M/s V.K Mercantile Pvt Ltd vs M/s Akhrot Developers Private Ltd

Labh Singh Member(Judicial)

This is an application filed by, the applicant M/s V.K Mercantile Pvt Ltd. (hereinafter to be referred as “the Operational Creditor”) seeking initiation of CIRP against the Respondent Company M/s Akhrot Developers Private Ltd (hereinafter to be referred as “Corporate Debtor”) under Section 9 of IBC Code, 2016 for the alleged default on the part of the Corporate Debtor having an outstanding balance of Rs. 7,82,99,523/- (Rupees Seven Crores Eight Two Lakh Ninety Nine Thousands Five Hundred Twenty Three Only) on account of loan claimed to be granted to the corporate debtor.

It is appropriate to mention that the applicant Company has claimed itself to be Financial Creditor being a registered Non-Banking Finance Company. Mr. Aditya Vikram Fogla, duly authorized on behalf of applicant, has preferred the present application on behalf of the applicant for initiation of insolvency resolution process against the respondent under the IBC Code. A copy of the Board Resolution dated 14.12.2023 has been placed on record.

The Respondent Company M/s Akhrot Developers Private Ltd against whom initiation of Corporate Insolvency Resolution Process has been prayed for, was incorporated on 13.11.2023 having its registered office situated at Kolkata. Since the registered office of the respondent corporate debtor is situated at Kolkata, this Tribunal having territorial jurisdiction over the West Bengal is the Adjudicating Authority in relation to the prayer for initiation of Corporate Insolvency Resolution Process in respect of respondent corporate debtor under sub-section (1) of Section 60 of the Code.

Briefly stated the case of the applicant is that the applicant Company granted a loan amounting to Rs. 10,00,00,000/-(Rs. Ten Crores Only) in two equal tranches with interest @ 12% per annum to the Corporate Debtor repayable on demand. The receipt of loan was confirmed by the Corporate Debtor in its Balance Confirmation of Accounts for the financial year 01.4.2017 to 31.3.2023 and also can be ascertained from ledger of the Corporate Debtor in it books which is Annexure P-10 and statement of the Financial Creditor.

It has further been submitted that the Corporate Debtor has not deposited TDS for the financial year 2022-23 and a complaint was lodged with Income Tax Department regarding the same and response was received from Income Tax Department.

The Corporate Debtor defaulted in payment of interest; and therefore, the Financial Creditor issued demand notice dated 27.11.2023 to the Corporate Debtor and its Directors through speed post and email for repayment of loan amount alongwith interest. Despite receipt of demand notice, the Corporate Debtor neither responded nor repaid the loan amount. The date of default is calculated on 15.12.2023.

Therefore, as per part IV of the application, it is claimed that as on 15.12.2023, a sum of Rs. 7,82,99,523/- (Rupees Seven Crores Eight Two Lakh Five Hundred Twenty Three Only) is due and payable by the respondent company.

Sub-section (3)(b) of Section 7 mandates the financial creditor to furnish the name of an Interim Resolution Professional. In compliance thereof, the applicant has proposed the name of Mr. Jitendra Lohia, for appointment as Interim Resolution Professional having registration number IBBI/IPA-001/P00170/2017-18/10330 resident of 2/7 Sarat Bose Road, 2^nd Floor, Vasundhara Apartment Kolkata West Bengal-700020 with email – id jitulohia@knjainco.com. Mr. Jitendra Lohia has agreed to accept the appointment as the interim resolution professional and has signed a communication in Form 2 in terms of Rule 9(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. There is a declaration made by him that no disciplinary proceedings are pending against him in Insolvency and Bankruptcy Board of India or elsewhere. In addition, further necessary disclosures have been made by Mr. Jitendra Lohia as per the requirement of the IBBI Regulations. Accordingly, it is seen that the requirement of Section 7(3)(b) of the Code has been satisfied.

