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Judgment
JUSTICE RAKESH KUMAR, MEMBER (JUDICIAL)
In the present Appeal, filed under Section 61 of the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as the ‘IB Code’), the Appellants have assailed an order dated 13.06.2022 passed in CP(IB) No.964/KB/2020 by National Company Law Tribunal, (hereinafter referred to as the ‘NCLT’), Kolkata Bench, Kolkata. By the said order, NCLT has been pleased to reject the application filed under Section 7 of IB Code which was filed by both the Appellants herein. The Appellants demanding Corporate Debt against the Respondent/Corporate Debtor had filed an application under Section 7 of IB Code which was registered as CP (IB)No.964/KB/2020. On the date of filing of the application under Section 7 of the IB Code it was admitted position that the Corporate Debtor/Burnpur Cement Limited’s Management had already changed in a Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘SARFEASI Proceeding’). With effect from 1.10.2019 the Management of the Company was taken over by UV Asset Reconstruction Company Ltd. The said knowledge of the appellants is reflected from the reply given by Corporate Debtor which is at page 64 Volume 1 of the Memo of Appeal. Both the appellants had claimed for alleged corporate debt after almost four years lapse of a so called claim
The facts gathered from the Memo of Appeal and record depicts that on 14.04.2014 Prarthana Sales Pvt Ltd, Appellant No.1 and Narsingh Mercantile Pvt Ltd, Appellant No.2 had provided Burnpur Cement Ltd, sole respondent Inter Corporate Deposits in the following terms:
“Prarthana Sales Pvt Ltd, Appellant No1, Rs. 2.7 crores out of which Rs.2.15 crore was repaid and balance outstanding was Rs.55,00,000/-. (Agreement dated 14.04.2014. . Active Commercial Pvt Ltd – Rs.50 lakhs (Agreement dated 15.12.2014. Nikita Vyapaar Pvt Ltd Rs.1.05 Crore (Agreement dated 13.12.2014,”
On perusal of the Agreement dated 13.10.2014 and 15.12.2014 entered in between Burnpur Cement Ltd and Nikita Vyapaar Ltd (13.10.2014) and Agreement entered in between Burnpur Cement Ltd and Active Commercial Pvt Ltd (15.12.2014) it is evident that the lender company had filed an application for amalgamation of its company namely Active Commercial Pvt Ltd into Narsingh Mercantile Pvt Ltd and application for amalgamation of lenders company namely Nikita Vyapaar into Narsingh Mercantile Pvt Ltd. Subsequently, by the order dated 05.01.2016 by Hon’ble Calcutta High Court in a Company Petition, the amalgamation was allowed.
It is further case of the Appellants that in the financial year 2014-15, 2015-16, Corporate Debtor deducted TDS of Rs.96,061/- on interest of Rs.11,35,615/-paid to the account of Prarthana Sales Pvt Ltd and a sum of Rs.2,12,209/-being TDS on interest of Rs.25,09,588/- was paid to the account of Narsingh Mercantile Pvt Ltd.
On the record it is evident that though Corporate Debtor had deducted TDS on interest in the financial year 2014-15 and 2015-16 thereafter there is nothing on record to suggest whether interest was paid or not by the Corporate Debtors. Subsequently to the reasons best known to both the Appellants, after lapse of several years and that too after the change of the management of the Corporate Debtor in view of orders passed in a SARFEASI Proceeding on 23.01.2020 two demand notices were issued demanding the refund of debt amount to the Corporate Debtor. The Corporate Debtor i.e. changed management, after receipt of the demand notice immediately vide letter dated 25.02.2020 replied to the Appellant No.1 and by letter dated 25.02.2020 also replied to the Appellant No.2 herein and denied the demands raised in the demand notice on a belief that these transactions were done with an intention to siphoning the funds. It was further intimated that a detailed forensic audit was being conducted to find out the rationality of the transactions. Only after completion of audit and due diligence the Management to take adequate legal steps regarding the same. To reply letters sent on behalf of the corporate debtor, reminder was also sent by the appellants and without waiting for receipt of special audit report, it appears that the appellants filed joint application under Section 7(1) of the IB Code before the NCLT on 10th August, 2020. Before the NCLT, the appellants asserted that total amount claimed Rs.2,97,82,697/- was inclusive of Rs.2,10,00,000/- Principal amount (Rs. 55 lakh- Prarthana Sales Pvt Ltd, Rs. 50 lakhs-Active Commercial Pvt Ltd and Rs.1.5 crore Nikita Vyapar Ltd and Rs.87,82,687/- being interest charged @ 10% per annum till 31.07.2020. As per the Memo of Appeal on 18.01.2021 the Respondent/corporate Debtor filed an affidavit in reply which was replied by filing of rejoinder on 15.02.2021. Further on 09.05.2021 the Respondent/corporate debtor filed a supplementary affidavit. After hearing the parties and examining the issue as to whether there was an existence of default or not the Learned NCLT finally dismissed the application filed by the appellants by its impugned order dated 13.06.2022 which has been assailed in the present appeal.
