Irabati Tie-Up Private Limited vs ARK Industries Private Limited

The case is fixed for pronouncement of the order. The order is pronounced in the open court, vide separate order. In the result, the above C.P. (IB)/102(MB)2025 is admitted. Detailed order is being uploaded on the NCLT portal today.

This is an Application bearing C.P. (IB) No.102/MB/2025 filed on 10.10.2024 by Irabati Tie-Up Private Limited, the Applicant (Financial Creditor) 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”) by Mr. Sunil Molawade, authorised signatory vide Board Resolution dated 12.08.2024 for initiating Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) in respect of ARK Industries Private Limited, the Corporate Debtor.

The Applicant is engaged in the business of trading of iron and steel products. The Corporate Debtor is also engaged in the business of iron and steel.

As per Part-IV of the Application the total amount claimed to be in default by the Corporate Debtor is Rs.1,09,20,000/- (One Crore Nine Lakh Twenty Thousand Rupees) including principal amount of Rs.1,04,00,000/- (One Crore Four Lakh Rupees) and interest amount at 12% p.a. of Rs.5,20,000/- (Five Lakh Twenty Thousand Rupees). The date of default is mentioned as 01.04.2024 when the Corporate Debtor first defaulted in making the payment of the very 1^st instalment towards the loan amount. Due to the prolonged non-payment and disregard for legal obligations by the Corporate Debtor, the Applicant has filed the present Application seeking initiation of CIRP in respect of the Corporate Debtor under Section 7 of the Code.

The Applicant is a company incorporated under the provisions of the Companies Act, 1956 having Authorized Capital Rs. 5,00,00,000/- and Paid up Capital Rs. 4,85,00,000/-.

The Corporate Debtor had approached the Applicant and represented that there was a liability to State Bank of India, which the Corporate Debtor had partially settled by paying an amount of Rs. 36,00,000/-. However, an amount of Rs. 1,04,00,000/- was still due and payable. Accordingly, the Corporate Debtor requested the Applicant to advance a 'Short Term Loan' of Rs. 1,04,00,000/-.

A Loan Agreement dated 30.01.2024 was executed between the Applicant and the Corporate Debtor, wherein it was clearly stated that an interest rate of 12% per annum would be applied, calculated from the date of disbursement of the loan until the loan is fully paid. The loan agreement specifically states that the tenure of the loan was six months, with repayment commencing after two months of its execution and disbursement of the sanctioned amount.

The repayment terms as per the loan agreement were as follows:

The Corporate Debtor delayed the payment of the 1^st instalment and eventually paid only an amount of Rs. 85,000/- towards the interest on the loan. The Applicant addressed a letter dated 03.04.2024 to the Corporate Debtor, requesting payment of the pending amount. However, the Corporate Debtor orally requested the Applicant for more time since it was facing financial difficulties.

Despite repeated demands from the Applicant, the Corporate Debtor has failed to make any instalment payments. Accordingly, the Applicant issued Letters dated 03.05.2024, 03.06.2024, and 03.07.2024 to the Corporate Debtor requesting payment of the overdue instalments along with the applicable interest. However, the Corporate Debtor has not only defaulted on these payments but has also failed to respond to the aforementioned letters.

As per terms and conditions of the said loan agreement, it was clearly mentioned that if the Corporate Debtor fails to pay any instalment, the Applicant will have right to recall the entire loan facility. The Applicant issued Loan Recall Notice on 15.07.2024 calling upon the Corporate Debtor to make the entire outstanding payment including the interest. Subsequent to the receipt of the Loan Recall Notice, the Corporate Debtor addressed a Letter dated 30.07.2024 acknowledging its liability and made a proposal of restructuring of the loan facility which was rejected by the Applicant.

The Corporate Debtor had also issued confirmation of accounts to the Applicant. The Corporate Debtor had admitted and acknowledged the financial debt vide various confirmation of accounts which bear the stamp and signature of the Corporate Debtor. The same manifests that the Corporate Debtor admits its liability to pay the financial debt.

The Applicant sent a final reminder to the Loan Recall Notice on 31.07.2024 to the Corporate Debtor calling upon to pay the entire outstanding amount within 7 days from receipt of the notice, however, the Corporate Debtor failed to pay the same. No payments were received towards principal or interest amount for the said loan facility even after providing 7 days to the Corporate Debtor and also failed to reply to the demand notice.

The non-payment of the outstanding dues by the Corporate Debtor has had a significant adverse impact on the Applicant. The Corporate Debtor's inability to settle the outstanding dues signifies a state of financial distress, making it liable for initiation of the CIRP.

The date of default is mentioned as 01.04.2024.

The Corporate Debtor vide its Affidavit-in-Reply dated 19.03.2025 the same is affirmed by Mr. Dhanesh Mehta – Director and authorized representative of the Corporate Debtor.

In reply, the Corporate Debtor has contested that the present Application is filed to simply harass the Corporate Debtor and to pressurize and coerce the Corporate Debtor to make the alleged payments to the Applicant.

