 06.12.2023, acknowledged its liability towards the Inter Corporate Loan availed from the Financial Creditor. In the said letter, the Corporate Debtor stated that once the project development gained momentum and agreements were executed with individual flat purchasers, it would result in an inflow of funds, enabling repayment of the Inter Corporate Loan to the Financial Creditor. The Corporate Debtor, therefore, requested the Financial Creditor to grant additional time for repayment of the loan amount along with interest. However, no payments were made at all by the Corporate Debtor. Thus, present Application has been filed by the Financial Creditor for initiating CIRP in respect of the Corporate Debtor.

If the loan is considered a fixed-term loan, the date of default is 13.09.2023. However, a demand notice dated 29.09.2023 was issued, granting 15 days to repay the debt, which was received by the Corporate Debtor on 03.10.2023. Since no payment was made within the stipulated period, the date of default has been considered as 19.10.2023. The Corporate Debtor has acknowledged the outstanding Inter Corporate Loan towards the Financial Creditor under the head 'Unsecured Loans' in its audited financial statements for the FY 2021-22.

It is observed from the record that, despite multiple opportunities granted by this Tribunal, the Corporate Debtor failed to file its reply. On 20.12.2024, this Tribunal granted a final opportunity to the Corporate Debtor to file its reply, failing which the right to file reply would be closed. The matter was then listed for 14.02.2025.

On 14.02.2025, the Corporate Debtor apprised the bench that matter was likely to be settled and sought a short accommodation. However, on 19.03.2025, the Counsel for the Corporate Debtor sought time to file an Application for condonation of delay in filing the reply. This request was allowed by the Bench with a direction to file the said Application within three weeks. Despite this, on the next date of hearing, the Corporate Debtor neither filed any Application for condonation of delay nor furnished its reply. Further, the Corporate Debtor failed to appear before the Tribunal, either in person or through an authorised representative, to make oral or written submissions. Consequently, this Bench proceeded to hear the arguments advanced by the Learned Counsel for the Financial Creditor on merits and orders were reserved.

Accordingly, in the absence of any pleadings or response from the Corporate Debtor, the present Application is being disposed of based on the pleadings and evidence placed on record by the Financial Creditor.

Upon due consideration of the pleadings along with the materials available on record and hearing the Ld. Counsel for the Financial Creditor, our findings in the matter are as under: - 4.2 As stated above, despite multiple opportunities granted by this Adjudicating Authority, the Corporate Debtor failed to file its reply or present any defence. Consequently, the matter was heard based on the pleadings in the Application and the arguments advanced by the Ld. Counsel for the Financial Creditor.

The Hon'ble Supreme Court in the case of Innoventive Industries Ltd. vs. ICICI Bank (2018) 1 SCC 407, has laid down the guiding principles for admitting or rejecting an Application filed under Section 7 of the Code. It was held that in order to admit an Application, the Adjudicating Authority must be satisfied that a default in respect of a financial debt has occurred. The moment the Adjudicating Authority is satisfied that a default has occurred, the Application must be admitted unless it is incomplete. Thus, the Adjudicating Authority is required to examine the existence of financial debt, the disbursement of such debt and the occurrence of default in repayment thereof.

In light of the foregoing legal position, we now proceed to examine the facts of the present case. As per the Financial Creditor, in January 2022, Mr. Girish Amonker, Director of M/s Amonker Trading Private Limited (a partner of the Corporate Debtor), approached the Financial Creditor and sought short-term financial assistance in the form of an Inter-Corporate Loan of Rs.12,00,00,000/- at an interest rate of 24% per annum for a period of six months and an amount of Rs.11,53,00,000/- was accordingly disbursed by the Financial Creditor. However, no formal inter-corporate loan agreement or written financial contract has been placed on record. Thus, the first issue for determination is whether in the absence of a written agreement containing the terms and conditions of lending money to the Corporate Debtor, the loan transactions between the parties can be termed as "financial debt" within the meaning of Section 5(8) of the Code. Regulation 8(2) of CIRP Regulations specifies a "financial contract" as one of the basis for proving the existence of debt due to a Financial Creditor. However, the Code has neither defined nor used the expression "financial contract". Further, neither Section 7 of the Code nor any provision of the AAA Rules and the CIRP Regulations makes it mandatory that the existence of financial debt has to be proved only by means of a written financial contract. Furthermore, the Hon'ble NCLAT, in Prayag Polytech Pvt. Ltd. vs. Gem Batteries Pvt. Ltd. [2019 SCC OnLine NCLAT 1131] and Satish Balan vs. Mrs. Neeta Navin Nagda & Anr. [CA(AT)(Ins.) No. 718 of 2023], has held that the absence of a written agreement does not preclude the establishment of a financial debt, provided there is sufficient evidence of disbursement and intent. Accordingly, we are of the view that a formal written contract is not a precondition for proving the existence of a financial debt under the Code.

