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Judgment
Per: Pradeep R. Sethi, Member(Technical)
The instant application in Form I is filed under Section 7 of the Insolvency & Bankruptcy Code, 2016 (Code) read with Rule 4 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (Rules 2016) by Shri Sarthak Gupta and Ms. Dolly Gupta (Financial Creditors) for initiation of Corporate Insolvency Resolution Process (CIRP) in the case of MLP Developers and Promoters Pvt. Ltd. (MLP Developers). Both the financial creditors have signed the Form I and their affidavits verifying the contents of the application are at pages 17-22 of the petition. As per Section 7(1) of the Code, application for initiating CIRP can be filed by a financial creditor either by itself or jointly with other financial creditors.
The registered address of MLP Developers is given as Villa No.F-1/6, Sector -3 Eldeco Estate One, Panipat-132103. Therefore, the jurisdiction lies with this Bench of the Tribunal.
In Part IV of Form No.I, it is stated that the financial creditors are Directors of MLP Developers and that MLP Developers took unsecured loan of ₹1,07,50,000 and ₹52,50,000 from Shri Sarthak Gupta and Ms. Dolly Gupta respectively. The loans are stated to be taken during the period 09.05.2017 to 14.09.2017. It is stated that out of the total amount of loan taken, MLP Developers have failed to pay ₹9,50,000 and ₹52,50,000 to Shri Sarthak Gupta and Ms. Dolly Gupta respectively. Cheques are stated to be issued by MLP Developers in the name of the financial creditors which have bounced. It is further stated that the amount of unsecured loan from the financial creditor is reflected by MLP Developers in the financial statements for the year ending 31.03.2018 submitted with the Registrar of Companies. The amount claimed to be in default is stated to be ₹63,69,963 for both the financial creditors i.e. principal amounts of ₹9,50,000 and ₹52,50,000 in the case of Sh. Sarthak Gupta and Ms. Dolly Gupta respectively and interest payable at 18% per annum is computed at ₹1,69,963 (Annexure-E of the petition)
In Part III of Form No.1, Shri Ramesh Chander Sawhney has been proposed as Interim Resolution Professional (IRP) and his written communication conveying consent for acting as IRP is dated 05.04.2019 and enclosed at page 25 of the petition.
Vide order dated 31.05.2019, notice of the petition was directed to be issued to MLP Developers to show cause as to why the petition be not admitted. Vide order dated 30.10.2019, it was noted that the learned authorized representative for MLP Developers submits that MLP Developers is ready to repay the debt due to financial creditors and accordingly seeks short accommodation. It was however noted in the order dated 04.12.2019 that MLP Developers failed to reach any settlement with the financial creditors.
Reply was filed by MLP Developers by Diary No.7248 dated 18.12.2019. In the reply it was admitted that amounts of ₹9,50,000 and ₹52,50,000 remained pending for payment to Sh. Sarthak Gupta and Ms. Dolly Gupta respectively and reference was made to the readiness of MLP Developers to make a settlement plan to pay instalments.
Rejoinder was filed by Diary No.282 dated 13.01.2020 submitting that there is clear admission on the part of the MLP Developers of outstanding debt and default in payment of the same and that settlement could not be reached since the proposal of MLP Developers was not accepted by the financial creditors as is evident from the order passed by the Adjudicating Authority (AA) on 04.12.2019.
We have carefully heard and considered the arguments of the learned counsel for the financial creditors and the learned authorized representative for MLP Developers and have also perused the record. The discussion made above shows that MLP Developers accepts that amounts of ₹9,50,000 and ₹52,50,000 are due to Sh. Sarthak Gupta and Ms. Dolly Gupta respectively. In the reply MLP Developers have also accepted that they issued post dated cheques for the payment of unsecured loans but the funds were not available and the cheques bounced. The only plea taken by MLP Developers in the reply is that they are ready to make a settlement plan to pay in instalments. In the rejoinder, the financial creditors have stated that the settlement plan already offered to them was not acceptable.
We may add here that in the present case there is no averment that the money is borrowed against the payment of interest. The learned counsel for the financial creditors has referred to the definition of “financial debt” under Section 5(8) of the Code and to the order dated 30.01.2019 of the Hon’ble National Company Law Appellate Tribunal (NCLAT) in Company Petition No.1732/I&BP/2018 in the matter of Shailesh Sangani Vs. Joel Cardoso & Anr. It is argued that in para No.6, the Hon’ble NCLAT has held as under:-
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“6.A plain look at the definition of ‘financial debt’ brings it to fore that the debt alongwith 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 Company Appeal (AT) (Insolvency) No. 616of 2018part 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’.”
