Mr. Balasaheb Sangangoud Patil & Ors. vs Sharanappa Sangappa Alur & Ors.

KANTHI NARAHARI, MEMBER (TECHNICAL)

The Present Appeal is filed against the Order dated 07.03.2022 passed by the Adjudicating Authority (National Company Law Tribunal, Bengaluru Bench, Bengaluru) in CP (IB) No. 09/BB/2022, whereby the Adjudicating Authority admitted the Application filed by the Respondents herein and declared moratorium in terms of Section 14 of the I&B Code, 2016.

The Learned Counsel for the Appellant submitted that the Appellants are Shareholders of the Corporate Debtor i.e. Respondent No.10 herein and collectively hold 1% of the total shareholding of the Company. It is submitted that the Respondents in a suspiciously and in a fraudulent manner executed unsecured loan Agreements dated 04.12.2019 advancing an amount of Rs.34,73,54,802/- to be repaid by the Corporate Debtor on or before 31.12.2019 i.e. within a span of 27 days. The Respondents filed an Application under Section 7 of the I&B Code, 2016 on 25.12.2021 which is an act of collusion. The Corporate Debtor filed an Affidavit vide Diary No. 545 dated 14.02.2022 whereby it is averred that the Corporate Debtor has availed secured loan from Bijapur District Central Co-operative Bank Limited, Karnataka State Co-operative, Apex Bank Limited and unsecured loan from Bank of India, Bijapur Branch. The total liability of the Corporate Debtor towards the banks was mentioned as Rs.66,52,022,62/- (Rupees Sixty Crores Fifty Lakhs Twenty Thousand Sixty-Two only). However, none of the creditors initiated any legal action to recover the said outstanding dues.

It is submitted that the unconscionable terms of the loan agreements dated 04.12.2019 executed by the Respondents on the same date of their resignations and allowed the Corporate Debtor a loss-making company a mere 27 days to repay the hefty amount. The filing of application by the Respondents for seeking initiation of CIRP of the Corporate Debtor is malicious intent and liable to be penalised under Section 65 of the I&B Code, 2016.

Further, the Learned Counsel submitted that the Learned Adjudicating Authority failed to examine whether the transaction in question establishes the financial debt as mentioned under Section 5(7), 5(8) and 7 of the I&B Code, 2016 or not. The Learned Adjudicating Authority miserably failed to look into the fact that the Respondents did not produce any documents/bank entries to substantiate that they being Financial Creditors are transferred the loan amount to the Corporate Debtor bank account. The Respondents during their tenure as Directors of the Company availed the loan under the Tripartite Agreement for themselves. From the funds derived therein the Respondents have disbursed the above-mentioned loan amount in favour of Respondent No.10 (Corporate Debtor). The sole purpose of the Respondents is to liquidate the Corporate Debtor.

The Learned Counsel for the Appellants relied upon the judgments in support of their case and prayed this Bench to allow the Company Appeal by setting aside the impugned order.

The Respondents filed their Notes of Submission dated 18.06.2022. It is submitted that the Hon’ble Adjudicating Authority after careful consideration of the application and being satisfied that there exist debt and default on the part of the Corporate Debtor and passed order admitting the Application and initiated CIRP proceedings. It is submitted that the Appellants herein together admittedly holding only 1% of the total shareholding in the Corporate Debtor Company. It is an admitted fact that the Respondents as Financial Creditors are well within the rights under the Code to file an application seeking to initiate CIRP proceedings against the Corporate Debtor and the same cannot be alleged or termed as a collusive act. The Corporate Debtor is duty bound to repay the amount borrowed from the Respondents to the tune of Rs.34,73,54,802/- and which is clearly over and above the threshold limit of Rs.1 crore to initiate CIR process.

It is submitted that with regard to the averments made by the Appellants with respect to disbursement made by the Respondents to the Corporate Debtor, it is an undisputed fact that the financial debt was availed by the Corporate Debtor. It is not the case of the Appellants that the Corporate Debtor never borrowed monies from the Respondents herein. Further, the Corporate Debtor in fact admitted the debt owed to the Respondents in the Written Submissions filed before the Hon’ble Adjudicating Authority. Further, the Appellants have also in their Grounds of Appeal at Page 25 at Para-IV given in a tabular format the details of the loan received by the Corporate Debtor and as evident from the balance sheet and the annual returns of the Corporate Debtor.

It is submitted that the NeSL Certificate obtained by the Respondents, clearly establishes the fact that there exists a principal outstanding amount to the tune of Rs.34,73,54,802/- and the same is on the basis of the loan agreement entered by the Respondents with the Corporate Debtor.

In response to the collusion as alleged by the Appellants, the Respondents submits that it is a baseless and moonshine and clearly an afterthoughts submission made in bid to mislead and confuse this Hon’ble Tribunal. Further, the contention of the Appellants that before initiation of CIRP a notice need to be sent as per the agreement between the Respondents and the Corporate Debtor, is concerned that as per the provisions of I&B Code, the Code does not put an obligation on the part of the Financial Creditor to issue a notice mandatorily before filing an application under Section 7 of the Code to initiate CIRP against the Corporate Debtor.

It is submitted that the Respondents have approached the Hon’ble Adjudicating Authority after about 2 years’ from the date of agreement and after lapse of time as provided in the agreement between the parties giving the Corporate Debtor ample time to pay back the debts owed to the Respondents.

In view of the reasons as stated above the Learned Counsel prayed this Bench to dismiss the Appeal as not maintainable.