It is now proposed to examine the documents and records furnished by the Financial Creditor in order to ascertain whether these documents bring out the existence of financial debt. Under Section 5(8) of the Code, "financial debt" means a debt along with interest, if any, which is disbursed against the consideration for the time value of money. It is noticed that the Financial Creditor has placed on record copies of statements of bank accounts and ledger statement of the Corporate Debtor. A perusal of bank statements of the Financial Creditor maintained with the HDFC bank (Vile Parle, Mumbai, branch), clearly reveals debits by way of disbursement of funds to the bank account of the Corporate Debtor either through RTGS, NEFT or by cheque from time to time from 14.03.2022 to 12.10.2022. These disbursements of loan from time to time were even acknowledged by the Corporate Debtor vide its letter dated 06.12.2023.

Similarly, a perusal of Ledger Account of the Corporate Debtor maintained separately in the books of account of the Financial Creditor reveals that the first disbursement of Rs.50,00,000/- made on 14.03.2022, followed by multiple other instalments. As on 26.03.2024, the total outstanding amount stood at Rs.17,87,42,416/-, which included interest of Rs.6,34,42,416/-. Hence, the factum of disbursal of financial debt by the Financial Creditor to the Corporate Debtor also stands proven on record.

Having ascertained the factum of 'financial debt' owed by the Corporate Debtor to the Financial Creditor, the next issue for adjudication is with regard to the occurrence of default which is the sine qua non for admitting an application under Section 7 of the Code. In Part-IV of the Application, the Financial Creditor has stated that the loan was to be repaid within six months from disbursement. Since the last disbursement of Rs.24,00,000/- was made on 12.10.2022, the repayment was due by 12.04.2023 and non-payment of said loan within 6 months constituted the first event of default on 13.04.2023.

It is also observed that the Financial Creditor issued a demand letter dated 29.09.2023, calling upon the Corporate Debtor to repay the loan with interest at 24% per annum within 15 days. The Corporate Debtor, in its reply dated 06.12.2023, did not dispute the disbursement of funds or its liability. Rather, it acknowledged the liability and requested for additional time for repayment. This letter further confirms that both parties were fully aware of the terms of the loan, including its tenure, interest rate and repayment timeline thus establishing that even in the absence of a written agreement, the transaction meets the essentials of 'financial debt' under the Code.

Considering the fact that the Demand Notice dated 29.09.2023 was received by the Corporate Debtor on 03.10.2023 and the Corporate Debtor failed to repay the amount by the stipulated date of 18.10.2023 (i.e., 15 days from receipt of notice), thus, the date of default has correctly been determined as 19.10.2023 in Part-IV of the Application. This default is further corroborated by the record of default issued by the Information Utility (NeSL) in Form D. Further, no evidence has been placed on record to demonstrate that the amount claimed by the Financial Creditor to be in default has already been paid and there is no amount due and payable to the Financial Creditor as on the date of filing the Application. In light of the Corporate Debtor's admission of liability in its letter dated 06.12.2023 and further in its balance sheet F.Y.2021-22, this Bench is of the view that the Corporate Debtor has acknowledged and admitted its liability towards the outstanding financial debt more than Rs.1,00,00,000/- as prescribed under the Code.

