AI Structured Summary
Not yet generated for this judgment
Judgment
ORDER
[Oral Judgment: Justice Ashok Bhushan, (Chairperson)]
Heard Learned Counsel for the Appellant and the Learned Counsel appearing for the Respondent.
This Company Appeal has been preferred being aggrieved against an order dated 17.12.2021, passed by NCLT, Division Bench – I , Chennai, by virtue of which Section 7 application CP (IB) No. 69/2021, filed by the Appellant has been rejected. The Adjudicating Authority by the impugned order had held that there is no financial debt proved by the Appellant, hence the application stood rejected.
Brief fact to be notice for deciding the appeal, are that the Appellant, was a Director of the Corporate Debtor, M/s. Dakshin Constructions Pvt. Ltd. The Appellant's case is that under the Board Resolution the Appellant alleges to have obtained a mortgage loan from the ICICI Bank, of Rs. 88,00,000/- and on the security of Flat No. 6A, Arihant Vaikunt, 123 & 124, Bricklin Road, Purasawakkam, Chennai-07. It is submitted that the amount, which was taken by Appellant from the bank, was disbursed to the Corporate Debtor and was directly paid to the Corporate Debtor, however the Corporate Debtor did not clear the outstanding loan and thus the Appellant ultimately have to sell the Flat in the year 2018 and had cleared off the entire loan of the bank. It is submitted that, the Appellant thereafter file the Section 7 Application, seeking initiation of CIRP against the Corporate Debtor, which has been rejected by the impugned order. The Learned Counsel for the Appellant submitted that, the loan was although taken in the name of the Appellant was known for the Corporate Debtor by the ICICI Bank and when the Appellant has cleared the loan by selling its flat Corporate Debtor was liable to make good the amount paid by the Appellant to the ICICI Bank. It is submitted that in the Financial year 2019 - 2020 the amounts were shown as unsecured loan from the Appellant. It is submitted that the Adjudicating Authority committed error in rejecting the application.
The Learned Counsel for the Respondent while refuting the submission, submitted that the Corporate Debtor has been providing financial aid to its Directors, earlier in point of time and when Corporate Debtor required certain finance it requested not only the Appellant, but also to the other Directors to arrange finance for the Corporate Debtor and it was rather the Appellant who took the loan from the ICICI Bank and there was no financial debt which was ever owned by the Corporate Debtor to the Appellant. It is submitted that no transaction was ever entered between the Appellant and the Corporate Debtor so as to give rise to any financial debt. It is submitted that Adjudicating Authority has rightly rejected the Application under Section 7.
We have considered the submissions of the Counsel for the parties and perused the records. The facts of the case as noted above clearly indicate that the loan was taken by the Appellant in her own name from the ICICI Bank by mortgaging Flat No. 6A, Arihant Vaikunt, 123 & 124, Bricklin Road, Purasawakkam, Chennai-07. The minutes of meeting of the Board dated 14.11.2014, as relied by the Appellant itself indicate the said fact, which is as follows:
"Resolved that the company will avail Mortgage Loan on the property of one of the Director Mrs. Komal Varma, situated at Flat No. 6A, Arihant Vaikunt, 123 & 124, Bricklin Road, Purasawakkam, Chennai 600 007, sanctioned by "ICICI Bank Ltd, Adyar Branch, Chennai - 600 020
"Resolved further that the Company can mortgage this property situated at "Flat No. 6A, Arihant Vaikunt, 123 & 124, Bricklin Road, Purasawakkam, Chennai - 600 007", as may be specified by the bank and agreed to by the company for financial assistance sanctioned
"Resolved further that the company to avail Rs.88 lacs of mortgage loan sanctioned by the "ICICI Bank Ltd, Adyar Branch, Chennaii - 600 020
"Resolved further that Mr. Chethan Jhabakh, Director, be and is hereby authorised to accept the terms and conditions of the sanction and execute the necessary documents in this regard"
"Resolved further that a certified copy of the above resolutions be furnished to the bank for reference and action.