Heard, the Learned Counsel appeared for the respective parties, perused the pleadings, documents and citations relied upon by them. After analysing the pleadings, the point for consideration is whether the Respondents claim fall within the category of Financial Creditors and whether there exists a debt and any default occurred there at.

The Learned Adjudicating Authority vide its order dated 07.03.2022 admitted the Application filed by the Respondents/Financial Creditors and initiated CIRP by imposing moratorium under Section 14 of the I&B Code, 2016 and appointed the IRP. The Adjudicating Authority relied upon Section 7(5)(a) of the Code, which emphasises, where the Adjudicating Authority is satisfied that a default has occurred and the Application under sub-Section (2) is complete and there is no disciplinary proceeding pending against the proposed Resolution Professional, it may by order admit such application. The Adjudicating Authority found that the debt is established and to be repaid to the Financial Creditors. Even from the records it is observed that the default occurred thereto in repayment of debt to the Financial Creditors. In view of the reasons the Adjudicating Authority admitted the application filed by the Respondents/Financial Creditors.

This Tribunal perused Form-1 filed by the Respondents/Financial Creditors at Part-IV the total amount of financial debt shown as Rs.34,73,54,802.00 and stated that the debt was to be repaid on or before 31.12.2019 in accordance with the respective loan agreements executed between the parties. In Part-IV the details of financial debt and default has been given in a tabular column at page 62-63 of the Appeal paper book. Further, in column 2 at Part-IV of the Form-1 shows the date of default as 31.12.2019. This Tribunal has perused the loan agreements executed between the Respondents/Financial Creditors and the Corporate Debtor which are annexed from page 251 onwards in Volume-2 of Appeal paper book. The loan agreements all dated 04.12.2019 and the amounts have been specifically mentioned in each of the loan agreement, whereby the Corporate Debtor agrees to repay the loan amount within 30 days from the date of the loan agreement which was payable @ 8% per annum beginning from 04.12.2019. Further all the loan agreements contain/affixes the signatures of the Corporate Debtor and the Respondents/Financial Creditors. There is no dispute with regard to execution of the loan agreements. Further, from the records of National e-Governance Services Limited which maintains record of financial information, issued a certificate in Form-C showing the date of contract (loan agreement) i.e. dated 04.12.2019 and the sanctioned amount by the Respondents/Financial Creditors to a sum of Rs.34,73,54,802/- which is total outstanding amount to be paid by the Corporate Debtor to the Respondents/Financial Creditors as annexed at Page 247, Volume-II of paper book. The said record of financial information maintains by the National e-Governance Services Limited is an information utility, governs under Chapter-V of the I&B Code, 2016. According to Section 213 of the I&B Code, 2016 an information utility shall provide such services as may be specified including core services to any person if such person complies with the terms and conditions as may be specified by regulation. Section 214 prescribes Obligations of Information Utility, which states as under:

In this regard, it is relevant to mention that The Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017 came into effect w.e.f. 31.03.2017 and Regulation 23 of the Regulations provides access to information. Sub-regulation (1) of Regulation 23 states that an Information Utility shall allow the persons to access information stored with it.

In view of the powers vested in accordance with law, the information provided by the National e-Governance Services Limited is a legal and authenticated information in the eye of law. According to the information as provided there at, the debt is established.

Further, Sub-section (11) of Section 3 defines debt “means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt”. Sub-section (12) of Section 3 defines “default means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the Corporate Debtor as the case may be”.

Sub-section (7) of Section 5 defines “Financial Creditor” means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. Sub-section (8) of Section 5 defines “Financial Debt” means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes:

In the present case, admittedly, the Respondents are the Financial Creditors within the meaning of sub-section (7) of Section 5 of the I&B Code, 2016 and the debt borrowed by the Corporate Debtor is a financial debt within the meaning of sub-section (8) of Section 5, which establishes from the loan agreements all dated 04.12.2019 and from the information utility record. Admittedly, the debt has not been repaid to the Financial Creditors.

The Learned Counsel for the Appellant contend that there is a collusion between the Respondents/Financial Creditors and the Corporate Debtor is concerned, the NCLT’s being the Adjudicating Authorities under the IBC and exercising its summary jurisdiction, cannot go into the aspect of collusion, fraud etc. The Adjudicating Authority (NCLT’s) couched with the powers to be exercisable as enshrined in the I&B Code, 2016. For the purpose of entertaining Sections 7, 9 or 10, of the I&B Code, the Adjudicating Authority has to see whether debt is payable on the part of the Corporate Debtor and committed default. In such cases, the Adjudicating Authority invariably admit the application under the above provisions of law.

This Tribunal is of the view that in the present case, the debt and default has been proved and the Adjudicating Authority rightly admitted the Application under Section 7.

The Hon’ble Supreme Court in the matter of Innoventive Industries Limited Vs. ICICI Bank reported in (2018) 1 SCC 407 at Para 30 held as under:

As held (supra), debt has been proved from the documents available on records including information utility and the default has occurred in clear terms. The judgment of the Hon’ble Supreme Court in the matter of Innoventive (supra) squarely applicable to the present case.

Having dealt with the issue meticulously, this Tribunal comes to an irresistible and in escapable conclusion that the Appeal sans merit and liable to be dismissed. Accordingly, the Appeal is dismissed. Parties shall bear their own costs. I.A. Nos. 348, 349 and 350 of 2022 stand closed.