PV Potluri Ventures Pvt. Ltd. vs Benita Industries Ltd.

[Per.: Dr. Alok Srivastava, Member (Technical)]

The present appeal, filed under section 61(1) of the Insolvency & Bankruptcy Code, 2016 (in short ‘IBC’), arises from the Impugned Order dated 31.10.2023 passed by the National Company Law Tribunal, Hyderabad Bench (“Adjudicating Authority”) in CP(IB)/114/07/HDB/2021.

Brief facts of the case, as stated and argued by the Appellant, are that the Respondent, through its authorized bank signatory, approached the Appellant on 29^th August, 2019 representing that they are the authorized bank signatory and management representative of the Respondent and induced the Appellant to lend an amount of Rs. Four Crores on interest @ 36% p.a. (unsecured) with an assurance that Respondent will repay the amount to the Appellant within a period of four days from the date of receipt of Rs. Four Crores.

It is further stated by the Appellant considering the interest amount i.e. 36% p.a. he lent an amount of Rs. Four Crores to respondent on 29.8.2019 and the said loan was advanced as a hand loan owing to the urgent requirement shown by the Respondent. The Appellant has submitted that the Respondent, instead of repaying the amount of Rs. Four Crores with accrued interest, requested him to further lend an amount of Rs. Fifteen Crores on interest @ 36% p.a. (unsecured) with an assurance that Respondent will repay the said amount together with its accrued interest within a period of three months from the date of receipt of said amount including the earlier due and payable amount of Rs. Four Crores plus accrued interest due.

The Appellant has stated that the Respondent repaid an amount of Rs.3,82,00,000 (in trenches) on 24.12.2020 towards the principal amount, leaving a balance of principal amount Rs.15.18 crores plus accrued interest of Rs. 19 crores as on 24.12.2020. He has further alleged that the Respondent did not repay the outstanding amount despite the expiry of the three month time on 10.01.2020 and did not do so, even after sending e-mails on 21.03.2020, 1.5.2020, 1.6.2020, 1.9.2020, 22.9.2020, 1.10.2020 and 2-11.2020 calling upon the Respondent to repay the total outstanding amount of Rs.22,87,00,000/-, and the total outstanding due is Rs. 25,04,000 (principal amount Rs.15,18,00,000/- plus Interest Rs.9,86,00,000/-) as on 1.3.2021. Subsequently, the Appellant issued legal notice on 18.3.2021 to the Respondent and also to its authorized bank signatory.

As per record, the Appellant filed an Application under section 7 of IBC before the NCLT, Hyderabad Bench in CP(IB)/114/07/HDB/2021 for the alleged default committed by the Respondent and the Hon’ble NCLT, Hyderabad Bench dismissed the application vide order 31.10.2023.

The Learned Senior Counsel for Appellant has submitted that the Respondent Company M/s. Benita Industries Limited, through its authorized bank signatory and management representative, Mr. T. Satish Kumar and its authorized representative U. Kondal Rao approached the Appellant who claims to be Financial Creditor on 29.8.2019 to lend an amount of Rs. Four Crores as unsecured loan at Interest @ 36% p.a., with an assurance that Respondent will repay the amount to the Appellant within a period of four days from the date of receipt of the amount. He has further submitted that on this assurance, the Appellant lent Rs. Four Crores to the Respondent, which is reflected in the bank statement for the period 1.4.2019 to 31.3.2020 (pp.126-139 of the appeal paperbook) and the related transactions appear pp.127-128 of the appeal paperbook. He has further submitted that the Respondent had repaid Rs.3.82 crores in 16 tranches, which is also reflected in the bank statement for the same period (attached at pp,126-152 of the appeal paperbook) and the outstanding amount of Rs.15.18 crores alongwith accrued interest remains to be repaid and thus, there is default in repayment of the said amount.