The applicant, in order to prove its claim, has placed on record a copy of Master Data of the Petitioner maintained with MCA Annexure P-1, A copy of Board Resolution dated 14.12.2023 Annexure P-2, a copy of Master Data of CD maintained with MCA Annexure-P3, Date of Default and days of default with computation Annexure-P5, acCopy of Receipt Letter dated 23.02.2018, a copy of Certificate of NBFC Annexure P-8, a copy of confirmation of accounts of CD Annexure-P9, a copy of Ledge of CD Annexure P10, a copy of Balance Sheet of CD Annexure P11, a copy of Bank Statement of FC Annexure-P12, a copy of Form 26AS Annexure-P13, and a copy of Demand Notice Annexure-P14.

The applicant has also placed on record a copy of record of default which is Form C (Annexure P-6) filed with NeSL (information utility) in respect of default on the part of the Corporate Debtor in its repayment owed to the Financial Creditor. The applicant has further placed on record a copy of email communication from NESL regarding intimation of default as filed with NeSL. The said record shows that the claim of the applicant is deemed authenticated as no objection has been recorded by the corporate debtor.

In pursuance of notice issued by this Tribunal, respondent corporate debtor appeared and filed its affidavit of reply wherein it has been replied that the present application is not maintainable on facts and law. The alleged sum is not a financial debt; and hence, the applicant can not be termed as Financial Creditor.

It has been further replied that no loan agreement has been disclosed by the Financial Creditor to prove that the loan was granted by the Financial Creditor to the Corporate Debtor and hence the question of respondent being the Corporate Debtor does not arise at all.

It is mandatory for a financial creditor claiming itself to be NBFC to disburse any loan by entering into an agreement with the Corporate Debtor and without any loan agreement, neither alleged interest accrued nor the tenure of loan could be ascertained. There is no such agreement which can prove the financial debt. The payment of TDS cannot prove the financial debt and it cannot be termed as acknowledgment of debt. Respondent has relied upon RBI Master Circular -Fair Practices Code for NBFC dated July 1^st, 2015.

It has further been replied that purported claim of the Financial Creditor is barred by principle of waiver, estoppel, acquiescence and law of limitation. The Financial Creditor has failed to prove any default and in absence of default, the application is not maintainable.

It has further been replied that the persons of the Financial Creditor being known to the persons of the Corporate Debtor evinced an interest to foray into real estate business promotion and development and approached the Corporate Debtor to jointly promote and develop properties and real estate. The Financial Creditor agreed to contribute its share in the real estate development of the headland by way of purported loan. It was further agreed that upon commencement of actual development of land, the Financial Creditor would nominate a person/entity of its choice to partner the corporate data as the developer of the land and would assign the alleged loan of the Financial Creditor in the said development project in favour of the nominee.

It has further been replied that after discussion, during the month of January 2018, an oral agreement was entered between the parties on terms that the alleged Financial Creditor and Corporate Debtor would jointly develop the said land which is owned by the alleged Corporate Debtor and Financial Creditor would pay an amount of Rs. 10 Crores to Corporate Debtor being its share of development of the said land and it would be treated as purported loan till assigned to the nominee of the Financial Creditor. It was further agreed that till property is developed and encroachment removed, the alleged Corporate Debtor would pay interest to the Financial Creditor on the said amount of Rs. 10 crores at the rate of 12% per annum. Therefore, in terms of said agreement, the alleged Financial Creditor advanced an amount of Rs. 10 crores to the alleged Corporate Debtor and as agreed, the alleged Corporate Debtor started paying interest on the said amount to the alleged Financial Creditor.

It has further been replied that after removal of illegal encroachment and encumbrances on the land, during the month of April, 2022, the respondent contacted the applicant and called upon to enter into formal agreement. However, the applicant refused to do so and started demanding the said alleged loan amount. Though not agreed between the parties, the respondent paid an amount from time to time and made a payment of Rs. 5,65,00,000/-(Rs. Five Crore Sixty Five Lakh Only) out of the said sum of Rs. 10 crores to hold the applicant company. Therefore, there is no such alleged financial debt and accordingly, the present application deserves to be dismissed.