Learned counsel for the appellants assailing the impugned order has emphatically argued that the Learned NCLT has dismissed the application filed by the appellants primarily basing reliance of an assessment order which was passed by the Income Tax Authority. It has been argued that before the Income Tax Department the appellants were not party. The assessment order was passed in respect of accounts of assessee i.e. Corporate Debtor in the present appeal. Learned Counsel has further argued that the Learned NCLT had not examined the entire bank statement which was brought on record by the appellants to establish the good that there was corporate debt lying against the Corporate Debtor which was legally recoverable by the appellants.
In the appeal though it was listed for the first time the Respondent had entered appearance through its counsel. Learned counsel for the respondent opposed the appellant submissions that the order passed by the NCLT is a detailed order which assigns detailed reasons for coming to the conclusion that the said corporate debt claimed by the appellants were sham transactions and as such Learned NCLT discussing all the elements and facts has rejected the petition filed under Section 7 of the IB Code filed by the Appellants.
Besides hearing learned counsel for the parties we have minutely perused material available on record and after going through the same prima facie we are of the opinion that the invoking Appellate jurisdiction of this Tribunal by the Appellant was simply an abuse of the process of the Court.
Before dwelling into the matter, at the outset it is necessary to examine the so called agreement which was the basis for claiming corporate debt by the appellants against the Respondent/Corporate Debtor. The first agreement for disbursement of loan starts from running page 46 of the Volume 1 of Memo of Appeal. It is dated 14.04.2014 in between Burnpur Cement Ltd and Prarthana Sales Pvt Ltd. Another agreement is dated 13.10.2014 in between Burnnpur Cement Ltd/corporate debtor and Nikita Vyapaar Pvt Ltd (which was subsequently amalgamated with M/s Narsingh Mercantile Pvt Ltd, Appellant No.2) running page 49 to 51 and third agreement is dated 15th December, 2014 in between Burnpur Cement Ltd/corporate debtor and Active Commercial Pvt Ltd *(which was subsequently amalgamated with Narsingh Mercantile Pvt Ltd (appellant No.2). The contents of agreement dated 13.10.2014 and 15.12.2014 are in verbatim same except change of names of the second party in the agreement and their address. Similarly agreement dated 14.04.2014 is also same. However, this agreement does not contain the facts mentioned in para 5 of aforesaid two agreements. In paragraph 5 of agreement dated 13.10.2014 and 15.12.2014 same fact has been mentioned which is reproduced hereinbelow:-
“The Lender company has filed an application for amalgamation of its company named ‘Active Commercial Pvt Ltd’ into Narsingh Mercantile Pvt Ltd. The re-payment of loan shall be made:
a)If the demand is raised by the Lender prior to the order of amalgamation of the company-the repayment of loan shall be made to respective companies from which the loan has been disbursed to the borrower.