The Learned Senior Counsel for Appellant has further stated that the Appellant P.V. Potluri Ventures Pvt. Ltd. has issued e-mails on 21.03.2020, 1.5.2020, 1.6.2020, 19.2020, 22.9.2020, 1.10.2020 and 2.11.2020 calling upon the Respondent to repay the amounts due along with interest. He has further submitted that Mr. T. Satish Kumar, authorized representative of the Respondent replied through e-mail dated 17.11.2020 admitting the Respondent’s liability and undertaking to repay the outstanding amount according to schedule of repayment, but despite the undertaking given, the Respondent again default and paid only Rs. 1 crore against the total pending dues of Rs. 22 crores. He has contended that, therefore, there is a financial debt where money was loaned against consideration of time value of money and there is an existence of default which is evidenced by Respondent’s e-mail dated 17.11.2020.

The Learned Senior Counsel for Appellant has clarified that the challenge to the authority of both Mr. Prasad V. Potluri and Mr. T. Satish is not tenable as Mr. Prasad V. Potluri is the husband of Mrs. Jhansi Sureddi, the founder of the Appellant Company and Mr. T. Satish is a senior management member and the Authorised Bank Signatory of the Respondent Company. He has argued that the challenge to the authority of Mr. Prasad V. Potluri and Mr. T. Satish is just an afterthought and the challenge is made to evade responsibility to repay the said loan and action under IBC.

The Learned Senior Counsel for Respondent has argued that the Appellant has not placed any financial contract or any written agreement to substantiate its claim and it has only submitted e-mail and WhatsApp communications between Mr. Prasad V. Potluri and Mr. T. Satish in support of his claim, and that too of much later dates than when the alleged loan is said to have been given. He has further argued that Mr. T. Satish and Mr. Prasad V. Potluri both are unrelated to the Respondent and Appellant respectively, and in addition, the Appellant, which was originally a LLP was legally barred from advancing loan or providing financial services without approval of the Regulating Authority, which is not there in the present matter. He has further contended that interest @ 36% p.a., which is claimed by the Appellant is unrealistic usurious and the Appellant has not placed any evidence to substantiate its claim on the money lent was a ‘financial debt’. He has further argued that the alleged loan was given without any agreement or formal agreement and no security was paid for the said amount and it is beyond any reason why someone would give such a big loan without any security.

The Learned Senior Counsel has controverted the claim of the Appellant made on the basis of the judgments in the matters of Satish Balan v. Mrs. Neeta Navin Nagda (Company Appeal (AT) (INS) No. 718 of 2023) and Agarwal Polysacks Limited v. K.K. Agro Foods and Storage Limited (MANU/NL/0796/2023), where according to him, the written proposition that a financial contract is not necessary for maintaining an application under section 7 has been laid down. He has stated that in the facts of the present case, there is evidently no proof of any financial debt and default, and, therefore, the ratio in these judgments does not apply in the present case.

The Learned Senior Counsel for Respondent has further argued that since there is no disbursal for time value of money, the said amount given by the Appellant was not disbursed for time value of money and further in the balance-sheet of the Respondent, the said investment made by the Appellant is recorded as “non-interest bearing business development investment”, which is not a financial debt. He has argued that M/s. PV Potluri Ventures LLP was not legally authorized to engage in banking business and give loans, and both Mr. Prasad Potluri and Mr. Satish T are strangers to the Appellant and the Respondent respectively and the Appellant has not produced any evidence to connect them to the respective parties.

We have considered the arguments of both the parties and perused the record.

The Learned Senior Counsel for Appellant has pointed out that in the Impugned Order a correct and conclusive factual finding has been given that “the amounts transferred to the Respondent’s bank account were loans and not investment towards some ’mining project’.” He has thus contended that once the existence of a ‘financial debt’ is established, the factum of default is established undeniably by various e-mails communication wherein the Respondent has furnished schedule of repayment by an e-mail dated 17.11.2020 and therefore, once the Respondent has agreed to repayment according to schedule, the default is established. Therefore, he has contended that debt and default are both proved and the Impugned Order also accepts that the amount given by the Appellant to the Respondent is a financial loan and not by way of investment.