From the above discussion, it clearly emerges that the financial debt, amounting to more than Rs.1,00,00,000/- (One Crore Rupees), which is the minimum threshold prescribed under Section 4(1) of the Code, is due and payable to the Financial Creditor by the Corporate Debtor who has committed default in repayment thereof. Hence, the twin ingredients of debt and default for triggering CIRP against the Corporate Debtor stand established.

The Financial Creditor has proposed the name of Mr. Ritesh R. Mahajan to be appointed as the Interim Resolution Professional (IRP) in respect of the Corporate Debtor. The proposed IRP has furnished his written consent in Form 2 dated 07.06.2024, as mandated under Rule 9(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 and has certified that there are no disciplinary proceedings pending against him. Therefore, this Bench finds that the requirements of Section 7(5)(a) of the Code have been duly satisfied. Therefore, we are of the considered view that the present Application is fit for admission under Section 7 of the Code.

This Application bearing C.P. (IB) No.539/2024 filed under Section 7 of the Code by Athena Constructions Limited, the Financial Creditor for initiating CIRP in respect of Parorch Developers LLP, the Corporate Debtor, is admitted.

We further declare moratorium under Section 14 of the Code with consequential directions as mentioned below:-

1 We prohibit-

a. the institution of suits or continuation of pending suits or proceedings against the Corporate Debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

b. transferring, encumbering, alienating or disposing of by the Corporate Debtor of any of its assets or any legal right or beneficial interest therein;

c. any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

d. the recovery of any property by an owner or lessor where such property is occupied by or in possession of the Corporate Debtor.

2 That the supply of essential goods or services to the Corporate Debtor, if continuing, shall not be terminated or suspended or interrupted during the moratorium period. 3 That the order of moratorium shall have effect from the date of this order till the completion of the CIRP or until this Tribunal approves the resolution plan under Section 31(1) of the Code or passes an order for the liquidation of the Corporate Debtor under Section 33 thereof, as the case may be. 4 That the public announcement of the CIRP shall be made in immediately as specified under Section 13 of the Code read with Regulation 6 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and other Rules and Regulations made thereunder. 5 That this Bench hereby appoints Mr. Ritesh R Mahajan a registered Insolvency Professional having Registration Number IBBI/IPA-002/IP-N08048/2017-18/10132; valid Authorisation for Assignment up to 31.12.2025 and e-mail address [email protected] as the IRP to carry out the functions under the Code. 6 That the fee payable to IRP/RP shall be in accordance with such Regulations/Circulars/ Directions as may be issued by the IBBI. 7 That during the CIRP Period, the management of the Corporate Debtor shall vest in the IRP or, as the case may be, the RP in terms of Section 17 or Section 25, as the case may be, of the Code. The officers and managers of the Corporate Debtor is directed to provide effective assistance to the IRP as and when he takes charge of the assets and management of the Corporate Debtor. The officers and managers of the Corporate Debtor shall provide all documents in their possession and furnish every information in their knowledge to the IRP/RP within a period of one week from the date of receipt of this Order and shall not commit any offence punishable under Chapter VII of Part II of the Code. Coercive steps will follow against them under the provisions of the Code read with Rule 11 of the NCLT Rules for any violation of law.

8 That the IRP/IP shall submit to this Tribunal periodical reports with regard to the progress of the CIRP in respect of the Corporate Debtor. 9 In exercise of the powers under Rule 11 of the NCLT Rules, 2016, the Financial Creditor is directed to deposit a sum of Rs.5,00,000/- (Five Lakh Rupees) with the IRP to meet the initial CIRP cost arising out of issuing public notice and inviting claims, etc. The amount so deposited shall be interim finance and paid back to the Financial Creditor on priority upon the funds becoming available with IRP/RP from the Committee of Creditors (CoC). The expenses incurred by IRP out of this fund are subject to approval by the CoC. 10 A copy of this Order be sent to the Registrar of Companies, Maharashtra, Mumbai for updating the Master Data of the Corporate Debtor.

11 A copy of the Order shall also be forwarded to the IBBI for record and dissemination on their website. 12 The Registry is directed to immediately communicate this Order to the Financial Creditor, the Corporate Debtor and the IRP by way of Speed Post and e-mail. 13 Compliance report of the order by Designated Registrar is to be submitted today.