The applicant Company filed its rejoinder denying the averment made in the reply stating therein that the Financial Creditor received a copy of reply on 25.6.2024 at 13:54 hours and before dealing with allegation made in the second reply affidavit, it pertinent to bring to the notice of the Tribunal that before second affidavit reply was served upon Advocate of the Financial Creditor, there was another affidavit of reply affirmed by the same deponent namely Anatha Senapati on the same day i.e on June 24, 2024 served upon Financial Creditor which was received on 24.6.2024 at 19:48 hours. The second affidavit of reply was served on the pretext that there were some corrections and hence first reply should be ignored. However, the Corporate Debtor has totally made a contradictor case in both the affidavit of reply.

It has further been replied in rejoinder that what the case has been put in para no. 15, 17, 18 and 24 in the second reply are not there in the first affidavit of reply and points raised in para no. 17, 18, 19, 20 of the first reply affidavit has been deviated in the second reply affidavit. Though in first reply affidavit it has been alleged that the Financial Creditor would develop the land together with tile shed structure on area situated at Mouza Noapara within the limit of Rajarhat Gopalpur Municipality District North 24-Pargana whereas in second reply affidavit, it has been abandoned and changed to a completely different agreement.

It is clear upon comparison of both the reply affidavit that there is a contradictory case based on false facts. The simple unsecured loan transaction is being twisted to give the colour of some other imaginary transaction. There is no story of assignment of loan in first affidavit of reply and the same is introduced in para no. 19(ii) of the second reply affidavit. Insofar as RBI Circular relied upon by the Corporate Debtor, there is a specific written document containing specific terms of the transaction which are at page no. 37 of the petition and the existence of the said document has not been disputed by the Corporate Debtor in its reply affidavit.

It has further been replied in rejoinder that the Corporate Debtor has admitted unsecured loan in its balance sheet which is at page no. 58 of the petition and has also deducted tax at source in the year 2022-23 and earlier years on interest chargeable for the loan. The Corporate Debtor has also issued multiple signed confirmation of accounts on the basis that it was a loan transaction.

It has further been denied each and every content of the affidavit of reply and reiterated the facts pleaded in the petition. It has been prayed that the petition deserves to be allowed.

Based on pleading of the parties and the rival contentions raised by the Ld. Counsels for both the parties, the following points have arisen for determination:

We have gone through the case file carefully and perused the pleadings of the parties and documents placed on record by the parties and heard the arguments put forth by learned Sr. Counsels for the parties; and after hearing the learned Sr. Counsels for the parties, we shall now proceed to consider the present petition on its merits, specifically within the ambit of points involved in the instant application.

Learned Sr. Advocate appearing for the Financial Creditor argued that the existence of financial debt and default has been proved on record of the present case to trigger Corporate Insolvency Resolution Process of the Corporate Debtor. There is no need for written loan agreement and loan could be proved by oral agreement with corroborative evidence. She has relied upon judgment passed by the Hon’ble NCLAT in case of Desana Impex Ltd v. Brick and Mortar Realty Private Limited, Company Appeal (AT) Insolvency No. 318 of 2024.

Learned Sr. Advocate for the Corporate Debtor argued that written loan agreement is mandatory for entering into loan transaction by the NBFC as per guidelines issued by Reserve Bank of India. He has relied upon judgment passed by Hon’ble Apex Court in Central Bank of India v. Ravindra and Others, reported in (2002) 1 SCC 367, Judgment passed by Hon’ble NCLAT in Pawan Kumar vs Utsav Securities 2021 SCC OnLine NCLAT 4150. Judgment passed by Hon’ble NCLT Delhi in the case of Correo Marketing Private Limited vs Elegant IT Solutions Private Ltd, Judgment dated 20.12.2023 passed by Hon’ble NCLT Kolkata in case of Enarzier Commerce Private Limited vs Rawatsons Engineers Private Limited.

