M/s. Global Enterprise & Anr. vs M/s. Suvarnabhoomi Infra Developers Pvt Ltd

The 1^st Financial Creditor is a registered partnership firm, incorporated on 05.06.2014 under the Indian Partnership Act, 1932, and registered in the Register of Firms vide Registration No. 574 of 2014^{11.Copy of the Certificate of Registration of the 1 Financial Creditor is annexed at Page 32 of the Application}. It is represented by its Partner, Mr. Amit Kumar Jain, residing at No. 15, Vasu Street, Kilpauk, Chennai-600010, Tamil Nadu.

The 2^nd Financial Creditor is a partnership firm and is represented by its Partner, Mr. Suresh Kumar B Jain, At no.57, Ormes Road, Kilpauk, Chennai-600 010.

The Financial Creditors, jointly and severally, sanctioned a short-term loan amounting to Rs.2,45,40,000/- (comprising Rs.1,71,78,000/- from the 1^st Financial Creditor and Rs.73,62,000/- from the 2^nd Financial Creditor) to the Corporate Debtor on 01.04.2023. The loan was extended to meet the short-term business requirements of the Corporate Debtor, based on mutual understanding that the amount would be repaid within a period of three months, in six equal fortnightly instalments, along with interest at the rate of 16% per annum. In consideration of the said loan, the Corporate Debtor executed separate Promissory Notes dated 01.04.2023 in favour of the respective Financial Creditors, thereby acknowledging the debt and agreeing to the repayment terms.

Till date, the Corporate Debtor has repaid only a part of the total loan amount, namely: (i) a sum of Rs.72,26,000/- to the 1^st Financial Creditor; (ii) a sum of Rs.24,54,000/- to the 2^nd Financial Creditor.

On account of continued default in repayment of the financial debt, the Financial Creditors issued legal notices dated 25.10.2023 and 28.11.2023, followed by a final demand notice dated 26.12.2023, calling upon the Corporate Debtor to pay the outstanding dues. These demand notices were duly received and acknowledged by the Corporate Debtor. However, despite receipt of the same, the Corporate Debtor failed to make the full payment and continued to offer false assurances without effecting any substantial repayment.

The Corporate Debtor issued a cheque dated 02.06.2023 for a sum of Rs.12,27,000/-, drawn on ICICI Bank, Hyderabad, in favour of the 2^nd Financial Creditor. Upon presentation, the said cheque was returned dishonoured on 18.07.2023 with the endorsement "Funds Insufficient". Consequently, the 2^nd Financial Creditor has initiated criminal proceedings by filing a complaint under the Negotiable Instruments Act before the learned Magistrate Court, Chennai, which is presently pending adjudication.

From the documents filed along with the Application, it is evident that the Corporate Debtor has committed default in repayment of the financial debt, despite multiple opportunities and extensions granted by the Financial Creditors.

The date of default as corrected vide memo on 21.04.2025 vide Diary No. 700 is 19.11.2023 and the Application has been filed on 05.11.2024 (vide Diary No. 1609).

Since the Application has been filed within 3 years of the date of default, the Application falls within the limitation period.

At the outset, it is necessary to examine whether the Financial Creditors qualify as “Financial Creditors” within the meaning of Section 5(7) of the Code and whether the claim constitutes a “financial debt” as defined under Section 5(8) of the Code. Section 5(8) defines “financial debt” to mean a debt along with interest, if any, which is disbursed against consideration for the time value of money and includes money borrowed against payment of interest or any transaction having the commercial effect of borrowing.

The present Section 7 Application has been jointly filed by two Financial Creditors on the basis of promissory notes dated 01.04.2023, executed in the name of the Corporate Debtor, which stipulate repayment along with interest at the rate of 16% per annum, thereby satisfying the essential requirement of consideration for time value of money. The extracts of promissory notes are reproduced below:

In Section 7 Application, the 1^st and 2^nd Financial Creditors stated to have disbursed Rs.1,64,90,880/- and 70,67,520/- respectively on various dates as shown in Table below against amount of Rs.1,71,78,000/- and Rs.73,62,000/- respectively shown in the promissory notes:

The Financial Creditors have placed on record the following documentary evidence to establish actual disbursement of funds to the Corporate Debtor, namely:

Thus, the Financial Creditors have established disbursement of an aggregate amount of Rs.2,35,58,400/- out of the sanctioned loan facility of Rs.2,45,40,000/-. It is also an admitted position that the Corporate Debtor has repaid Rs.72,26,000/- to the 1^st Financial Creditor and Rs.24,54,000/-to the 2^nd Financial Creditor, aggregating to Rs.96,80,000/-. After adjusting the said repayments, the outstanding principal amount remains Rs.1,48,60,000/-, which is well above the statutory threshold of Rs.1 crore prescribed under Section 4 of the Code, even without considering the balance amount of Rs.9,81,600/- for which proof of disbursement has not been furnished, the details of which is worked out as below:

The Financial Creditors have further placed on record the letter dated 07.04.2023 issued by the Corporate Debtor, expressly acknowledging receipt of the loan amounts, which constitutes an acknowledgment of debt. The extracts of the letters are reproduced below:

The Financial Creditors have sought to overcome the admitted absence of a Board Resolution authorising the borrowing by invoking the doctrine of indoor management, which operates as a well-recognised exception to the doctrine of constructive notice. The doctrine was originally propounded in Royal British Bank v. Turquand (1856), wherein it was held that a person dealing with a company is entitled to presume that internal formalities required by the Articles of Association have been duly complied with, and is not bound to inquire whether such internal approvals have, in fact, been obtained, so long as the act in question is within the apparent authority of the company’s officers. The Hon’ble Supreme Court, in MRF Ltd. v. Manohar Parrikar (2010) 11 SCC 374, reaffirmed this principle and clarified that the doctrine of indoor management is intended to protect bona fide outsiders from being prejudiced by internal lapses or irregularities in corporate decision-making. At the same time, the Supreme Court expressly recognised that the doctrine is subject to important limitations, and does not apply where the transaction is ultra vires the company, contrary to statute, or attended by suspicious circumstances that ought to have put the outsider on inquiry. Thus, while the doctrine permits a presumption of regularity of internal corporate acts, such presumption is neither absolute nor automatic and must yield where statutory mandates or the company’s constitutional documents clearly require specific authorisation.

There is no material on record to suggest that the Financial Creditors had actual knowledge of any internal irregularity or that the transaction was attended by circumstances so suspicious as to mandate further inquiry at the time of lending. Therefore, the Financial Creditors do not fall within any of the recognised exceptions, which would disentitle them from invoking the doctrine of indoor management, such as knowledge of irregularity, suspicion of irregularity, forgery, lack of authority apparent on the face of the documents, or complete failure to read the company’s public documents.

As per Section 7(1) of the Code, a financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government may file an application for initiating CIRP upon occurrence of default. In the present case, the Financial Creditors, being Financial Creditors, have jointly instituted the Application and have prima facie established disbursement of funds, consideration for time value of money, acknowledgment of debt, substantial part-repayment.

In view of the foregoing discussion, this Adjudicating Authority is of the considered view that the Financial Creditors have established the existence of a ‘financial debt’ within the meaning of Sections 5(7) and 5(8) of the Code against the Corporate Debtor.

Section 3(12) of the Code defines "default" as the non-payment of the whole or any part of the debt, when due and payable by the debtor..

In the present case, the Financial Creditors have placed reliance on a promissory note dated 01.04.2023, in which the amount is stated to be payable on demand, in which the address of the Corporate Debtor is shown as below:

As per the master data of the Corporate Debtor enclosed with the Application , the address of the Corporate Debtor is Door No. 50-22-12 Flat No. 201 Sri Balaji Residency, T P T Colony, Seetammadhara, Vishakhapatnam, Andhra Pradesh-530013, the relevant extracts of the master data dated 21.10.2023 is reproduced below:

The Financial Creditors issued the Demand Notice dated 25.10.2023 calling upon the Corporate Debtor to repay the outstanding dues within 15 days from the date of receipt of the notice at the registered address of the Corporate Debtor through RPAD. The extracts of the demand notice and proof of acknowledgment are reproduced below:

Although the above demand notice has not been served at the address mentioned in the promissory note, the same shall be deemed to be proper service of the notice as per Section 20 of the Companies Act, 2013, as the same has been served at the registered address of the Corporate Debtor. The relevant extracts of the Section 20 of the Companies Act, 2013 is reproduced below:

Since the above demand notice has been properly served on the Corporate Debtor, the debt becomes due after 15 days of the date of receipt of the notice. Since the demand notice has been received by the Corporate Debtor on 04.11.2023, the debt has become due and payable after 15 days from 04.11.2023, which works out to 19.11.2023.

Since the Corporate Debtor has failed to repay the debt by 19.11.2023, as per the demand notice, the default has occurred on 19.11.2023.

In view of the above, we are of the considered view that there is a default in repayment of the debt, when it became due and payable.

Moratorium under Section 14 (1) for prohibiting all of the following, namely:

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

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

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 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

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

It is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a licence, permit, registration, quota, concession, clearance or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period;

The provisions of sub-section of section 14(1) shall not apply to such transactions, agreements or other arrangement, as may be notified by the Central Government in consultation with any financial sector regulator or any other authority; and also to a surety in a contract of guarantee to a corporate debtor.

