M/S Tiffany Finance Private Limited vs Sancheti Buildtech Private Limited

Per: Shri Deep Chandra Joshi, Judicial Member

This is an Application filed by M/s Tiffany Finance Private Limited ('Applicant'/ 'Financial Creditor') against M/s Sancheti Buildtech Private Limited ('Respondent'/ 'Corporate Debtor') under Section 7 of the Insolvency and Bankruptcy Code, 2016 (the 'IBC'/ 'Code') read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 seeking initiation of the Corporate Insolvency Resolution Process ('CIRP') against the Corporate Debtor.

The Applicant is a Private Limited Company incorporated under the Companies Act, 2013 on 11.05.2017 and duly registered with the Registrar of Companies, Jaipur, bearing CIN: U67190RJ2017PTC057988. The registered office of the Applicant Company is at (1^{st}) Floor, Tiffany Tower, Near Pani ki Tanki, Sham ki Sabji Mandi, Bhilwara (Raj.)- 311001.

The Corporate Debtor is a Private Limited Company incorporated under the Companies Act, 1956 on 14.12.1994, duly registered with the Registrar of Companies, Jaipur, having CIN: U50103RJ1994PTC009165. The Registered Office of the Company is situated at 13, Hari Sewa Marg, Bhilwara-311001 (Rajasthan). The authorized share capital of the Corporate Debtor Company is Rs. 70,00,000/- (Rupees Seventy Lakhs Only), and the paid-up share capital is Rs. 53,80,000/- (Rupees Fifty-Three Lakhs Eighty Thousand Only). The same has been verified from the online database maintained by the Ministry of Corporate Affairs.

The details of the transactions leading to the filing of this Application as averred by the Financial Creditor are as follows:

In the year 2021, the Corporate Debtor, along with Mrs. Asha Devi Sancheti, Mr. Prateek Sancheti, Mr. Roshan Lal Sancheti, and M/s Sancheti Traders ('Co-borrowers') had approached the Financial Creditor for seeking three business loan facilities in the form of secured term loans by mortgaging properties in favour of the Financial Creditor. The Applicant provided loan facilities aggregating to Rs. 5,85,00,000/- (Rs. Five Crore Eighty- Five Lakhs only) to the aforementioned borrowers. The details of the loans advanced by the Financial Creditor to the Co-borrowers are as follows: -

In lieu of the financial facility provided by the Applicant and to secure the Loan Agreements, the Corporate Debtor mortgaged the following properties in favour of the Applicant by depositing the title deed, as follows: -

After availing the loan facilities, the Corporate Debtor failed to adhere to the repayment schedule and violated the terms of the Loan agreements. Subsequently, the loan accounts were foreclosed, and the loan account of the Corporate Debtor was classified as an NPA on 19.04.2022. Thereafter, a demand notice dated 10.11.2022 was issued by the Applicant against the Corporate Debtor under Section 7 of IBC, 2016. Despite the issuance of the demand Notice, the due amount was not paid by the Corporate Debtor.

The relevant details as reflected in Part IV of the Application are as follows: -

on 17 October 2022) The details of due and outstanding amount under Loan Account No. TL/MTG-479 loan agreement dated 19 April 2021 as on 17 October 2022 is an under: -

The details of due and outstanding amount under Loan Account No. TL/MTG-481 loan agreement dated 15 April 2021 as on 17 October 2022 is as under: -

Consequent to the notice issued by this Adjudicating Authority, the Corporate Debtor filed its Reply vide Dairy No. 1732/2023 dated 18.07.2023 stating as follows:

The Corporate Debtor hereby denies each and every statement, allegation, averment and submissions made in the Application and affidavit in support thereof that is contrary to and/or inconsistent with the statements made herein. The Corporate Debtor has submitted that there is no relationship of Financial Creditor and the Corporate Debtor between the Applicant and the Respondent. The Corporate Debtor has not availed any financial facility, either directly or indirectly, from the Applicant and it explicitly denies any liability whatsoever to the Applicant. In the instant case, there is no debt or default which are prerequisite for initiating the CIRP under Section 7 of the Code.

The statement that the Applicant granted loans in three accounts to the Corporate Debtor is completely misleading, misconceived, and in fact, fraudulent. It is submitted that the director of the Applicant Company namely, Shri Virendra Prakash Ranka, along with his son, Shri Rounak Ranka, and Manager, Shri Neeraj Shah, fraudulently sanctioned loans in favour of Mr. Roshan Lal Sancheti, Mrs. Asha Devi Sancheti, and Mr. Prateek Sancheti ('the Sanchetis'). The said loan was never disbursed and even after the disbursement of some amount, a certain amount was immediately retrieved by the aforementioned trio, namely Shri Virendra Prakash Ranka, Shri Rounak Ranka and Manager Shri Neeraj Shah.

