M/s Kaliber Associates Pvt. Ltd. vs M/s Lion Buildcon Pvt. Ltd.

ORAL ORDER

“There is no appearance on behalf of the petitioner, thus the petition is dismissed for want of prosecution.”

“RA-175/2023: In view of the averments made in the application and the submissions put forth by the Ld. Counsel for the Applicant, the RA is allowed. IB-590/ND/2023: Issue notice to the Respondent returnable on 29.11.2023. The Applicant undertakes to serve notice upon the Respondent through all modes viz. registered post, speed post, courier service, and E-mail. Affidavit of service be filed within one week. Reply be filed by the Respondent within one week from the date of receipt of the notice. Rejoinder, if any, may be filed before the next date of hearing. List the matter on 29.11.2023.”

“Ld. Counsel for the CD submitted that the parties are exploring the settlement qua the defaulted amount. Let an affidavit to the effect be filed by tomorrow. List the petition on 07.02.2024.

Liquidator qua Kaliber Associates Pvt. Ltd. is directed to remain present in person either virtually or physically.

It would also be open to the CD to file its reply within 2 days. Filing of reply may not prejudice the settlement.”

“The present petition has been preferred by Liquidator qua M/s Kaliber Associates Pvt. Ltd. The amount of default as mentioned in Part-IV of the petition is Rs. 2,50,00,000/- (Rupees Two Crores Fifty Lakhs Only). Part-IV (1) reads thus:

2.

Mr. Anirban Bhattacharya, Ld. Counsel appearing for the Petitioner could draw our attention to the balance-sheet placed on record at page No. 109 of the petition to show that the amount of debt defaulted to be paid by the CD could be acknowledged and the present petition is within the prescribed period of limitation. He could also draw our attention to Annexure A-13 to the petition to show that the amount of default has been reported to information utility and the NeSL has also given certificate to the effect. To buttress his plea that once the default has been reported with information utility, no further verification or investigation is needed to be carried by this Adjudicating Authority, relied upon the judgment of the Hon’ble NCLAT in Company Appeal (AT) (Insolvency) No. 470 of 2022. Para 16 of the judgment reads thus:

“16.

In the light of the detailed discussion as above, it is clear that in case the record of Information Utility shows that there is a debt which is in default, the Adjudicating Authority or the Appellate Authority are not required to further examine the record maintained by the Information Utility, moreso when the record of the Information Utility is deemed authenticated and no dispute or refutation of said record has been done by the corporate debtor earlier. We also note that in the judgment of Rushabh Civil Contractors Pvt. Ltd. vs. Centrio Lifespaces Ltd. (supra), which has been cited by the Learned Counsel for Appellant, the record that formed the basis for financial debt and default was found to be forged and fabricated, which is not the case in the present appeal. Therefore, this judgment does not come to the rescue of the Appellant.”

3.

In the wake of the submissions made by the Ld. Counsel for the Applicant, the amount of debt defaulted to be paid is established and the default committed by the CD also acknowledged, the present petition deserves to be admitted.

4.

Nevertheless, the Ld. Counsel appearing for the CD submitted that the CD is endeavouring to enter into settlement qua the defaulted amount with the Applicant/Petitioner and has already given a proposal to Petitioner to the effect. Mr. Anirban Bhattacharya, Ld. Counsel express ignorance about any such proposal.

5.

In E S Krishnamurthy & Ors. vs. M/s Bharath Hi Tech Builders Pvt. Ltd. [Civil Appeal No 3325 of 2020] passed by the Hon’ble Supreme Court it could be viewed that after the finding regarding the default committed by the CD is arrived at, this Tribunal may encourage the settlement between the parties. Para 28 of the judgment reads thus:

“28 Undoubtedly, settlements have to be encouraged because the ultimate purpose of the IBC is to facilitate the continuance and rehabilitation of a corporate debtor, as distinct from allowing it to go into liquidation. As the Statement of Objects and Reasons accompanying the introduction of the Bill indicates, the objective of the IBC is to facilitate insolvency resolution “in a time bound manner” for maximisation of the value of assets, promotion of entrepreneurship, ensuring the availability of credit and balancing the interest of all stakeholders. What the Adjudicating Authority and Appellate Authority, however, have proceeded to do in the present case is to abdicate their jurisdiction to decide a petition under Section 7 by directing the respondent to settle the remaining claims within three months and leaving it open to the original petitioners, who are aggrieved by the settlement process, to move fresh proceedings in accordance with law. Such a course of action is not contemplated by the IBC.”

6.

In the wake of the view taken by the Hon’ble Supreme Court and the submission made by the Ld. Counsel for the CD at bar that it is keen to enter into settlement with the petitioner regarding the defaulted amount, 2 weeks’ time is granted to the CD to enter into settlement. With such observation, the petition is disposed of.

7.