The supply of essential goods or services to the Corporate Debtor, as may be specified, shall not be terminated or suspended or interrupted during moratorium period, except where such Corporate Debtor has not paid dues arising from such supply during the moratorium period or in such circumstances, as may be specified.

The order of moratorium shall have effect from the date of this order till the completion of the CIRP or until this Bench approves the resolution plan under sub-section (1) of Section 31 or passes an order for liquidation of the Corporate Debtor under Section 33 as the case may be.

The term of appointment of Mr. K.J. Vinod shall be in accordance with the provisions of Section 16(5) of the Code, subject to his written consent to be filed within 7 days of this order;

In terms of Section 17 of the Code, from the date of this appointment, the powers of the Board of Directors shall stand suspended and the management of the affairs shall vest with the IRP and the officers and the managers of the Corporate Debtor shall report to the IRP, who shall be enjoined to exercise all the powers, as are vested with the IRP and strictly perform all the duties as are enjoined on the IRP under Section 18 and other relevant provisions of the Code, including taking control and custody of the assets, over which the Corporate Debtor has ownership rights recorded in the balance sheet of the Corporate Debtor, etc. as provided in Section 18(1)(f) of the Code. The IRP is directed to prepare a complete list of the inventory of assets of the Corporate Debtor;

The IRP shall strictly act in accordance with the Code, all the rules framed thereunder by the Board or the Central Government and in accordance with the Code of Conduct governing his profession and as an Insolvency Professional with high standards of ethics and moral;

The IRP shall cause a public announcement within three days as contemplated under Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 of the initiation of the CIRP in terms of Section 13(1)(b) read with Section 15 of the Code calling for the submission of claims against Corporate Debtor;

The IRP/RP shall prepare the Audited Financial Statements as on date of the CIRP and shall submit before the CoC for consideration.

The IRP/RP shall also ensure that all the assets appearing in the Financial Statements on the CIRP date have been considered in the valuation report. The IRP/RP shall send individual communication through post or electronic means along with a copy of public announcement to all the creditors as per last available books of accounts / financial statements on the CIRP date of Corporate Debtor as prescribed under Regulation 6A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The Corporate Debtor, its Directors, personnel and the persons associated with the management shall extend all cooperation to the IRP in managing the affairs of the Corporate Debtor as a going concern and extend all cooperation in accessing books and records as well as assets of the Corporate Debtor;

In view of the above mandatory provisions, the suspended Directors of the Board will ensure that the books of accounts for the eight previous financial years preceding the date of this order be made available to the IRP/RP within 15 days of the initiation of the CIRP order. The Statutory Auditor is also directed to share the records maintained by him in the course of the audit of the accounts of the Corporate Debtor for the period of three years prior to the date of initiation of this CIRP order within the same period of 15 days.

In case of any non-cooperation by the Suspended Board of Directors or the Statutory Auditors, the IRP/RP may take the help of the police authorities to enforce this order. The concerned police authorities are directed to extend help to the IRP/RP in implementing this order for retrieval of relevant information from the systems of the Corporate Debtor, the IRP/RP may take the assistance of Digital Forensic Experts empanelled with this Bench for this purpose. The Suspended Board of Directors is also directed to hand over all user IDs and passwords relating to the Corporate Debtor, particularly for government portals, for various compliances. The IRP is also directed to make a specific mention of non-compliance, if any, in this regard in his status report filed before this Adjudicating Authority immediately after a month of the initiation of the CIRP.

The IRP/RP is directed to approach the Government Departments, Banks, Corporate Bodies and other entities with request for information/documents available with those authorities/institutions/others pertaining to the Corporate Debtor, which would be relevant in the CIRP. The Government Departments, Banks, Corporate Bodies and other entities are directed to render the necessary information and cooperation to the IRP/RP to enable him to conduct the CIRP as per law.

The IRP shall, after collation of all the claims received against the Corporate Debtor and the determination of the operational position of the Corporate Debtor constitute a Committee of Creditors and shall file a report, certifying constitution of the Committee to this Adjudicating Authority on or before the expiry of thirty days from the date of his appointment, and shall convene first meeting of the Committee within seven days of filing the report of constitution of the Committee;

The IRP or the RP, as the case may be shall submit to this Adjudicating Authority monthly report with regard to the progress of the CIRP in respect of the Corporate Debtor.

In case a withdrawal application under Section 12A of the IBC, 2016 is proposed before CoC constitution, the IRP shall ensure that the consent of all Financial Creditors is obtained and enclosed in accordance with law.