Subsequently, the Sanchetis discovered that the director of the Applicant Company had utilized them as a conduit for round-tripping of funds. The Sanchetis filed criminal and civil complaints against the Applicant Company and its directors. These matters are currently pending before various forums for adjudication. Meanwhile, the Applicant has filed this instant Application in an attempt to exert undue pressure upon the Corporate Debtor. Additionally, the Sanchetis have approached the Reserve Bank of India (RBI) and the Special Operations Group (SOG) of the Rajasthan Police to investigate the financial fraud committed by the Applicant Company in the name of granting a financial facility.

It is crucial for this Adjudicating Authority to ascertain whether the conditions stipulated in Section 7(5) of the IBC have been satisfied in this case. The respondent emphatically denies that the Applicant granted any direct or indirect financial facility to the Corporate Debtor. In the absence of such a financial facility, there can be no default. According to the definition under the IBC, without a default, there is no basis for invoking the powers under Section 7. Therefore, the Application is inherently misconceived.

It is stated that one of the directors of the Corporate Debtor, Shri Roshan Lal Sancheti, and the director of the Applicant, namely Shri Virendra Prakash Ranka, are friends. These persons had long-standing business relations, and the trust developed over the years was wrongly utilized by Shri Virendra Prakash Ranka. As mentioned earlier, Shri Roshan Lal Sancheti had business relations with the Director of the Applicant, Shri Virendra Prakash Ranka and they were lending money to each other in the course of business. The significant amount taken by the Corporate Debtor from Shri Virendra Prakash Ranka was duly returned to him.

The alleged financial facility was granted to the Sanchetis by the Applicant in the month of April 2021. According to the Applicant, the Sanchetis executed so called loan agreement starting from 15.04.2021 to 19.04.2021. The alleged loan was sanctioned by the Applicant to Shri Roshan Lal Sancheti for an amount of Rs. 2,85,00,000/- on 15.04.2021, to Smt. Asha Devi Sancheti for amount of Rs. 1,50,00,000/- on 19.04.2021, and to Mr. Prateek Sancheti for amount of Rs. 1,50,00,000/- on 19.04.2021. The Applicant through their directors instructed Sanchetis to deposit the disbursed amount to Mr. Raunak Ranka. As per the instruction given by Shri Virendra Prakash Ranka and his manager, Mr. Neeraj Shah, the Sanchetis transferred an amount of INR 60,00,000/- (Rupees Sixty Lakh only) on 16.04.2021, INR 50,00,000/- (Rupees Fifty Lakh Only) on 20.04.2021 and INR 50,00,000/- (Rupees Fifty Lakh Only) on 22.04.2021 to Raunak Ranka. It is evident that the Applicant granted alleged loan to Sanchetis and thereafter immediately, the amount was taken back in a different account.

Further, an agreement dated 09.09.2021 executed by Shri Virendra Prakash Ranka shows that the amount allegedly granted as financial facility was duly settled by purchasing land from the Sanchetis against the consideration of INR 5,85,00,000/- (Rupees Five Crores Eighty-Five Lakh Only). The said agreement clearly mentions that the amount given as financial facility to Shri Roshan Lal Sancheti, Smt. Asha Devi Sancheti, and Sh. Prateek Sancheti is being settled against the piece of land situated at Soniyana, Chittorgarh. Therefore, in view of the agreement dated 09.09.2021, there exists no financial facility that can be defaulted by the Corporate Debtor.

The Corporate Debtor contended that it is roped in the instant matter in the capacity of guarantor of the alleged loans granted to the Sanchetis. However, the Respondent was kept in dark regarding the financial facility between Shri Virendra Prakash Ranka and Shri Roshan Lal Sancheti. Further, the guarantee contract is revoked in view of the supplementary variations made by the Applicant Company and the Sanchetis.

To remedy the said financial fraud, the Sanchetis immediately filed a criminal complaint against the Applicant Company and its directors. Meanwhile, the Sanchetis learned that the Applicant Company had filed a criminal complaint bearing FIR No. 125/2022 at PS Kotwali, Bhilwara, against the Sanchetis alleging that they had misappropriated the loan amount and that no loan instalments had been paid by the Sanchetis. Both the FIRs are pending adjudication before the competent court in the ordinary course.