It is made clear that if no settlement is arrived at within given time, Mr. Anirban Bhattacharya, Ld. Counsel would be entitled to mention orally before this Bench for revival of the present petition. The petition is disposed of.”

“IB-590/ND/2023: On 07.02.2024 we passed the order with consent of the Counsel for the parties. The paras 6 & 7 of the order reads thus:-

“6.

In the wake of the view taken by the Hon’ble Supreme Court and the submission made by the Ld. Counsel for the CD at bar that it is keen to enter into settlement with the petitioner regarding the defaulted amount, 2 weeks’ time is granted to the CD to enter into settlement. With such observation, the petition is disposed of.

7.

It is made clear that if no settlement is arrived at within given time, Mr. Anirban Bhattacharya, Ld. Counsel would be entitled to mention orally before this Bench for revival of the present petition. The petition is disposed of.”

In the wake, Mr. Anirban Bhattacharya, Ld. Counsel for the Financial Creditor mentioned that the settlement as referred to in the aforementioned order has not materialized, thus the petition may be revived.

In the wake, the CP-(IB)-950/ND/2023 is directed to be revived. Issue notice of information to the CD returnable on 22.04.2024. The Applicant undertakes to serve notice upon the Respondent through all modes viz. registered post, speed post, courier service and E-mail. Affidavit of service be filed within one week. Reply, if any, may be filed by the Respondent within one week from the date of receipt of the notice. Rejoinder, if any, may be filed before the next date of hearing.

List the matter on 22.04.2024.”

“13.

From the careful perusal of the definition of Financial Debt and the above case laws relied upon by the Corporate Debtor makes it clear that a debt will not become financial debt if it was not advanced for time value money. The letter dated 03.04.2016 at annexure ‘D’ and the various balance sheets relied upon by the Petitioner makes it abundantly clear that there is no interest payable on the loan advanced by the Petitioner. Apart from the above, no time is fixed for repayment in the absence of which it cannot be said that the loan was lent for time value money. In the light of the above discussion we have no hesitation in holding that the above amount claimed in the above Petition does not fall under the definition of financial debt and the above Company Petition is liable to be dismissed. Since we are dismissing the above Company Petition on the very nature of the claim, the other contentions raised by the Corporate Debtor with regard to obtaining prior permission from RBI by the applicant for lending the above amount to the Corporate Debtor the applicant being NRI and the observations in the auditors report relied upon by them to the effect that the amount is a mere book entry in the books of accounts of the Corporate Debtor are not dealt with.”

“16.

In support of his argument, the Appellant has adverted attention to the ratio contained in judgment of this Tribunal in M/s Precious Energy Holdings Limited vs. SBI in Company Appeal (AT) (CH) (Ins) 89/2022 and in Vipul Himatlal Shah vs. Teco Industries in Company Appeal (AT) (Ins) 470/2022 wherein it has been held that in the case of a Corporate Debtor who commits a default of a financial debt, the Adjudicating Authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It was added that not only there is no need to produce any document or agreement or written contract to adduce proof of loan given by the applicant to the Corporate Debtor, but that the “Deemed to be Authenticated” default report contained in the NeSL/Information Utility Report in respect of the Corporate Debtor was sufficient evidence of loan and default. It was also pointed out that a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the Corporate Debtor in terms of the explanation clause to Section 7 and hence the Appellant was entitled to factorize the debt owed by the Corporate Debtor to others also.”

“15.

We also note the judgment of Hon’ble Supreme Court in the matter of Innoventive Industries vs. ICICI Bank (2018) 1 SCC 407, wherein in para 21 it is held as follows:-

“21.

Section 12 provides for a time limit for completion of the insolvency resolution process and reads as follows: “Sec. 12. Time-limit for completion of insolvency resolution process.- (1) Subject to sub-section (2), the corporate insolvency resolution process shall be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process. (2) The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond one hundred and eighty days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of seventy-five per cent. of the voting shares. (3) On receipt of an application under sub-section (2), if the Adjudicating Authority is satisfied that the subject matter of the case is such that corporate insolvency resolution process cannot be completed within one hundred and eighty days, it may by order extend the duration of such process beyond one hundred and eighty days by such further period as it thinks fit, but not exceeding ninety days: Provided that any extension of the period of corporate insolvency resolution process under this section shall not be granted more than once.”

16.

In the light of the detailed discussion as above, it is clear that in case the record of Information Utility shows that there is a debt which is in default, the Adjudicating Authority or the Appellate Authority are not required to further examine the record maintained by the Information Utility, moreso when the record of the Information Utility is deemed authenticated and no dispute or refutation of said record has been done by the corporate debtor earlier. We also note that in the judgment of Rushabh Civil Contractors Pvt. Ltd. vs. Centrio Lifespaces Ltd. (supra), which has been cited by the Learned Counsel for Appellant, the record that formed the basis for financial debt and default was found to be forged and fabricated, which is not the case in the present appeal. Therefore, this judgment does not come to the rescue of the Appellant.”