b)If the demand is raised by the Lender after the order of amalgamation is passed the payment shall be made to the amalgamated companies bank account i.e. in the bank account of Narsingh Mercantile Pvt Ltd. Except contents of only paragraph 5 of aforesaid two agreements is missing otherwise entire contents of two agreements are mentioned in agreement dated 14.04.2014. Further we feel appropriate at this juncture to reproduce the agreement dated 14.04.2014 and 15.12.2014 as under:-
“This Loan Agreement is executed on date 14th Apr8il, 2014 between BURNPUR CEMENT LIMITED, a Public Limited company incorporated in India under the Companies Act, 1956 bearing CIN:L27104WB1986PLC040831, and having its registered office at Palashdiha, Panchgachia Road, Kanyapur, Asansol, West Bengal 713341, hereinafter referred to as the “Borrower” which expression unless repugnant to the context shall mean and include its legal representatives, assignee, nominee(s) and administrator AND PRARTHANA SALES PRIVATE LIMITED, a private Limited company incorporated in India under the Companies Act, 1956 bearing CIN:U52190WB2011PTC157333 and having its registered office at 1, Crooked Lane, 2nd Floor, Room No.205, Kolkata 7000696, West Bengal, hereinafter referred to as the “Lender” which expression unless repugnant to the context shall mean and include its legal representatives, assignee, nominee(s) and administrator.
Whereas both the Borrower and the Lender have agreed to execute a Loan Agreement dated 14th day of April, 2014 for not exceed a sum of Rs.2,70,00,000 (Rupees Two Crores Seventy Lakhs only) to the Borrower on terms and conditions enumerated hereinbelow:
1.That the Interest Rate for Loan Disbursement i.e. 10% per annum is payable calendar quarter to the Lender in arrears subject to adjustment for tax deduction at source as per Indian Income Tax Act, 1961.
2.That with respect to any matter under this Agreement, the competent courts within the local limits of whose jurisdiction, the Borrower resides or ordinarily carries on his business, or personally works for gain, such courts will have exclusive jurisdiction over this Agreement.
3.That the Lender shall grant INR 2,70,00,000/- through net banking channel.
4.The amount borrowed by the Borrower shall be construed as Inter Corporate Deposits.
5.The amount of Rs.2,70,00,000/- shall be repaid on demand from the Lender. The Borrower will be allowed 10 days time from the date of receipt the demand letter from the Lender to repay the loan amount along with interest.
6.The mode of transfer of the Loan amount and shall be made either in NEFT/Net Banking/banking channels or any other mode as mutually agreed between the Lender and Borrower.
7.Both parties represent covenants and warrant to each other that;
(a)They have read all the terms and conditions of this given agreement.
(b)They unconditionally agree to abide by the terms and conditions contained in this agreement.
(c)The information and financial details submitted by the Borrower to the Lender are true, correct and best of his knowledge.
8.In case of death of the Lender/Borrower, the Loan amount shall be receivable/payable by his legal heir as per the terms and conditions as given in this Loan Agreement.
9.If any provision of this agreement is illegal, invalid or unenforceable for any reason, it will be severed from the remaining provisions which will remain unaffected.
IN WITNESS WHEREOF the parties hereto have hereunder set and subscribed their signatures with their respective hands, on the 14th day of April, 2014 year first hereinabove witness, both at Kolkata.
1 Signed by the Borrower Sd/- for Burnpur Cement Ltd
2.Signed by the Lender For Prarthana Sales Pvt Ltd Sd/- for Prarthana Sales Private Limited”
“This Loan Agreement is executed on date 15th December, 2014 between BURNPUR CEMENT LIMITED, a Public Limited company incorporated in India under the Companies Act, 1956 bearing CIN:L27104WB1986PLC040831, and having its registered office at Palashdiha, Panchgachia Road, Kanyapur, Asansol, West Bengal 713341, hereinafter referred to as the “Borrower” which expression unless repugnant to the context shall mean and include its legal representatives, assignee, nominee(s) and administrator AND ACTIVE COMMERCIAL PRIVATE LIMITED, a private Limited company incorporated in India under the Companies Act, 1956 bearing CIN:U51909WB2008PTC131123 and having its registered office at 1, Crooked Lane, 2nd Floor, Room No.205, Kolkata 7000696, West Bengal, hereinafter referred to as the “Lender” which expression unless repugnant to the context shall mean and include its legal representatives, assignee, nominee(s) and administrator.
Whereas both the Borrower and the Lender have agreed to execute a Loan Agreement dated 15th day of December, 2014 for not exceed a sum of Rs.50,00,000 (Rupees Fifty Lakhs only) to the Borrower on terms and conditions enumerated hereinbelow:
1.That the Interest Rate for Loan Disbursement i.e. 10% per annum is payable calendar quarter to the Lender in arrears subject to adjustment for tax deduction at source as per Indian Income Tax Act, 1961.