Furthermore, the financial liability and existence of default as alleged by the Applicant is meaningless in view of the loan statement submitted by the Applicant itself. It is interesting to note that the three loan accounts were shown as foreclosed, but nothing in the application or supporting documents suggests how the foreclosure request was made by the Sanchetis. No information regarding such foreclosure was given to the Corporate Debtor. Therefore, the Corporate Debtor cannot be roped into the matter as guarantor in contravention of the provisions of the Indian Contract Act.

There is no information regarding the default, such as when it occurred or when the foreclosed amount was supposed to be deposited by the Sanchetis. The Application does not provide any details in compliance with Section 7(3)(a) of the IBC. It is clear from the foregoing that the Corporate Debtor has no legal default or liability as prescribed under Section 7 of the Code.

The Applicant filed its rejoinder vide Diary No. 2241/2023 dated 13.09.2023 and made the following submissions: -

The Applicant submitted that the Corporate Debtor had denied to have availed any loan facilities, however, it had failed to produce any documents on record that would substantiate the bald averments. It is mentioned herein that the loan facilities were duly sanctioned and disbursed in favour of the Corporate Debtor and the loan agreements were duly executed among the parties and the same are already on record as Annexure- 6, 7 and 8 of the Application. The Corporate Debtor had relied on the settlement agreement dated 09.09.2021, however, a bare perusal of the said agreement would reveal that the Corporate Debtor had admitted the fact concerning the loan facilities advanced by the Applicant. Further, the Corporate Debtor had made contradictory statements whereby on one hand, they have stated that the “said loan amount was never disbursed”, and on the other hand, it has stated that “even after the disbursement of some amount, a certain amount was immediately taken back by the aforesaid trio”.

The Corporate Debtor had alleged that the Applicant had round tripped the money by using them, however, no complaint was ever lodged by the Corporate Debtor against the Applicant and there is no document to corroborate the said facts. Further, the Applicant had lodged an FIR No. 125/2022 against the Corporate Debtor and as a counter blast, the Corporate Debtor had lodged an FIR No. 213/2023 wherein the Police after due investigation had filed a Final Report. Further, the contention with regard to the pending investigation before the RBI and SOG of the Rajasthan Police are denied for want of Knowledge as no such proceedings had been bought to the knowledge of the Applicant and the burden to prove the same rests on Corporate Debtor.

It was contended that the alleged transactions by the Corporate Debtor for an amount of Rs. 60,00,000/- (Rupees Sixty Lakh Only) on 16.04.2021, Rs. 50,00,000/- (Rupees Fifty Lakh Only) on 20.04.2021 and Rs. 50,00,000/- (Rupees Fifty Lakh Only) on 22.04.2021 were neither made towards the repayment of the loan facilities nor the payment were received by the Applicant. Further, the alleged account wherein transfers have been made does not belong to the Applicant. The alleged Account wherein the amount has been transferred is in the name of "Scribbling Shipping Pvt. Ltd." belonging to one Mr. Jayanti Bhai and the Applicant does not have any nexus with the alleged account bearing No. 0061002101613993.

The Corporate Debtor had failed to repay the outstanding dues as such a settlement agreement dated 09.09.2023 was executed between Mr. Roshan Lal Sancheti & Mr. Virendra Kumar Ranka whereby Mr. Roshan Lal Sancheti had agreed to sale certain immovable properties (more particularly described in the settlement agreement) to Mr. Virendra Kumar Ranka. However, since Mr. Roshan Lal Sancheti had not honoured the terms of the settlement, Mr. Virendra Kumar Ranka had issued a letter dated 22.09.2021 wherein he had repudiated the settlement agreement dated 09.09.2021. Later, Mr. Roshan Lal Sancheti had replied to the said notice through their counsel and had repudiated the settlement agreement dated 09.09.2021. Thus, the said settlement agreement had been repudiated by the parties and has lost its significance. However, a bare perusal of the settlement agreement dated 09.09.2021 and the reply notice would make it axiomatic that the Corporate Debtor had availed the loan facilities.