“17.

What was held in Para 7 that Appellant has failed to show any record showing financial debt to be there. Thus, above judgment also does not lay down that unless there is written contract, the Financial Creditor is precluded to prove financial debt by any other relevant material. ***************

20.

The above judgment also thus indicate that Balance Sheets can also be looked into to find out existence of financial debt. Learned counsel for the Appellant has relied on judgment of this Tribunal in "Satish Balan VS Mrs. Neeta Navin Nagda & Anr., Company Appeal (AT) (Ins.) No. 718 of 2023" decided on 04.07.2023, where in Para 14 and 15 following has been laid down:

"14.

This 'Appellate Tribunal' observe that the Code nowhere prescribes that there should be a written agreement between the parties to prove the loan and its disbursement to be treated as financial debts. It is also observed that if there are acknowledgments by the 'Corporate Debtor' and where the statements of accounts of the 'Corporate Debtor' are in position to proof disbursement of loan and payment of interest, the absence of formal written agreement would not bar the 'Financial Creditor' (the Respondent No. 1 herein) from initiating the CIRP.”

15.

We take note from the record made available that there have been clear acknowledgments which have been issued by the 'Corporate Debtor' for the money Company Appeal (AT) Insolvency No. 1126 of 2022 received from the Respondent No. 1 which also mentioned the quantum of interest payment to be made by the 'Corporate Debtor' to the Respondent No. 1. Similarly, we also take into account the fact that TDS was deducted regarding interest paid and the name of the Appellant as 'dedutor' and the name of the Respondent No. 1 as 'deductee' is clearly evident. This does not give any scope for benefits of the 'Appellant'."

“25.

The Learned Senior Counsel for Appellant has referred to the judgments of Hon’ble Supreme Court in Garware Wall Ropes Limited v. Coastal Marine Constructions and Engineering Limited (2019) 9 SCC 209 and SMS Tea Estates Private Limited v. Chandmari Tea company Private Limited ( supra) to claim that documents that are insufficiently stamped cannot be admitted as evidence, and therefore, the Redeemable Non-Convertible Debenture Subscription Agreement and Debenture Trust Deed should not have been considered by the Adjudicating Authority while adjudicating the section 7 application. On the other hand, the Learned Counsel for Respondents has claimed that the Hon’ble Supreme Court has overturned the above two judgments in Garware Wall Ropes Limited (supra) and SMS Tea Estates Private Limited (supra) by its judgment in N.N. Global Mercantile Pvt. Ltd. (supra) holding therein that there is no requirement for stamping and registration of arbitration agreement, which constitutes a separate agreement under the theory of separability and kompetenz – kompetenz. We are of the view all the three judgments relate to the question of arbitration in relation to a contract. In our view, the corporate debtor has not raised any issue about the execution of the two documents in question in this case and hence we do not consider that these judgments (supra) will be applicable in the present case.

26.

The Hon’ble Calcutta High Court in W. P. No. 5595 (W) of 2020 With C.A.N. 3347 of 2020 Univalue Projects Pvt. Ltd. Versus The Union of India & Ors. And W.P. No. 5861 (W) of 2020 With C.A.N. 3937 OF 2020 Cygnus Investments and Finance Pvt. Ltd. & Anr. Versus The Union of India & Ors., while quoting various judgments of the Hon’ble Supreme Court, has held as under:

“50.

The Supreme Court in Innoventive Industries (supra), while considering Section 7 of the IBC, 2016 directed itself to the AA Rules, 2016 and observed the following vis-à-vis Rule 4 and its appendage Form-1:

“28.

…[U]nder Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires….documents, records and evidence of default in Part V….[T]he speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of the evidence furnished by the financial creditor, is important.”

“30.

On the other hand, as we have seen, in case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred…” (Emphasis supplied) Rohinton Nariman, J., relied upon the above quoted paragraphs of Innoventive Industries (supra) while authoring his judgment in Swiss Ribbons (P) Ltd. (supra). In addition to this, he also considered the pertinence of the IU in paragraph 31 before quoting the other sources of evidence which evidence a financial debt, in the following words:

“32.