2.That with respect to any matter under this Agreement, the competent courts within the local limits of whose jurisdiction, the Borrower resides or ordinarily carries on his business, or personally works for gain, such courts will have exclusive jurisdiction over this Agreement.
3.That the Lender shall grant INR 50,00,000/- through net banking channel.
4.The amount borrowed by the Borrower shall be construed as Inter Corporate Deposits.
5.The Lender company has filed an application for amalgamation of its company named ‘Active Commercial Private Limited’ into ‘Narsingh Mercantile Private Ltd’. The re-payment of loan shall be made:
a)If the demand is raised by the Lender prior to the order of amalgamation of the company-the repayment of loan shall be made to respective companies from which the loan has been disbursed to the borrower.
b)If the demand is raised by the Lender after the order of amalgamation is passed the payment shall be made to the amalgamated companies bank account i.e. in the bank account of Narsingh Mercantile Pvt Ltd.
6.The amount of Rs.50,00,000/- shall be repaid on demand from the Lender in the manner specified in para 5 of this Agreement. The Borrower will be allowed 10 days time from the date of receipt the demand letter from the Lender to repay the loan amount along with interest.
7.The mode of transfer of the Loan amount and shall be made either in NEFT/Net Banking/banking channels or any other mode as mutually agreed between the Lender and Borrower.
8.Both parties represent covenants and warrant to each other that;
(a)They have read all the terms and conditions of this given agreement.
(b)They unconditionally agree to abide by the terms and conditions contained in this agreement.
(c)The information and financial details submitted by the Borrower to the Lender are true, correct and best of his knowledge.
9.In case of death of the Lender/Borrower, the Loan amount shall be receivable/payable by his legal heir as per the terms and conditions as given in this Loan Agreement.
10.If any provision of this agreement is illegal, invalid or unenforceable for any reason, it will be severed from the remaining provisions which will remain unaffected.
IN WITNESS WHEREOF the parties hereto have hereunder set and subscribed their signatures with their respective hands, on the 15th day of December, 2014 year first hereinabove witness, both at Kolkata.
1 Signed by the Borrower Sd/- for Burnpur Cement Ltd
2.Signed by the Lender For Active Commercial Pvt Ltd Sd/- for Active Commercial Pvt Ltd ” On perusal of contents of the agreements it is evident that same and similar words/sentences were used in both the agreements. Besides aforesaid glaring facts of similarity, address of Prarthana Sales Pvt Ltd (Appellant No.1) and address of Active Commercial Pvrt Ltd (subsequently amalgamated with Narsingh Mercantile Pvt Ltd) is the same. The registered of both the companies as per agreements is Crooked Lane, 2nd Floor, Room No.205, Kolkata, West Bengal
It is also peculiar that though the aforesaid agreements were mainly entered for disbursement of loan, no fix period has been mentioned regarding repayment of the loan amount. On the contrary it has simply been indicated in paragraph 5 of agreement dated 14.04.2014 and paragraph 6 in agreements dated 13.10.2014 and 15.12.2014 that the amounts shall be repaid on demand from the lenders. “The ‘borrowers’ will be allowed 10 days time from the date of receipt of demand notice from the lenders to repay the loan amount alongwith interest.” As per paragraph 1 of the aforesaid agreements the interest rate for loan disbursement i.e. 10% p.a. is payable calendar quarter to lender in arrears subject to adjustment for tax deduction at source as per Income Tax Act, 1961. In the paragraph 7(b) of the Memo of Appeal it has been stated by the Appellants that in the financial year 2014-15 and 2015-16, Corporate Debtor deducted TDS of Rs.96,061/- on interest of Rs.11,35,615/- paid to the account of Prathana Sales Pvt Ltd and a sum of Rs. 2,12,209/- being TDS on interest of Rs.25,09,588/- has been paid to the account of Narsingh Mercantile Pvt Ltd. There is no assertion or pleading by the Appellants as to whether after financial years 2014-2016 any interest was paid or TDS was deducted. Obviously financial year 2015-16 ended on 31st March, 2016. Subsequently, suddenly after lapse of about four years the Appellants came out of their slumber and issued demand notice in the year 2020. Obviously the said claim was barred by law of limitation. It is not only a case that after 4 years the appellants started claiming their dues but it is also a fact that in the month of October, 2019 the Management of Burnpur Cement Ltd (Corporate Debtor) was taken over by UV Asset Reconstruction Co Ltd under a SARFEASI Proceeding. From the said conduct of the Appellants many things can be inferred, particularly serious doubt regarding the so called lending by the appellants to the corporate debtor can be raised. Besides aforesaid facts which creates serious doubts in respect of the claim raised by the appellants, in the minds of this Tribunal, on going through the impugned order the Court is of the considered opinion that the Learned NCLT has examined several aspects and has reasonably observed that in exercise of summary jurisdiction under the Code it is difficult to conclude that a bona fide financial debt exists.