Before proceeding further to decide the case on its merits, it is pertinent to note that the Corporate Debtor has filed two different Reply Affidavits with the same date of affirmation i.e. June 24, 2024. The First Reply Affidavit filed by Corporate Debtor was served on the Financial Creditor vide email dated 24.06.2024 at 19:47 and the second reply affidavit was served on 25.06.2024. The First Reply Affidavit has been filed on the E-Portal; however, no hard copy was filed by the Corporate Debtor. During hearing of the case on 26.06.2024, Learned Senior Counsel for the Corporate Debtor admitted about filing of two reply affidavits; however he stated that the Corporate Debtor does not want to place reliance on the first reply affidavit. It is an admitted fact that no application for withdrawal of the first reply affidavit has been filed till date and hence both the Reply Affidavit are on record and taken into consideration.

It is pertinent to mention that an application under Section 7 of the Code is acceptable so long as the debt is proved to be due and there has been occurrence or existence of default. What is material is that the default is for at least Rs.1 crore and above. In view of the Section 4 of the Code, the moment default is of rupees one crore or more, the application to trigger Corporate Insolvency Resolution Process under the Code is maintainable.

According to the Hon’ble Supreme court while admitting the Section 7 Application, it is the duty of the Adjudicating Authority to investigate the real nature of the transaction. For this purpose, we would like to refer to the Judgment of Hon’ble Supreme Court in the case of Phoenix Arc Pvt. Ltd. Vs. Spade Financial Services Ltd. & Ors. Civil Appeal No. 2842 of 2020 decided on 1st February, 2021 which reads as under:

It is an admitted fact that there is no written loan agreement or demand promissory note entered between the parties. The applicant Company has relied upon its letter dated 23.02.2018 addressed to the respondent Company which is regarding confirmation of transfer of loan amount of Rs. 10 Crores. From perusal of this letter dated 23.02.2018, it reveals that an amount of Rs. 5,00,00,000/-(Rupees Five Crores Only) was transferred in the account of the respondent Company vide RTGS-ICICR52018022100834027 dated 21.02.2018 and another amount of Rs. 5,00,00,000/-(Rupees Five Crores Only) vide transaction RTGS-ICICR52018022200211145 dated 22.02.2018.

The recital of letter dated 23.02.2018 speaks about request of the Corporate Debtor to avail loan of Rs.10,00,00,000/-(Ten Crores Only). It has further been recorded therein that the said request has been approved by the Financial Creditor and the said loan amount is being granted in two tranches by way of RTGS. It would be relevant to reproduce the content of the said letter verbatim which is as under:

However, there is nothing on record which may prove that the Corporate Debtor has accepted the terms and condition of this letter dated 23.02.2018 rather the amount had already been disbursed on 21.02.2018 and 22.02.2018.

The applicant, in order to prove the financial debt and corroborate the recital of letter dated 23.02.2018, has relied upon Annexure A-09 which is Confirmation of Account for the financial year 01.04.2017 to 31.03.2018 wherein the amount transferred as loan amount in two trenches with interest accrued thereon for 39 days and 38 days respectively has been confirmed by the Corporate Debtor. The interest paid at the rate of 12% per annum with deduction of tax on the interest for the period from 01.4.2019 to 31.3.2020, 01.4.2020 to 31.3.2021, 01.4.2021 to 31.3.2022 and 01.4.2022 to 31.3.2023 has been acknowledged and confirmed therein. The interest and tax has further been shown in the Ledger Account of the applicant Company.

The Financial Creditor has further annexed Independent Auditor Report Annexure P-11 regarding audit of financial statements of the Corporate Debtor which comprises the Balance Sheet as on 31.03.2023. The transfer of the amount has also been proved by the account statement of the applicant Annexure P-12. Even the Corporate Debtor has not denied the transfer of the amount in its account. However it has been claimed that the amount availed is not a financial debt; and accordingly, the status of the applicant as Financial Creditor and respondent as Corporate Debtor has been denied for which an application can be filed under Section 7 of the IBC Code 2016.