The Application was driven by mala fide intentions to recover dues rather than to rehabilitate the Corporate Debtor as it is evidenced by the unreasonable and onerous conditions imposed by the Applicant such as the terms and conditions of the rate of interest that was imposed on the Corporate Debtor demonstrates clear malice and bad faith in their approach to recover the debt. The cumulative effect of such a high interest rate, along with the additional penalties, would create a financial burden that the Corporate Debtor cannot sustain, further pushing the company towards insolvency. The Applicant’s ultimate goal appears to be to initiate the CIRP process and force liquidation to seize the Corporate Debtor’s assets. This approach not only disregards the true purpose of the CODE but also constitutes an abuse of the CIRP for personal financial gains, violating the principles of fairness and equity.

The Loan Agreement dated 30.01.2024 referred and relied upon by the Applicant in the Application is not a registered agreement and cannot be legally enforced. While Section 18 of the Registration Act provides an option for the registration of certain documents, the nature of the agreement in question suggests that they ought to have been registered to ensure their legal standing and admissibility. The failure to comply with this statutory requirement undermines the validity of the agreements and, consequently, the legal basis for the Applicant’s claims. Hence, the present proceedings based on such documents cannot be proceeded further with and would be beyond the jurisdiction of this Hon'ble Tribunal.

The Applicant does not possess a valid money lending license as required under the provisions of the Maharashtra Money-Lending (Regulation) Act, 2014 or any other applicable state legislation, to engage in the business of lending money. The Corporate Debtor submits that a person or entity engaged in illegal money lending cannot seek to enforcement its rights under the provisions or the CODE, as the claim itself is rooted in an unlawful and unenforceable transaction.

The Corporate Debtor submits that the Hon’ble Tribunal has powers to refer the parties to an experienced mediator for the purpose of effective settlement and therefore, referring the matter to mediation with an experienced mediator is appropriate and would ensure an effective and expeditious resolution of disputes. Mediation, being a non-adversarial process, would allow the Applicant and the Corporate Debtor to collaboratively explore viable solutions, considering the financial difficulties faced by the Corporate Debtor, as admitted in its communication dated 30.07.2024.

The right to file rejoinder was closed vide order dated 20.03.2025.

We have heard the respective Counsels and have perused the records as placed before us. Our findings in the matter are as under: -

We observe that at the request of the Corporate Debtor, the Applicant had advanced Short-Term Loan of Rs.1,04,00,000/- with respect to which, the parties had executed a Loan Agreement dated 30.01.2024.

Upon perusal of the statement of accounts of the Applicant for the period from 30.01.2024 to 12.02.2024, we observe that the loan amount of Rs.1,04,00,000/-was disbursed to the Corporate Debtor on 12.02.2024, 06.02.2024 and 31.01.2024. The Applicant has placed on record the proofs of disbursements of the Loan amount to the Corporate Debtor in the form of copy of its Bank account statement with PNB on Page Nos. 39 and 40 of the Application, which clearly show the disbursement of Rs.40 Lakhs on 31.01.2024, Rs.30 Lakhs on 06.02.2024, Rs.10 Lakhs on 06.02.2024 and Rs.24 Lakhs on 12.02.2024, all totalling to Rs.104 Lakhs.

The Loan Agreement has interest clause which is at 12% p.a. and repayment terms, which are as follows:

It is observed that as per the repayment terms the 1^st instalment of the loan was due on 01.04.2024. Subsequently, the 2^nd instalment fell due on 01.05.2024, 3^rd instalment on 01.06.2024 and 4^th instalment on 01.07.2024. The amount of Rs.26,00,000/- was fixed for each instalment. The Corporate Debtor failed to pay the 1^st instalment on 01.04.2024 of Rs.26,00,000/- but eventually paid an amount of Rs.85,000/- towards the interest on the loan. The Applicant had sent letters dated 03.04.2024, 03.05.2024, 03.06.2024 and 03.07.2024 in regard to the instalments which the Corporate Debtor had to pay as per the dates mentioned above. But the Corporate Debtor failed to make any payments. Thereafter, the Applicant sent a Recall Notice dated 15.07.2024 to the Corporate Debtor recalling the whole amount of Rs.1,04,00,000/-. The Corporate Debtor responded to this notice vide letter dated 30.07.2024 acknowledging the debt amount and requesting the Applicant to restructure the loan amount which was due and payable by the Corporate Debtor. The Applicant sent a final reminder notice to the Recall Notice on 31.07.2024 to Corporate Debtor calling upon to release the entire outstanding amount within 7 days from the date of receipt of the notice. However, the Applicant failed to make payment of the recalled amount.

The NeSL Form D has also been attached in the Application showing the status as “Deemed to be Authenticated”.

The Corporate Debtor has raised objections as under:

The said objections have been dealt with in the following paragraphs.