For initiating Corporate Insolvency Resolution Process (CIRP) under Section 7 (4) of the IB Code a duty is cast on the Adjudicating Authority to ascertain the existence of default from the records. Meaning thereby that if there is any difficulty in coming to the conclusion regarding the existence of default the Adjudicating Authority has got no option but to reject the petition filed under Section 7(1) of the IB Code. On examination of the impugned order it is clear that through Learned Adjudicating Authority has taken note of assessment order dated 31.12.2018 passed by the Income Tax Department against the corporate debtor, the said assessment order has been referred in furtherance of other cogent materials which were brought on record before the Adjudicating Authority. The Adjudicating Authority while deciding the petition filed by the Appellants had also examined the MCA records which has been dealt with in paragraphs 30 of the impugned order and the same is reproduced hereinbelow:-
“As per the MCA Records filed by the Corporate Debtor, both the Financial Creditors have a common registered address i.e. 16 Strand Road, 7th floor, Room No.709A, Kolkata, WB 700001. The Corporate debtor has also placed on record the Forensic Audit report dated 14.01.2021 which mentions in paragraph 16.1.1.1 that the analysis of Financial statements of the corporate debtor reveals that it had repaid/adjusted unsecured loans/operational debts during FY 2015-16 and 2016-17 amounting to preferential transactions as belows:
| S.No. | Party Name | Amount repaid |
| 1 | Nikita Vyapaar Pvt Ltd | 1.12 crore |
| 2 | Narsingh Mercantile Pvt Ltd | 0.07 crore |
| 3 | Prarthana Sales Pvt Ltd | 0.05 crore |
| 4 | Active Commercial Pvt Ltd | 0.53 crore |
Learned Adjudicating Authority has minutely examined the issue relating to lending loan by Appellant No.1, Prarthana Sales Pvt Ltd, loan given by Active Commercial Pvt Ltd (subsequently amalgamated with Narsingh Mercantile Pvt Ltd, loan given by Nikita Vyapaar Pvt Ltd (amalgamated with Narsingh Mercantile Pvt Ltd and loan given by Narsingh Mercantile Pvt Ltd to the corporate debtor.
At this juncture it would be appropriate to reproduce the observation of Adjudicating Authority in respect of aforesaid loans which have been discussed in internal page 10, 11,12, 13 and 14 of the impugned order, running page 35 to 39 of Memo of Appeal Volume 1. The Learned NCLT besides noting other facts, for coming to the correct decision has also by reference has taken note of the assessment order passed by the Income Tax Department. Those facts have been elaborately discussed in paragraph 26 to 28 of the impugned order which are reproduced hereinbelow:-
“26.The above analysis takes us to the Assessment Order dated 31.12.2018 passed by the Income Tax department against the Corporate Debtor. As detailed above, the income tax department had carried out a raid in the premises of Corporate Debtor which led to seizure of material which showed the assessee i.e., Corporate Debtor had inter alia received an unsecured loan of Rs 2,70,00,000from Prarthna. The assessment order further records that the assessee was asked to produce all details of the loan taken from Prarthana however, the assessee had failed to provide any information. The income tax department on its own investigation unearthed that the directors of Prarthana were Mr. Anand Prakash Kejriwal and Ms Jyoti Kejriwal. Mr. Anand Prakash Kejriwal and Ms. Jyoti Kejriwal were also the directors of Narsingh, Active and Nikita. After noting the above details, the assessment order in para 6.3 (b) notes as under:-
It will be appropriate to take notice of the commonly known notorious facts about the modus operandi of converting the unaccounted funds by different companies by taking unsecured loan from willing dubious entities. These entities are mere paper/shell companies having no real business activity and incorporated for the purpose of providing unsecured loan to different beneficiary companies in the form of share capital, unsecured loan, etc in lieu of commission. Further an analysis of bank statement of such companies revealed that every single credit to the account was correspondingly followed by a debit either on the same day or near about dates. This pattern is repeated in the entire period. Hence, the real and actual source of all such credits is not readily ascertainable in view of layering of money. In the present case of the assessee, same modus operandi was followed. (emphasis supplied)