Apart from the record maintained by such utility, Form I appended to the Insolvency and Bankruptcy (Adjudicating Authority) Rules, 2016, makes it clear that the following are other sources which evidence a financial debt:

a)

Particulars of security held, if any, the date of its creation, its estimated value as per the creditor;

b)

Certificate of registration of charge issued by the registrar of companies (if the corporate debtor is a company);

c)

Order of a court, tribunal or arbitral panel adjudicating on the default;

d)

Record of default with the information utility;

e)

Details of succession certificate, or probate of a will, or letter of administration, or court decree (as may be applicable), under the Indian Succession Act, 1925;

f)

The latest and complete copy of the financial contract reflecting all amendments and waivers to date;

g)

A record of default as available with any credit information company;

h)

Copies of entries in a bankers book in accordance with the Bankers Books Evidence Act, 1891.” (Emphasis supplied)

Therefore, all eight classes of documents enumerated under Part V of Form-1 appended to the AA Rules, 2016 have been held by the Supreme Court to be ‘other sources which evidence a financial debt’. On a close due diligence of the various provisions above, including section 7 of the IBC, 2016 read with Rule 4 of the AA Rules, 2016 and Form-1 therein, and regulation 8 of the CIRP Regulations, 2016, observations of the Supreme Court in paragraph 32 (provided above), it becomes crystal clear that apart from the financial information of the IU, eight classes of documents can be considered to be sources that evidence a “financial debt”.

On a close due diligence of the various provisions above, including section 7 of the IBC, 2016 read with Rule 4 of the AA Rules, 2016 and Form-1 therein, and regulation 8 of the CIRP Regulations, 2016, observations of the Supreme Court in paragraph 32 (provided above), it becomes crystal clear that apart from the financial information of the IU, eight classes of documents can be considered to be sources that evidence a “financial debt”.

“12.

Equally important to note is the judgment of Hon'ble Supreme Court in Orator Marketing (P) Ltd. v. Samtex Desinz (P) Ltd., (2023) 3 SCC 753, wherein it has been clearly held that financial debt does not expressly exclude an interest-free loan. The Hon'ble Supreme Court in this judgment has observed:

“21.

The definition of “financial debt” in Section 5(8) IBC has been quoted above. Section 5(8) defines “financial debt” to mean “a debt along with interest if any which is disbursed against the consideration of the time value of money and includes money borrowed against the payment of interest, as per Section 5(8)(a) IBC. The definition of “financial debt” in Section 5(8) includes the components of sub-clauses (a) to (i) of the said Section.

22.

NCLT and NCLAT have overlooked the words “if any” which could not have been intended to be otiose. “Financial debt” means outstanding principal due in respect of a loan and would also include interest thereon, if any interest were payable thereon. If there is no interest payable on the loan, only the outstanding principal would qualify as a financial debt. Both NCLAT and NCLT have failed to notice clause (f) of Section 5(8), in terms whereof “financial debt” includes any amount raised under any other transaction, having the commercial effect of borrowing.

23.

Furthermore, sub-clauses (a) to (i) of sub-section (8) of Section 5 IBC are apparently illustrative and not exhaustive. Legislature has the power to define a word in a statute. Such definition may either be restrictive or be extensive. Where the word is defined to include something, the definition is prima facie extensive.

31.

At the cost of repetition, it is reiterated that the trigger for initiation of the corporate insolvency resolution process by a financial creditor under Section 7 IBC is the occurrence of a default by the corporate debtor. “Default” means non-payment of debt in whole or part when the debt has become due and payable and debt means a liability or obligation in respect of a claim which is due from any person and includes financial debt and operational debt. The definition of “debt” is also expansive and the same includes, inter alia, financial debt. The definition of “financial debt” in Section 5(8) IBC does not expressly exclude an interest free loan. “Financial debt” would have to be construed to include interest free loans advanced to finance the business operations of a corporate body.” (Emphasis supplied) *** *** *** *** ***

18.

In the present case, the Respondent No. 1 has submitted a bank certificate to substantiate the disbursal of funds to the Corporate Debtor and validated the same with the Annual Reports and Balance Sheets of the Corporate Debtor to show that it was a loan. Respondent No. 1 has placed on record the Balance Sheet of the Corporate Debtor wherein this amount has been shown under the head of ‘Long Term 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 Adjudicating Authority committed no error in holding that there was a financial debt owed by the Corporate Debtor to Respondent No. 1.

19.

As long as there are clear acknowledgments of such debts in the statements of accounts of the Corporate Debtor, the Financial Creditor is not impeded in filing a Section 7 application and the Adjudicating Authority is required to look into the evidence of default as furnished in Part-V of Form-1 of the application filed by the Financial Creditor. Both these requirements have been met in the present case. In terms of Section 7 of IBC, a financial creditor is entitled to file an application for initiation of CIRP of the Corporate Debtor when a default is committed by the Corporate Debtor. The Financial Creditor is required to file the Section 7 application along with proof of default above the threshold limit.”

“CA-1342/2019- Ld. Counsel appearing for the Liquidator submits that he wishes to amend the application by deleting the name of R-43 namely, Mr. Raj Kamal Sarogi and file the amended memo of parties. Heard, the prayer is allowed. List the matter on 3^rd March, 2022.

IA-5846/2021- By filing this IA, the applicant has prayed for granting prior approval to the Applicant to institute suits / legal proceedings on behalf of the CD including 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.”