The Corporate Debtor, in order to deny the status of the transaction as financial debt, has relied upon Master Circular No. RBI/2015-16/16 DNBR (PD) CC.No.054/03.10.119/2015-16 dated July 01, 2015 issued to All Non-Banking Financial Companies and Residuary Non-Banking Companies on Fair Practice Code which provides that the NBFCs should convey in writing to the borrower in the vernacular language as understood by the borrower by means of sanction letter or otherwise, the amount of loan sanctioned along with the terms and conditions including annualised rate of interest and method of application thereof and keep the acceptance of these terms and conditions by the borrower on its record.

Mr. Joy Saha Learned Sr. Counsel appearing for the Corporate Debtor vehemently argued that the RBI Circulars are having statutory force as held by Hon’ble Apex Court in case of Central Bank of India Versus Ravindran (2002) 1 SCC 367 and accordingly, a NBFC Company can not lend loan in contravention of guidelines issued by the Reserve Bank of India in its Master Circular No. RBI/2015-16/16 DNBR (PD) CC.No.054/03.10.119/2015-16 dated July 01, 2015.

It is settled law that RBI Circulars are having statutory flavours as held by Hon’ble Apex Court in Central Bank of India Vs. Ravindra & Others. However, Hon’ble NCLAT in Desana Impex Ltd v. Brick and Mortar Realty Private Limited, Company Appeal (AT) Insolvency No. 318 of 2024, has observed in paragraph 29 that:

This is a case wherein the Corporate Debtor has set up its case on the facts that during the month of January 2018, an oral agreement was entered between the parties on terms and condition that the Financial Creditor and Corporate Debtor would jointly develop land which is owned by the Corporate Debtor and Financial Creditor would pay an amount of Rs. 10 Crores to Corporate Debtor being its share of development of the said land and it would be treated as purported loan till assigned to the nominee of the Financial Creditor. It has further been pleaded in reply that till property is developed and encroachment removed, the Corporate Debtor would pay interest to Financial Creditor on the said amount of Rs. 10 crores at the rate of 12% per annum. Therefore, in terms of said alleged agreement, the Financial Creditor advanced an amount of Rs. 10 crores to the Corporate Debtor and as agreed, the Corporate Debtor started paying interest on the said amount to the Financial Creditor. It is further admitted by the Corporate Debtor in its written statement that it paid an amount from time to time and made a payment of Rs. 5,65,00,000/- (Rs. Five Crore Sixty-Five Lakh Only) out of the said sum of Rs. 10 crores to the applicant company.

Thus, it has specifically been admitted that the oral agreement was entered between the parties for payment of an amount of Rs. 10 Crores initially for development of land owned by the Corporate Debtor. It is further admitted that till land is developed, the Corporate Debtor shall pay interest @ 12% per annum on the amount advanced by the Financial Creditor and interest has been paid on the amount from time to time. It has further been admitted that a total amount of Rs. 5,65,00,000/- has already been paid out of the total amount of Rs. 10 Crores. Therefore, if the amount was paid for joint development of the land by the Corporate Debtor and the Financial Creditor then the question of repayment of loan amount would not have arisen at all. If the amount was paid by the Financial Creditor for joint development of land by oral agreement as alleged then nothing prevented the Corporate Debtor to seek specific performance of oral agreement and not to repay the said amount as alleged.

Insofar as deduction of tax is concerned, though it has been held by Hon’ble NCLAT in case of Prayag Polytech Pvt Ltd vs Gem Batteries Pvt Ltd CA(AT)(Ins.) No. 713 of 2019 that merely pointing out that TDS was deducted would not be sufficient to conclude that there was financial debt and TDS can be deducted for various reasons. However, in this case deduction of TDS coupled with admission of the Corporate Debtor proves that there was a loan transaction between the parties and the Corporate Debtor has committed default in payment of loan amount and default is authenticated in the record of NeSL.

