Gill International Limited vs Unimers India Limited

Per: Shyam Babu Gautam, Member Technical

This Company Petition is filed by Gill International Limited (hereinafter called “Financial Creditor”) seeking to initiate Corporate Insolvency Resolution Process (CIRP) against Unimers India Limited (hereinafter called “Corporate Debtor”) alleging that the Corporate Debtor committed default in making payment to the Financial Creditor. This Petition has been filed by invoking the provisions of Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter called “IBC”) read with Rule 4 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

The present Petition is filed before this Adjudicating Authority on the ground that the Corporate Debtor failed to make payment of an aggregate amount of Rs. 13,47,19,402/-(Rupees Thirteen Crores Forty-Seven Lakhs Nineteen Thousand Four Hundred and Two Only) as on 23^rd March 2018 including the Principal amount of Rs. 11,41,68,984/- (Rupees Eleven Crores Forty-One Lakhs Sixty-Eight Thousand Nine Hundred and Eighty-Four Only) as on 31^st March 2017 and interest @18% amounting to Rs. 2,05,50,417/- (Rupees Two Crores Five Lakhs Fifty Thousand Four Hundred and Seventeen Only) forming part of the Financial Debt.

The Financial Creditor submits that the Corporate Debtor and the Financial Creditor entered into a Financing Agreement dated 11^th June 2007 (hereinafter referred to as “the said Agreement”) for inter-corporate loan/ advances. It was agreed that the Financial Creditor will advance Rs. 195 Lakhs as advance and further Rs. 30 Lakhs as a loan towards payment of old outstanding transportation charges, aggregating to Rs.225 Lakhs payable within 6 months in equal instalments together with interest @ 18% per annum on reducing balance.

Soon after the amounts were advanced, various disputes and differences arose between the parties and both parties initiated legal proceedings against each other. Subsequently, the parties amicably resolved their differences and executed a Memorandum of Understanding (MoU) dated 10^th March 2010. According to the terms of the said MoU, the Corporate Debtor was liable to pay a lump sum of Rs. 650 Lakhs to the Financial Creditor in one upfront payment of Rs. 1,25,00,000/-(Rupees One Crore Twenty-Five Lakhs Only) and 6 EMIs which carried interest @18% per annum. The Corporate Debtor made payments towards the debt in staggered installments and last paid a sum of Rs. 50,00,000/- (Rupees Fifty Lakhs Only) on 30^th April 2012. No further repayments have been made ever since until the date of filing this Petition i.e. until 14^th March 2018. It is further submitted that the Corporate Debtor has stopped its operations since 2016. Copies of the said Agreement and the MoU are attached to this Petition.

Thereafter, a series of communications ensued between the parties via e-mail, wherein the Financial Creditor requested the repayments of the outstanding amounts. The Corporate Debtor, in their latest e-mail dated 31^st March 2015, acknowledged their obligation to repay the debt and undertook to clear the outstanding balance at the earliest. Copies of the relevant e-mail communications have been attached to this Petition.

The Corporate Debtor filed a Reply to this Petition dated 17^th September 2019 and contends that the Agreement dated 11^th June 2007 is a Sale Purchase Agreement and not a Financing Agreement as alleged by the Financial Creditor and therefore this Petition is not maintainable under Section 7. It is submitted that the Financial Creditor failed to comply with the terms of the Sale Purchase Agreement because of which the Corporate Debtor suffered losses. Further, it is submitted that the MoU was signed to resolve disputes that had arisen between the parties however, since the Financial Creditor failed to fulfil their obligations under the MoU, some disputes are still pending. The Corporate Debtor points out that the Clause 5 of the said Agreement contains an Arbitration Agreement and that all disputes must be referred to arbitration according to what was initially agreed.

We have heard the submissions of the Counsel appearing for the Financial Creditor and the Counsel appearing for Corporate Debtor at length. On perusal of the Petition and the documents annexed, it is evident that the issue for consideration before us is whether the debt in question can be considered as a Financial debt or not.

The parties have relied on the Agreement dated 14^th June 2007 wherein the following clauses are relevant:

It is seen that after the Financial Creditor advanced the entire Principal amount as loan, the parties entered into an MoU to resolve their differences; the relevant portions of which have been reproduced hereinbelow:

To examine the issue at hand, it is pertinent to note the relevant portion of the definition of the term “financial debt” as given under Section 5(8) of the Code:

A brief examination of the said Agreement and the MoU reveals that the entire debt amount of Rs. 225 Lakhs was advanced against payment of interest and forms the crux of the transaction between the parties. The Principal amount was advanced with a clear agreement on the tenure of the loan, the manner in which it is to be repaid and at what rate of interest the repayments were to be made. This precisely indicates that the loan was advanced against consideration for the time value of money, which is the basic requirement to be classified as a Financial debt under Section 5(8)(a) as reproduced above.

Besides, in order to realise the true nature of a transaction, it is important to gather the essence of an Agreement from its terms as a whole instead of a cursory and superficial reading of the clauses in isolation. In the instant case, it is the argument of the Corporate Debtor that the said Agreement is a Sale/Purchase agreement as mentioned in Clause 1(a) of the said Agreement. But this contention cannot be sustained as the actual nature of transaction is discerned only after reading both Clause 1(a) and Clause 1(b) in conjunction which indicates that the overall transaction does, in fact, possess the character of “commercial effect of borrowing” as laid down in Section 5(8)(f) of the Code. In this regard, the Hon’ble National Company Law Appellate Tribunal (NCLAT) has observed the following in the matter of Nikhil Mehta and Sons vs. AMR Infrastructure Ltd., Company Appeal (AT) (Insolvency) No. 07 of 2017:

Therefore, on perusing Clause 1 (b) of the said Agreement, it is evident that the total amount of loan advanced is against the consideration of time value of money and such amount has been advanced by the Financial Creditor by way of the said Agreement having a commercial effect of borrowing. Clause 3 of the MoU lays down the tenure of debt, interest payable and the schedule of repayments and simply reinforces the nature of the debt and crystallizes the amount of debt owed. Further, we have perused the communications dated 26^th March 2015 and Letter dated 31^st March 2015 written by the Corporate Debtor to the Financial Creditor. The admission of the Corporate Debtor regarding the default and the outstanding Principal amount is noted.

We are of the opinion that the Financial Creditor has satisfactorily established the existence of debt of Principal Loan Amount of Rs. 11,41,68,984/- and default of the outstanding dues aggregating to Rs. 13,47,19,402/- including interest. The date of acknowledgement of default and the liability to repay is 31^st March 2015 and this Petition was filed on 14^th March 2018 therefore it is noted that the Petition is not barred by Limitation.

The Financial Creditor has thus successfully demonstrated and proved the debt and default in this case. It is noted that the Corporate Debtor admits the said outstanding debt. Therefore, this Bench is of the view that that this Petition satisfies all the necessary requirements for admission under Section 7 of the Code.

For the foregoing reasons, the instant Company Petition is liable to be admitted, and accordingly the same is admitted by passing the following:

Accordingly, this Petition is admitted.

The Registry is hereby directed to communicate this order to both the parties and to the IRP immediately.