27.The Income Tax department further found that Prarthana was a paper/ shell company of one Mr. Sandeep Surekha who is referred to as an entry operator / accommodation entry provider. The subsequent relevant observations from the Income Tax order are as below:-
“6.3.d. During the course of this proceeding notice u/s 133(6) of the Act was issued to Divya J Electronics Pvt Ltd, M/s NGPS Solution Pvt Ltd, M/s Prarthana Sales Pvt Ltd & M/s Ranbhumi Marketing Pvt Ltd production of evidences related to transaction in form of unsecured loan. But no plausible explanation has been received from the parties. The assessee was, thereafter, asked to substantiate its claim of unsecured loan by producing the said party along with supporting documents and evidences but no compliance was made from the assessee end. As per seized material, the assessee company received unsecured loan of Rs. 3,30,00,000/- from the above mentioned companies. ….
7.a On overall consideration of facts and circumstances of the case and as per above discussion, the amounts claimed to be received by the assessee are not in any way genuine unsecured loans. They are nothing but arranged affairs being pre-ordained series of transactions and tax evasion device where money laundering transactions have been camouflaged as unsecured loan.
7.b The agreement about real transactions takes place in secret and direct evidence about such discreet transaction/agreement would be not available to the department in the normal circumstances during assessment proceedings. The result of these transactions was designed in such a way that in this transaction unaccounted money was to be brought in the business by the assessee. The Legislature cannot take care of every device and scheme misused to evade taxation. It is for the implementing authorities to investigate the nature of the sophisticated legal devices adopted by the taxpayer to evade or avoid tax and consider whether the situation created by the devices could be related to the avoidance of the payment of taxes. The modus operandi adopted by the assesse has been found to be a method of evading taxes being non-genuine transactions without being verifiable.
7.c These are, by nature 'make believe transactions which do not deserve to be accepted as genuine. The truth or genuineness of such transactions must prevail over the smoke screen, created by way pre-meditated series of steps taken by the assessee, with a view to imparting a colour of genuineness and character of commercial nature, to such unsecured loan transactions.
7.d The unsecured loan was taken by the assessee from companies who did not have own fund, any business and physical asset. If we look behind these transactions then it is clear that the sole purpose for which the transactions were done was to generate capital in the business and in that event the assessee has to be made liable to pay taxes which it would have paid but for the arrangement of these transactions.
7.g The assessee has not deliberately produced the lenders who gave unsecured loans to the assessee to stop the further investigation which may result in examination of the bank accounts and book of accounts of the three lender companies which are basically shell/paper/khokha companies. There has been a mushrooming growth of professional entry operators in the country but more particularly in Kolkata, who provide such unsecured loan for a commission. Assessee's non- cooperation and evasive tactics proves its conduct. (emphasis supplied)
28.Ultimately, the Income Tax department held that the Corporate Debtor (assessee) had failed to establish the genuineness of the transactions and in exercise of its power u/s 68 of the Income Tax Act, added Rs 3,30,00,000 as income of the assessee.
Finally before coming to the conclusion that there was not existence of bona fide financial debt and rejecting the petition filed under Section 7(1) of the IB Code as not maintainable the NCLT has examined several instances which have been noted in paragraph 31 and 32
“31.In addition to the above, there are other circumstances which prompt and compel us to conclude that there is something more than what meets the eye. These circumstances are:-
(i)All loan agreements are of the year 2014. They are almost identically worded except with respect to details of the lenders and the quantum of amounts to be disbursed.
(ii)All loan agreements postulate giving of unsecured loans. It is also unusual that there is no tenure for repayment of the loans and all of them are repayable on demand.