We note that there is no written document between the Appellant and the Respondent regarding the loan nor there is any other communication at the time of the said disbursement of the loan amount which can establish the purpose of the financial transaction and also whether the purported loan was given for consideration of time value for the money. In this connection, we may look at sub-sections 11 and 12 of section 3 and sub-section 8 of section 5 of the IBC, which are reproduced below, to see whether the said amount given by the Appellant to the Respondent is in fact a loan and whether the ‘debt’ and ‘default’ are established:-

The Appellant has adverted to the bank statement of the Appellant’s account in Federal Bank (attached at pp.126-152 of the appeal paperbook), wherein in the Statement of Accounts for the period 1.4.2019 to 31.3.2020 various amounts transferred to Benita Industries Ltd. through RTGS have been shown on dates such as 4.10.2019, 10.10.2019 and 11.10.2019. While this statement does show that some amounts were transferred by M/s. PV Potluri Ventures LLP to Benita Industries Ltd., the Appellant has not been able to establish that these amounts were in the nature of financial debt given for the time value of money. The Appellant has also referred to various e-mail communications addressed by it to Mr. T. Satish, which are of dates 21.3.2020, 1.5.2020, 1.6.2020, 1.9.2020, 22.9.2020, 1.10.2020 and 2.11.2020 and presented in the Appeal Paperbook. Quite evidently, as is clear from the text of these emails, they were sent by Mr. Prasad V. Potluri addressed to Mr. T. Satish with some of the e-mails copied to Mrs. Jhansi Sureddi. While these e-mails show certain transactions, it is not clear and also not made clear by the Appellant as to how Mr. Prasad V. Potluri was representing the Appellant M/s. PV Potluri Ventures Pvt. Ltd. and what was the connection of Mr. T. Satish with the Respondent M/s. Benita Industries Ltd.. Merely claiming that these e-mails were sent by Mr. Prasad V. Potluri to Mr. T. Satish on behalf of the Appellant and Respondent respectively does not establish that the amount was provided by the Appellant M/s. PV Potluri Ventures Pvt. Ltd. to Respondent M/s. Benita Industries Ltd. without showing any authorisation by either of the parties to their claimed representatives.

We also note that in section 7 application, Part V, wherein the particulars of financial debt (documents, records and evidence of default) have to be attached, no document has been attached in any of the columns to show particulars of security, record of default, copy of financial contract or any other document to prove the existence of financial debt, the amount and the date of default. Furthermore, the balance sheet of the Appellant shows that the said amount is a “non-interest bearing business development investment”.

Therefore, in the absence of any document to evidence the financial contract for debt, the Appellant has mainly relied on his e-mail dated 17.11.2020, to show that there was a plan/schedule for the return of the loan amount sent by Mr. T. Satish to Mr. Prasad V. Potluri. We have earlier found that the authorisation of Mr. T. Satish by the Respondent or authorisation of Mr. Prasad V. Potluri by the Appellant to enter into transactions relating to financial debt, have not been established by the Appellant. In such a situation it would be difficult to believe that these amounts were given by Appellant M/s. PV. Potluri Ventures Pvt. Ltd. to M/s. Benita Industries Ltd. (Respondent) and at best, there was some transaction between Prasad V Potluri and T. Satish.

Furthermore, since the debt, which is required to be established as financial debt through the section 7 application under the IBC, also does not show or establish any interest rate or evidence that the amount was given for the time value of money. Therefore, we find that the Appellant has not been able to establish that the amount in question was a financial debt advanced by it to the Respondent, which was in default. Therefore, the basis for allowing the section 7 application has not been established.

In the above-stated situation, we are clear that the Adjudicating Authority has been logical and correct in concluding in para 22 of the Impugned Order that Rs. 3.82 crores was in fact repayment towards “principal amount” without giving any finding about the nature of transaction as financial debt. In fact, in para 32 of the Impugned Order, while the existence of debt has been found as apparent, its terms, tenure, rate of interest and stipulated date of repayment have been found to be ambiguous and contentious. If we read the Impugned Order in totality, the Adjudicating Authority has pointed out many deficiencies in the section 7 application of the Appellant such as stated in paras 26, 29, 30, 31, 32, 33 and 34 to make it very clear that the Adjudicating Authority does not consider the amount transacted as financial debt which is in default of repayment, which is required to be unambiguously established under the IBC for any relief under section 7.

