Priyanka Jain vs Mascot Overseas Pvt Ltd

JUSTICE YOGESH KHANNA, MEMBER (JUDICIAL)

The present appeal has been filed against the impugned order dated 25.05.2023 whereby the petition filed under Section 7 of the IBC, 2016 by the  appellant herein was dismissed on the ground (a) there is no evidence to show the loan given to the Corporate Debtor was due and payable; (b) there is no record of default or demand letter placed by the Financial Creditor to show debt and default and thirdly (c) failure of settlement between the parties has led to the initiation of Section 7 petition which is an abuse of process of law.

We have heard the arguments advanced by the learned counsel and perused the material available on record. Admittedly as to the Balance Sheets  of the year 2019-20 and 2020-2021, the loan given by the appellant to an extent of Rs.1,26,89,350/- is shown as long term borrowing. Page 105 of the Paper Book is the Balance Sheet of the year 2020-2021 wherein the name of the appellant is also mentioned and an unsecured loan of Rs.1,26,89,350/- is mentioned against her name.

Thus the Balance Sheet of both the financial years reflect the loan of Rs.1,26,89,350/- given by the appellant, as a director of the Corporate Debtor. Now the question if the money advanced by the shareholder has a commercial effect of borrowing is dealt with in Shailesh Sangani V Joel Cardoso 2019 SCC OnLine NCLAT 52 wherein it was held:-

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.

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’.

Further in Rajesh Gupta V Dinesh Jain 2018 SCC Online NCLAT 412 this Tribunal held unsecured loans form part of financial debt under the Code. Para 3 of the said judgement is as under:-

“It is apt to notice that the expression ‘debt’ defined under Section 3(11) means a liability obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. Non-payment of such debt which has become due and payable and is not repaid by the Debtor or Corporate Debtor falls within the mischief of ‘default’ defined under Section 3(12) of I&B Code. It would therefore be futile on the part of learned counsel for the Appellant to contend that the unsecured loan aforestated did not fall within the definition of ‘Financial Debt’. The manner and circumstances in which the amount of loan was borrowed by the Corporate Debtor from Respondents No. 1 and 2 from time to time with stipulation of interest, leaving an outstanding liability of Rs.18,67,11,000/-coupled with the fact that the Corporate Debtor jointly undertook to refund such unsecured loan to Respondents No. 1 and 2 in terms of clause (2) of the Share Purchase Agreement leaves no room for doubt that the outstanding unsecured debt had all the trappings of a ‘Financial Debt’.”

Further in Innoventive Industries Ltd V ICICI Bank (2018) 1 SCC 407 the Hon’ble Supreme Court held the corporate debtor commits default, the Adjudicating  Authority  has  to  look  into  evidence  produced  by  financial creditor in order to satisfy what would amount as a debt and dispute. Para 30 of the judgement read as under:-

“30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise.”

We have also perused the notice dated 22.07.2022 sent by the appellant to the Respondent; not disputed in reply filed to this appeal by the Respondent and in the said notice demand was raised requiring the debt due be paid within seven working days.  Admittedly it has not been paid.  Thus both the debt and default is prima facie revealed from the above documents. Even otherwise in Jayanthi G Ravi V Chemizol Additives (P) Ltd 2022 SCC OnLine  NCLAT 916 the Court held as follows:-

“50. It must be borne in mind that 'Financial Debt' under Section 5(8) of the I & B Code, is an inclusive definition and even if a transaction which does not fall under any of those described under the provision can be classified as a 'Financial Debt'. It is to be remembered that a 'Financial Creditor' is a person who has a right to the 'Financial Debt'.

At this juncture, this 'Tribunal' relevantly points out that in respect of 'Loan' the 'Borrowing' is primarily is for the benefit of 'Borrower'. In fact, the 'Lender' is in receipt of benefit, through 'interest'. In case of 'Loan', the obligation to repay the sum arises immediately n receipt of 'Loan'.

It cannot be ignored that 'Loan' is payable only, when the obligation to repay the money arises, in terms of the 'Agreement'. After all, the stark reality is that 'Loan' is taken at the instance of a person requiring money.

In the present case, it is to be pointed out that at no point of time the Respondent/Company sought to avoid the 'Loan Transaction' with the 'Appellant'. As a matter of fact, the Respondent and its Officers had confirmed their obligations to repay the 'Loan' to the 'Appellant'. As such, the plea of 'Voidability' of the 'Loan Transaction' is not available to the Respondent/ Company, in the considered opinion of this 'Tribunal'.”

Thus to conclude we would say the moment the Tribunal was prima facie satisfied the debt is due and not paid on demand, the application needs to be admitted unless it is incomplete, in which case, a notice to be given to the applicant to rectify the defects within seven days of receipt of notice from the Adjudicating Authority, per Innoventive Inds Ltd (supra). In Shobhnath & Ors Vs Prism Industrial Complex Ltd Manu/NOL/0353/2019, this Tribunal held the Adjudicating Authority is only required to ensure there is a debt and default on the basis of the record produced before it.

We have perused the record, Balance Sheets of the corporate debtor as also the legal notice of demand prima facie reveal there is no impediment to admit the petition under Section 7 of the Code against the Respondent/Corporate Debtor.

In the circumstances we allow the appeal and set aside the order and remand the matter to the Ld. NCLT to proceed further as per law.

Pending applications, if any, are also disposed of.