(iii)Nothing is forthcoming from the Financial Creditors(except a bare statement that the loans were given as inter corporate deposits) about the purpose for which the loans were disbursed. This is despite a pointed objection taken by the Corporate Debtor that the Financial Creditors are not registered as NBFC’s or registered under the Bengal Money Lenders Act, 1940, nor their Memorandum permits granting such loans, and as such could not have provided the loans. No explanation on this count has also come forth from the Financial Creditors.
(iv)The Financial Creditors have also not provided any details of their operations, business and other relevant credentials despite adverse observations made against Prarthana in the Income tax assessment order to the effect that it is a shell/paper company involved in giving of collusive loans as accommodation entries.
(v)All four companies involved namely Prarthana, Active, Nikita and Narsingh had common directors at the relevant point of time. The registered office of both financial creditors is also the same.
(vi)No explanation has come forward from the Financial Creditors about the disbursements made by Prarthana on 16.04.2014 and 17.10.2014 which were immediately paid back by Corporate Debtor in a day or two. This factum of receipt and immediate payback has been taken notice by income tax department as “commonly known modus operandi of converting the unaccounted funds by different companies by taking unsecured loan from willing dubious entities”.
(vii)Another unexplained fact is that even though as per the Financial Creditors’ own case, the Corporate Debtor had stopped paying interest from 2015-16 and 2016-17, there is not a single correspondence on record from Financial Creditors alleging default, seeking repayment of their monies back or even checking on status of their outstanding amounts. In other words, even though the default had taken place as far back as 2016-2017, no steps appear to have been taken by Financial Creditors who suddenly took action to seek repayment in the year 2020. This unexplained slumber by the Financial Creditors for over four years does not inspire confidence and is inconsistent with the normal conduct expected of a bona fide lender.
32.The aforesaid facts do really cast serious doubts on the genuineness of the transactions alleged to be financial debt by the Financial Creditors. The facts regarding existence of Financial Debt, disbursement and default do not reconcile with the documents placed on record. On top of this, as stated above the Assessment Order passed in respect of the Corporate Debtor and the Forensic Audit Report further strengthen the suspicion in respect of the authenticity and bona fides of the transactions in question. The Financial Creditor has argued that the Assessment Order is only applicable with regards to assessee and does not bind the Financial Creditors. It is further contended that the same only speaks of Prarthna. This objection is unwarranted. We have not held that the Income tax Assessment Order is binding on this Tribunal. We are of the view that the entire gamut of facts, the interrelationship between the Financial Creditors (and Nikita and Active which merged into Narsingh), the forensic Audit Report and the analysis of the facts that we have done above, leave us unpersuaded to commence CIRP against the Corporate Debtor.
On examination of the impugned order and material available on record there is serious doubt on the actual entity of the appellants as company incorporated for doing legal business. There is serious doubt on the so called companies lending to the corporate debtor. The appellants are under the serious cloud of shell/fictitious companies. Of course without proper detailed enquiry or investigation we may not record a specific finding on the issue but facts remain that there was lack of existence of financial debt. Accordingly, it is difficult to find any defect in the impugned order. The impugned order assigns detailed reasons and discussing every fact the Learned Adjudicating Authority has rightly rejected the application filed by the Appellants under Section 7 of the IB Code.
In view of facts and circumstances we are of the opinion that simply rejection of this Appeal may not serve the purpose. Instead we intend to dismiss the present appeal with imposing heavy cost. There are many circumstances which have been discussed hereinabove suggests that either lending loan by the appellants were only paper transaction/sham transaction or said loans were shown to be repaid within one or two days from the date of lending. In case of Appellant No.1, this fact has already been established and noticed hereinabove. Apart from aforesaid sham transaction, at least registered office of Appellant No.1- Prarthana Sales Pvt Ltd and Active Commercial Pvt Ltd (subsequently merged with Narsingh Mercantile Pvt Ltd) has been noticed as the same. Accordingly, we consider that the appellants have abused the process of the Court and as such it is a fit case which can be dismissed with imposition of a cost of Rs.1 lakh.
The Appeal stands dismissed with cost of Rs.1 lakh on the Appellants. The Appellants are directed to deposit the cost of Rs.1 lakh in the account of Prime Minister’s National Relief Fund within one month from the date of this order. The Appellants are further directed to submit the proof of depositing the cost within 10 days thereafter with the Registrar of this Tribunal.