The Learned Senior Counsel for Appellant has cited the judgment of this Tribunal in the matter of Agarwal Polysacks Limited vs. K.K. Agro Foods and Storage Limited (2023 SCC Online NCLAT 624) in support of his contention that the transaction as evidenced in the bank statement of the Respondent has been taken as conclusive proof of the existence of financial debt. In this regard we note that in the said judgment, the bank statement of the Respondent Company, which had received the loan amount was shown as evidence and furthermore, the balance sheet very clearly showed the amount as “advance recoverable in cash or in kind”. On this basis, the term of the loan and its repayment as reflected in the balance sheet was also seen as being ‘on demand’. Thus, this judgment has found both debt and default, whereas in the present matter, the Appellant has not been able to establish debt or date/existence of default in a conclusive manner.

The Learned Senior Counsel for Appellant has cited the judgment of this Tribunal in the matter of Satish Balan vs. Neeta Navin Nagda and Anr. (Company Appeal (AT) (Ins) No, 718 of 2023) also in support on his contention. In this regard, we note that the payment of interest by the corporate debtor and deduction of TDS for two financial years has been observed and even in the absence of any loan agreement, such transactions including payment of interest and deduction of TDS have been taken as evidence of the existence of loan, whereas in the present matter, this is not the case.

The Learned Senior Counsel for Respondent has referred to the judgment of this Tribunal in the matter of Prayag Polytech Private Limited v. Bon Lon Petrochem LLP (CA(AT) (INS) No. 705 of 2019) in support of his contention that the existence of financial debt has to be seen from the facts and circumstances of a particular case. In the Prayag Polytech (supra) matter, the rate of interest was not substantiated by any documentary evidence, but the amount was reflected in the balance sheet as “long term borrowings” due to its tenure for ten years, which was later converted into “investment”. Thus, the tribunal had held that the investment amount cannot be taken as debt nor there can be any default. The facts and circumstances of the present case are quite different.

The judgment in the matter of Manish Saxena v. Pushpanjali Realms and Infratech Ltd. (CA(AT)(Ins) No. 794 of 2019) has been cited by the Learned Senior Counsel for Respondent to buttress his contention that in the absence of any other evidence or document than the RTGS entry for transferring of money to the corporate debtor, the financial debt was not found to be established. We note that in the present matter too, no evidence other than RTGS entry in the bank statement has been shown as evidence of financial debt, which is not sufficient to establish the transaction as disbursal of financial debt.

Lastly, we do not think that we can rely on merely one e-mail dated 17.11.2020, that too addressed by Mr. T. Satish (who claims to represent the Appellant company) to Mr. Prasad V. Potluri, which is quite vague, to conclusively accept it as proof of ‘financial debt’ and ‘default’. No other document, whether by way of financial contract or any e-mail or any agreement oral or otherwise, has been produced in evidence of the existence of financial debt and default.

Moreover, the status of the Appellant to be the financial creditor is also not established because the e-mails are written in individual capacity by Mr. Prasad V. Potluri and Mr. T. Satish and no document has been shown by the Appellant to establish that Mr. Prasad V. Potluri was acting in an authorised manner on behalf of the Appellant nor any document has been produced to prove that Mr. t. Satish was acting on behalf of the Respondent Company.

In the above situation, we find that in the facts of the case, neither the Appellant M/s. PV. Potluri Ventures Pvt. Ltd. has been able to establish itself as financial creditor, nor any ‘financial debt’ and ‘default’ has been established through documentary evidence by the Appellant. Therefore, in the absence of financial debt and default, we are clear that the Appellant has not been able to make out a case for admission of section 7 application.

We are, thus, of the clear view that the Adjudicating Authority has not been in error in dismissing the section 7 application. On finding no merit in the appeal, we dismiss it and dispose it of accordingly.

No order as to costs.