The Corporate Debtor filed a Brief Factual Matrix vide Diary No. 363/2024 dated 08.02.2024 wherein it contended that the loan agreements submitted by the Applicant indicate that among the borrowers—Shri Prateek Sancheti, Roshan Lal Sancheti, and Asha Devi Sancheti—only, Roshan Lal Sancheti, a director of the Respondent Company, signed with the company seal. Further, Asha Devi Sancheti signed in her personal capacity, and Prateek Sancheti, a partnership firm, had no role in the Respondent company. Furthermore, funds were disbursed into the personal accounts of the aforementioned borrowers. Additionally, no security or mortgage exists in favor of the Applicant from the Respondent Company. Moreover, the Application and accompanying documents submitted by the Applicant do not sufficiently establish any default on the part of the Respondent Company. The Corporate Debtor has filed its audited financial statement along with the Financial Statements for the Financial Year 21-22. Additionally, the Corporate Debtor has filed its Written Submission wherein reiterated its earlier submissions.

The Applicant filed its Written Submission vide Diary No. 630/2024 dated 12.03.2024 wherein the Applicant reiterated the contentions raised in the Company petition and placed reliance upon the following case laws:

This Adjudicating Authority has perused all the relevant papers and found them in order. The Registered Office of the Corporate Debtor is situated in the State of Rajasthan; therefore, this Adjudicating Authority has the jurisdiction to entertain this Application. Further, this matter is within the purview of the Laws of Limitation, as the default arose in 2022, and the Application was filed before this Adjudicating Authority in 2022.

In the instant case, the Corporate Debtor along with other borrowers namely, Mrs. Asha Devi Sancheti, Mr. Prateek Sancheti, Mr. Roshan Lal Sancheti, and M/s Sancheti Traders availed the following loan facilities from the Applicant: -

It is pertinent to mention that loan amount of TL/MTG-483 was disbursed in the account of Mr. Prateek Sancheti; the amount of TL/MTG-481 was disbursed in the Account of Mrs. Asha Devi Sancheti; and the loan amount of TL/MTG-479 was disbursed in the Account of Mr. Roshan Lal Sancheti.

The Applicant declared the aforementioned loan accounts as NPA on 19.04.2022 and it allegedly foreclosed the aforementioned loan accounts on 17.10.2022 due to the default in repayment of the loans by the borrowers. Consequently, the Applicant filed the instant application alleging default of Rs. 7,78,08,937/- (Rupees Seven Crores Seventy-Eight Lakh Eight Thousand Nine Hundred and Thirty-Seven Rupees).

In the instant matter, the Corporate Debtor has raised the allegations that the Corporate Debtor is not liable for the aforementioned loan as the loan amount was disbursed in the personal account of the Co-borrowers and moreover, there is no relationship of Corporate Debtor and Financial Creditor between the Applicant and the Respondent.

A perusal of the loan agreements reveal that the said agreement were executed by the Financial Creditor on the one hand, and Mrs. Asha Devi Sancheti, Mr. Prateek Sancheti, Mr. Roshan Lal Sancheti, M/s Sancheti Traders, and the Corporate Debtor on the Other hand. Further, on behalf of the Corporate Debtor, one of its directors, namely, Mr. Roashan Lal Sancheti, and the seal of the Corporate Debtor is also affixed on the said document. Thus, we are not inclined to admit the submission of the Corporate Debtor that it is not a party to the said loan agreement.

The only issue that remains for our consideration is Whether CIRP can be initiated against a Company who is a co-borrower in a loan agreement and has not received the proceeds of the loan, in case of default.

The aforementioned issue is no more res-integra and it has already been decided by the Hon’ble NCLAT. In this regard, reliance can be placed upon the Judgment of Maitreya Doshi v/s Anand Rathi Global Finance Ltd. & Ors in Company Appeal (AT) (Insolvency) No. 191 of 2021 wherein it was observed that:

Similarly, in the case of Ashique Ponnamparambath & Anr. Vs BMW India Financial Services Pvt. Ltd. Company Appeal (AT) (CH) (Ins) No. 301/2021 it was observed that: -

In view of the aforementioned Judgments, we are of the opinion that the argument of the Corporate Debtor that no liability can be fastened upon it as the loan amount has not been disbursed to it cannot be accepted. It is a settled position of law that a Co-borrower's liability is co-extensive with the other borrowers.