It is submitted by the learned counsel for the financial creditors that for running its business operations, MLP Developers took unsecured loan of ₹10750000 and ₹5250000 from Sh. Sarthak Gupta and Ms. Dolly Gupta and in view of the order of Hon’ble NCLAT supra the amounts taken by MLP Developers are in the nature of financial debt.
In view of the submissions made and the order of Hon’ble NCLAT supra, the contention that Sh. Sarthak Gupta and Ms. Dolly Gupta are financial creditors is accepted.
Section 7(5)(a) is as under:-
“5)Where the Adjudicating Authority is satisfied that— (a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application.”
In the present case MLP Developers have accepted that post-dated cheques issued to the financial creditors bounced since funds were not available. Therefore, occurrence of default is shown in the present case. There are no submissions by MLP Developers that the application under Section 7(2) of the Code is incomplete. We have also examined the application and find the same to be complete. The proposed IRP Shri Romesh Chander Sawhney has submitted his written communication dated 05.04.2019 certifying that there are no disciplinary proceedings pending against him with the Board or Indian Institute of Insolvency Professionals of ICAI. The Law Research Associate of this Tribunal has also made online verification at the website of IBBI and as per print out on record, the status of registration of Shri Romesh Chander Sawhney is that nothing adverse is no record.
In view of the above discussion, we conclude that the conditions provided for in Section 7(5)(a) of the Code are satisfied in the present case. Therefore, the application for initiation of CIRP in the case of MLP Developers and Promoters Private Limited is admitted. The orders regarding appointment of IRP and moratorium are passed as under.
We declare the Moratorium in terms of sub-section (1) of Section 14 of the Code as under:-
the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.
It is further directed that the supply of essential goods or services to the corporate debtor as may be specified, shall not be terminated or suspended or interrupted during moratorium period. The provisions of Section 14(3) shall however, not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator and to a surety in a contract of guarantee to a corporate debtor.
The order of moratorium shall have effect from the date of this order till completion of the corporate insolvency resolution process or until this Bench approves the resolution plan under sub-section (1) of Section 31 or passes an order for liquidation of corporate debtor under Section 33 as the case may be.
The following directions are issued in respect of the appointment of the Interim Resolution Professional:-
Appoint Mr. Romesh Chander Sawhney, registered insolvency professional bearing Registration No. IBBI/IPA-001/IP-P00274/2017-18/10518; email ID: casawhney@yahoo.co.in, address: 850/GH-13, Paschim Vihar, New Delhi-110087 as Interim Resolution Professional.
ii) The term of appointment of Mr. Romesh Chander Sawhney shall be in accordance with the provisions of Section 16(5) of the Code;
iii) In terms of Section 17 of the Code, from the date of this appointment, the powers of the Board of Directors shall stand suspended and the management of the affairs shall vest with the Interim Resolution Professional and the officers and the managers of the Corporate Debtor shall report to the Interim Resolution Professional, who shall be enjoined to exercise all the powers as are vested with Interim Resolution Professional and strictly perform all the duties as are enjoined on the Interim Resolution Professional under Section 18 and other relevant provisions of the Code, including taking control and custody of the assets over which the Corporate Debtor has ownership rights recorded in the balance sheet of the Corporate Debtor etc. as provided in Section 18 (1) (f) of the Code. The Interim Resolution Professional is directed to prepare a complete list of inventory of assets of the Corporate Debtor;
iv) The Interim Resolution Professional shall strictly act in accordance with the Code, all the rules framed thereunder by the Board or the Central Government and in accordance with the Code of Conduct governing his profession and as an Insolvency Professional with high standards of ethics and moral;
The Interim Resolution Professional shall cause a public announcement within three days as contemplated under Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 of the initiation of the Corporate Insolvency Resolution Process in terms of Section 13 (1) (b) of the Code read with Section 15 calling for the submission of claims against Corporate Debtor;
vi) It is hereby directed that the Corporate Debtor, its Directors, personnel and the persons associated with the management shall extend all cooperation to the Interim Resolution Professional in managing the affairs of the Corporate Debtor as a going concern and extend all cooperation in accessing books and records as well as assets of the Corporate Debtor;
vii) The Interim Resolution Professional shall after collation of all the claims received against the corporate debtor and the determination of the financial position of the corporate debtor constitute a Committee of Creditors and shall file a report, certifying constitution of the Committee to this Tribunal on or before the expiry of thirty days from the date of his appointment, and shall convene first meeting of the committee within seven days of filing the report of constitution of the committee; and
viii) The Interim Resolution Professional is directed to send regular progress report to this Tribunal every fortnight.
A copy of this order be communicated to both the parties. The learned counsel for the petitioner shall deliver copy of this order to the Interim Resolution Professional forthwith. The Registry is also directed to send copy of this order to the Interim Resolution Professional at his email address forthwith.