In the facts, it is seen that the applicant clearly comes within the definition of Financial Creditor. The material placed on record further confirms that the applicant financial creditor had an advance loan of Rs. 10 Crores. On a bare perusal of Form - I filed under Section 7 of the Code read with Rule 4 of the Rules shows that the form is complete and there is no infirmity in the same. It is also seen that there is no disciplinary proceeding pending against the proposed Interim Resolution Professional.

We are satisfied that the present application is complete in all respects and the applicant financial creditor is entitled to claim its outstanding financial debt from the corporate debtor and that there has been default in payment of the financial debt.

As a sequel to the above discussion and in terms of Section 7(5)(a) of the Code, the present application is admitted.

Mr. Jitendra Lohia having registration number IBBI/IPA-001/P00170/2017-18/10330 resident of 2/7 Sarat Bose Road, 2^nd Floor, Vasundhara Apartment Kolkata West Bengal-700020 with email – id jitulohia@knjainco.com is appointed as an Interim Resolution Professional for the corporate debtor.

In pursuance of Section 13(2) of the Code, we direct that public announcement shall be made by the Interim Resolution Professional immediately (3 days as prescribed by Explanation to Regulation 6(1) of the IBBI Regulations, 2016) with regard to admission of this application under Section 7 of the Insolvency and Bankruptcy Code, 2016.

We direct the applicant Financial Creditor to deposit a sum of Rs. 2,00,000/- Lakhs with the Interim Resolution Professional namely Mr. Jitendra Lohia to meet out the expenses to perform the functions/duties assigned to him in accordance with Regulation 6 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The needful shall be done within three days from the date of receipt of this order by the Financial Creditor. The said amount however be subject to adjustment towards Resolution Process cost as per applicable rules.

The moratorium is declared in terms of Section 14 of the Code. The necessary consequences of imposing the moratorium flows from the provisions of Section 14(1)(a), (b), (c) & (d) of the Code. Thus, the following prohibitions are imposed:

It is made clear that the provisions of moratorium shall not apply to transactions which might be notified by the Central Government or the supply of the essential goods or services to the Corporate Debtor as may be specified, are not to be terminated or suspended or interrupted during the moratorium period. In addition, as per the Insolvency and Bankruptcy Code (Amendment) Act, 2018 which has come into force w.e.f. 06.06.2018, the provisions of moratorium shall not apply to the surety in a contract of guarantee to the corporate debtor in terms of Section 14(3)(b) of the Code.

The Interim Resolution Professional shall perform all his functions contemplated, inter-alia, by Sections 15, 17, 18, 19, 20 & 21 of the Code and transact proceedings with utmost dedication, honesty and strictly in accordance with the provisions of the Code, Rules and Regulations. It is further made clear that all the personnel connected with the Corporate Debtor, its promoters or any other person associated with the Management of the Corporate Debtor are under legal obligation under Section 19 of the Code to extend every assistance and cooperation to the Interim Resolution Professional as may be required by him in managing the day to day affairs of the ‘Corporate Debtor’. In case there is any violation committed by the ex-management or any tainted/illegal transaction by ex-directors or anyone else, the Interim Resolution Professional would be at liberty to make appropriate application to this Tribunal with a prayer for passing an appropriate order. The Interim Resolution Professional shall be under duty to protect and preserve the value of the property of the ‘Corporate Debtor’ as a part of its obligation imposed by Section 20 of the Code and perform all his functions strictly in accordance with the provisions of the Code, Rules and Regulations.

The Registry is directed to communicate a copy of the order to the Financial Creditor, the Corporate Debtor, the Interim Resolution Professional and the Registrar of Companies, West Bengal at Kolkata at the earliest possible but not later than three days from today.