At this stage, it is relevant to refer to Section 7 of the Code which clarifies that the Adjudicating Authority upon being satisfied that default has occurred of the financial debt, may order for initiation of CIRP of the Corporate Debtor. The key ingredients of an Application filed under Section 7 of the Code are: (i) there has to be a financial debt and; (ii) there must be a default in repayment of the financial debt. For ease of reference, Section 7 of the Code is reproduced hereunder: -

It is germane to refer the Judgement of the Hon’ble Supreme Court in M/s Innoventive Industries Ltd. vs. ICICI Bank, (2018) 1 SCC 407 wherein it was held that upon the Adjudicating Authority being satisfied that a debt was due and default had occurred, it was bound to commit the Corporate Debtor into CIRP. The relevant excerpts from the judgment are as below:

(emphasis added)

It is trite law that under the IBC once a debt which becomes due or payable, in law and in fact, and if there is incidence of non-payment of the said debt in full or even part thereof, CIRP may be triggered by the financial creditor as long as the amount in default is above the threshold limit. Once the Adjudicating Authority is subjectively satisfied that there is a debt and a default has been committed by the Corporate Debtor and the Section 7 application is complete in all respects, the Adjudicating Authority in the exercise of summary jurisdiction has to admit the Section 7 Application.

In the instant case, the Corporate Debtor along with other borrowers, namely, Mrs. Asha Devi Sancheti, Mr. Prateek Sancheti, Mr. Roshan Lal Sancheti and M/s Sancheti Traders had availed three loan facilities from the Financial Creditor to the tune of Rs. 5,85,00,000/- (Rupees Five Crores Eighty-Five Lakh Rupees Only). The said loan agreements form part of the record. Further, a perusal of the statements of the loan accounts reveals that the Corporate Debtor along with other borrowers failed to pay the amount of interest and consequently, the said loan accounts were foreclosed on 17.10.2022. Further, the loan accounts were declared as NPA on 19.04.2022 by the Financial Creditor.

In our considered view, the debt and default were adequately demonstrated by the Applicant in the instant case and the same is supported by the records. Further, the default is above the threshold limit of Rs. 1 crore. This is a case where all the pre-requisites for filing a Section 7 stood fulfilled thus the Adjudicating Authority is incline to admit the Corporate Debtor into CIRP for having defaulted in repaying a financial debt which was above the threshold limit.

Under such circumstances, The Corporate Insolvency Resolution Process can be initiated against the Corporate Debtor, as it has committed a default. Therefore, the Adjudicating Authority has come to the view that the Corporate Insolvency Resolution Process of the Corporate Debtor should be initiated. We are inclined to admit this Application and accordingly, same is hereby Admitted and the Corporate Insolvency Resolution Process against the Corporate Debtor is hereby initiated. Since the Applicant has proposed the name of the IRP, therefore, we appoint Mr. Rishabh Chand Lodha having Registration Number IBBI/IPA/-001/IP-P-01075/2017-2018/11766, duly registered with ICSI Insolvency Professional Agency, to be appointed as the Interim Resolution Professional. The Applicant has filed Consent in Form 2 under Insolvency and Bankruptcy Board of India (Application to Adjudicating Authority) Rules, 2016, stating that no disciplinary proceedings are pending against the named IRP.

Consequences of initiation of CIRP shall be inter-alia as follows:

ii) Further, as a sequel of admission, moratorium as envisaged under Section 14 of IBC, 2016 is invoked concerning the Corporate Debtor, which will be in vogue during the Corporate Insolvency Resolution Process of the Corporate Debtor. The IRP shall carry out CIRP strictly as per the timelines specified and as envisaged under the provisions of IBC, 2016 in relation to the Corporate Debtor.

iii) The said IRP shall act strictly in compliance with the provisions of IBC, 2016 and defray his expenses to be incurred and fees on the account. The Applicant is directed to act in accordance with Regulation 33(1) of the Insolvency and Bankruptcy (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The Applicant shall deposit a sum of Rs. 1,00,000/- (Rupees One Lakh Only) as the fees in the account of IRP within three days from the date of this order. The IRP shall duly file a status report from time to time appraising this Adjudicating Authority about the progress of CIRP unfolded in relation to the Corporate Debtor. In terms of Section 17 & 19 of IBC, 2016, all personnel of the Corporate Debtor including promotors and Board of Directors, whose powers shall stand suspended, shall extend all cooperation to the IRP during his tenure as such and the management of the affairs of the Corporate Debtor shall vest with the IRP.

iv) In terms of Section 7 of IBC, 2016, this order shall be communicated to the Applicant, Corporate Debtor, and the Interim Resolution Professional (IRP) appointed by this Adjudicating Authority to carry out the CIRP at the earliest, not exceeding one week from today.

Copy of this order shall also be communicated to IBBI for its record, and to any other body/entity to whom the Corporate Debtor is under legal/contractual obligation to inform/update.

In the circumstances, CP No. (IB) 01/7/JPR/2023 is admitted.