The fact remains that, as apparent from Board's Resolution, loan was taken by the Appellant in her own name. The Appellant claims to have made the payment of loan to the ICICI Bank and after making the payment of loan to the ICICI Bank, the Appellant has filed Section 7 Application. When we look into the definition of financial debt as contained in Section 5 sub-section 8, the condition, which needs to be fulfiled is that, loan has to be disbursed against the consideration for the time value of money for calling a debt as a financial debt under Clauses A to F, the pre-condition is that, the disbursement has to be against the consideration for the time value of money. The facts, which have come on record in the present case clearly indicate that, it is the loan that, was taken by the Appellant in her own name from the ICICI Bank, as per the Board's Resolution noticed above. In fact there was no transaction between the Appellant and the Corporate Debtor as claimed or brought on record. The essential element to prove disbursement for time value of money is absent in the present case. The loan was taken by the Appellant herself, which was mortgage loan, while bargaining its flat, the said transaction cannot be classified as to be a financial debt, which can be said to be owned by the Corporate Debtor to the Appellant. The Adjudicating Authority has thus rightly not admitted Section 7 Application. The Learned Counsel for the Appellant in support of his submission has placed reliance on judgment of this Tribunal in Shailesh Sangani v. Joel Cardoso and Anr. reported in 2019 SCC Online NCLAT 52. The relevant para 6 of the judgment, reads as follow:
"6.A plain look at the definition of "financial debt" brings it to fore that the debt along with interest, if any, should have been disbursed against the consideration for the time value of money. Use of expression "if any" as suffix to "interest" leaves no room for doubt that the component of interest is not a sine qua non for bringing the debt within the fold of "financial debt". The amount disbursed as debt against the consideration for time value of money may or may not be interest bearing. What is material is that the disbursement of debt should be against consideration for the time value of money. Clauses (a) to (i) of section 5(8) embody the nature of transactions which are included in the definition of "financial debt". It includes money borrowed against the payment of interest. Clause (f) of section 5(8) specifically deals with amount raised under any other transaction having the commercial effect of a borrowing which also includes a forward sale or purchase agreement. It is manifestly clear that money advanced by a promoter, director or a shareholder of the corporate debtor as a stakeholder to improve financial health of the company and boost its economic prospects, would have the commercial effect of borrowing on the part of corporate debtor notwithstanding the fact that no provision is made for interest thereon. Due to fluctuations in market and the risks to which it is exposed, a company may at times feel the heat of resource crunch and the stakeholders like promoter, director or a shareholder may, in order to protect their legitimate interests be called upon to respond to the crisis and in order to save the company they may infuse funds without claiming interest. In such situation such funds may be treated as long-term borrowings. Once it is so, it cannot be said that the debt has not been disbursed against the consideration for the time value of the money. The interests of such stakeholders cannot be said to be in conflict with the interests of the company. Enhancement of assets, increase in production and the growth in profits, share value or equity enures to the benefit of such stakeholders and that is the time value of the money constituting the consideration for disbursement of such amount raised as debt with obligation on the part of company to discharge the same. Viewed thus, it can be said without any amount of contradiction that in such cases the amount taken by the company is in the nature of a "financial debt"."
The above judgment relied by the Appellant itself while considering Clause f of Section 5 sub-section 8 states that, the amount raised under any other transaction not having a commercial effert of borrowing, which also include a forward sale. It was held that, advance Promoter, Director or Shareholder of the Corporate Debtor as a Stake Holder if respond to the crises to improve the financial health of the Company and whose economic prospect would have a commercial effect of borrowing on the part of the Corporate Debtor. Present is the case where there is no disbursement by the Appellant to the Corporate Debtor, rather Appellant has taken mortgage loan from ICICI Bank, and has repaid the mortgage loan by herself by selling her flat.
The above judgment, which is relied by the Appellant does not come into aid of the Appellant in the present case. The next judgment relied by the Appellant is Amrit Lal Goverdhan Lalan vs State Bank of Travancore & Ors., 1968 SCR (3) 724, where the Supreme Court; held that CoC will be entitled to recourse to every remedy, which the creditor as against the principal Corporate Debtor, there can be no dispute to the preposition laid down by the Supreme Court in the above case, but present is not a case, where there is any grievance entered by the Appellant, Corporate Debtor or the Bank. Rather, agreement was only with regards to the loan, which was taken by the Appellant from the Bank. Corporate Debtor was not a part of any transaction. Present is not a case, where the Appellant is stood CoC for any loan taken by the Corporate Debtor, so as to take its remedy against the principal borrower. The judgment of the Supreme Court was to the effert that, every remedy which was available as against the principal Debtor to enforce with regard to CoC. The judgment of the Supreme Court also thus has no application in the Appellant case.
We are satisfied that, there is no financial debt involved in the transaction, which is claimed by the Appellant, the pre-condition for financial debt has laid down in Section 5 sub-section 8 of the IBC, being not present the Adjudicating Authority committed no error in rejecting Section 7 Application. We uphold the order of the Adjudicating Authority, but for the reasons as indicated above, the Appeal is dismissed.
We make it clear that, the dismissal of Section 7 Application, shall not preclude the Appellant to take such remedy as available in law to the Appellant.