The Corporate Debtor alleged that the Loan Agreement is not registered as per Section 18 of the Registration Act, 1908 and the same is not legally enforceable. In this regard we are of the view that the said objection raised by the Corporate Debtor is not sustainable for the reason that in a Section 7 application, it is not necessary that the Loan Agreement, which has been attached by the Applicant along with the Application, is a registered document so long as the Applicant can, based on the documents attached with the application, establish that the debt exists and that a default exceeding the threshold amount as per Section 4 of the Code, has taken place. On perusal of the Loan Agreement along with other documents attached with the Application, we see that both the parties have signed on the Agreement and have acted upon the terms therein i.e. the Applicant has disbursed the amount, which has been received by the Corporate Debtor and the Corporate Debtor has failed to pay the due amount as per the terms of the Loan Agreement. The Applicant has placed on record the proofs of disbursements of the Loan to the Corporate Debtor in the form of copy of its Bank Account Statement with PNB on page nos. 39 and 40 of the Application, which clearly show the disbursement of Rs.40 lakhs on 31.01.2024, Rs.30 lakhs on 06.02.2024, Rs.10 lakhs on 06.02.2024 and Rs.24 lakhs on 12.02.2024, all totalling to Rs.104 lakhs. On page nos. 51-57, the Applicant has attached statements of accounts of the Corporate Debtor in its books for the period from 01.04.2023 till 31.07.2024, which has the confirmation made by the authorised signatory/director of the Corporate Debtor on it. The Applicant has even attached the Reply dated 30.07.2024 of the Corporate Debtor (attached on page no. 50) to its Loan Recall Notice dated 15.07.2024 (attached on page No. 49), vide which the Corporate Debtor has acknowledged the debt payable to the Applicant. Moreover, the Applicant has placed on record the NeSL Form D, on page no. 60A of the Application, which has confirmed the status of authentication of default as “Deemed to be Authenticated”. As such, the Applicant has proved beyond doubt the existence of debt exceeding Rs.1 crore and default with respect to the same, and therefore, the said objection of the Corporate Debtor holds no merit.

The Corporate Debtor has also raised the objection that the intention of the Applicant is recovery and that the present Application is not maintainable on the ground that the NCLT is not a recovery forum. The said objection of the CD is not maintainable as the filing of the Application under Section 7 of CODE results in initiation of Insolvency Resolution Process, which is not a recovery process but a collective resolution process for maximisation of the value of the assets of the Corporate Debtor to benefit all its stakeholders.

The Corporate Debtor has raised further objection that the Applicant does not possess a valid money lending licence to engage in the business of the lending and therefore, it cannot enforce its rights under CODE in respect of its illegal money lending. There is nothing on record brought by the Corporate Debtor to demonstrate that the Applicant was a professional money lender engaged in the business of money lending for which a licence is required. What has come to our notice is the single transaction entered into by the Applicant with the Corporate Debtor, which is only a one-time loan/inter-corporate deposit, which does not constitute a systematic money lending business requiring a licence. The Corporate Debtor has miserably failed to discharge the onus in proving that the Applicant is a money lender and has been engaged in the business of money lending. In any case, examining the said aspect does not fall within this Tribunal’s jurisdiction if it is proved that the debt has been raised and default is made.

The contention of the Corporate Debtor to refer the matter to mediation is something, which is out of the jurisdiction of this Tribunal with respect to the CODE matter and therefore, the said contention is also not tenable. In any case, the promoters of the Corporate Debtor may also participate in the resolution process, if they are not ineligible under Section 29A of the Code, and may settle the dues of the Creditors of the Corporate Debtor including the dues payable to the Applicant, by filing a resolution plan.

In view of aforesaid discussions, it is clear that the Applicant has placed on record necessary evidences and materials to demonstrate the existence of the financial debt exceeding the minimum threshold of Rs.1 Crore prescribed under Section 4 of the Code, which is due and payable as well as the default in repayment thereof by the Corporate Debtor.

The Applicant has proposed the name of Interim Resolution Professional (IRP) in compliance with Section 7(3)(b) of the Code. It has proposed the name of Mr. Umesh Balaram Sonkar, a registered Insolvency Professional (IP) as the IRP to carry out the functions as mentioned under the Code and has provided his AFA in Form B valid till 30.06.2025 and has also given his declaration in Form AA, inter alia, stating that no disciplinary proceeding is pending against him. This consent Form AA is not as per the Code and hence, we do not deem fit to appoint the proposed IRP. The Adjudicating Authority will appoint an IRP from the panel of IPs.

We find that all pre-requisites of Section 7(5)(a) of the Code are fulfilled and, accordingly, we are satisfied that the instant Application is fit for admission under Section 7 of the Code.

In view of the aforesaid findings, Application bearing C.P.(IB) No.102/MB/2025 filed under Section 7 of the Code by Irabati Tie-Up Private Limited, the Applicant, for initiating CIRP in respect of ARK Industries Private Ltd, the Corporate Debtor is hereby admitted.

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