Shilpi Cables Private Company Limited vs M/s Jhunsons Chemicals Private Limited

This is an Application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 by Applicant M/s Shilpi Cables Private Limited (FC) against Corporate Debtor (CD) M/s Jhunsons Chemicals Private Limited for an amount of Rs. 2,21,53,531/- as on 20.08.2019. CIRP against the Applicant in IB 461/2017, M/s BDR Builders versus M/s Shilpi Cables Private Limited was initiated vide order dated 01.08.2018, which is currently undergoing liquidation process pursuant to order dated 20.08.2019. This Adjudicating Authority vide Order dated 19.01.2022 allowed the Liquidator to initiate appropriate legal proceedings against CD. Relevant part of the order is extracted below:

The Corporate Debtor (‘CD) was incorporated under the Companies Act, 1956 on 07.09.1992 having CIN: U74899DL1992PTC050228. Its registered office is at House No. G-115, Ashok Vihar, Ph-I, New Delhi-110052. The Authorized Share capital of CD is Rs 5,00,00,000/- and its paid-up share capital is Rs. 5,00,00,000/-. The CD is engaged in the business of Gamma Irradiation and Sterilization facility.

Applicant submitted that the CD approached the Applicant Company for loan facility for meeting its day to day working and business purposes. Acceding to the request made by the CD, the Applicant extended loan unsecured/inter corporate deposits forming part of long-term borrowings amounting to Rs. 1,57,00,000/- to the CD. Disbursal of the said loan was made in the following manner:

Applicant further submitted that the said loan facility was extended by Applicant to the CD in the year 2014-15 and 2015-16 and the same is duly reflected in the balance sheet of the Applicant for the financial year ending 31.03.2016 and the balance sheet thereafter i.e. up to the financial year 31st March 2018 and up to the liquidation commencement date i.e. 20.08.2019. Copies of the balance sheets of the Applicant for the relevant financial years are annexed as Annexure A-6 (colly). Applicant submitted that the date of default is 16.10.2019, when the demand notice for repayment of the entire loan alongwith interest was issued by the Applicant upon the Corporae Debtor.

It is further submitted by the Applicant that CD has duly acknowledged the said financial debt due and payable to Applicant in CD’s balance sheet for the years ending 31.03.2015, 31.03.2016, 31.03.2017, 31.03.2018, 31.03.2019 and 31.03.2020 under the head of unsecured loan. Copies of balance sheets of the CD for the relevant period are annexed as A7 (colly). It is submitted by the Applicant that CD has also acknowledged the payment of interest to the Applicant as the CD has been deducting TDS for the interest amount payable to the Applicant under the said loan, which is duly substantiated from FORM 26AS of the Applicant which is annexed as Annexure A8.

It is the submission of the Applicant that Liquidator is duty bound to preserve the assets of the Applicant and amount paid by the Applicant to the CD is the asset which belong to the Applicant (under liquidation) which forms part of the liquidation estate of the Applicant.

Thereafter, Liquidator issued the demand notice vide email on 16.10 .2019 calling upon the CD to pay the total outstanding amount to the tune of Rs. 2,28,98,058/- which included interest at the rate of 9% per annum. However, no response was received from the CD and the liquidator issued demand notice dated 7.11.2019 upon the CD and its directors. Despite the above referred notice neither any payment nor any response was received by the Applicant. Therafter, legal demand notice dated 10th February 2020 was issued by the liquidator demanding from the CD the total outstanding amount.

It is further submitted by the Applicant that the last disbursement was made by the Applicant on 21 May 2015 which was duly acknowledged by CD in its subsequent balance sheet up till 31 March 2020. This substantiates that the instant application is very well within the period of limitation. Applicant also cited the judgement passed by the Honorable Supreme Court in IN RE COGNIZANCE FOR EXTENSION OF LIMITATION WP(C) 3 of 2020 whereby the period of lockdown from 15 March 2020 till 28 Feb 2022 is to be excluded for the purpose of computing the time period of limitation.

Applicant further submitted that the transaction of the payment of loan amount in question was also opined to be a fraudulent transaction by the liquidator on which the Liquidator pursuant to a transaction audit report, made a determination and filed an Application under section 66 being IA 2086 of 2020 in CP(IB) 461/2017 M/s. BDR Builders vs. M/s Shilpi Cables Private Limited for appropriate relief and the said application is pending adjudication before this Adjudicating Authority. The said application is premised on a different legal proposition and essentially seeks contribution to the assets of the Applicant by the ex-directors of the Applicant Company as well as by M/s Jhunsons Chemicals Private Limited which is the CD in this Application and its directors/management. Further, the premise of the said Application IA 2086 of 2020 in CP(IB) 461/2017 M/s. BDR Builders vs. /s Shilpi Cables Private Limited is entirely different as it arises from determination made by the liquidator in ongoing liquidation process of Applicant and relief being sought therein is entirely different from the one being sought herein which is initiation of CIRP against CD.

The Corporate Debtor submits that on 25.08.2014, for the expansion of the business, the Applicant herein and one other company namely M/s Shree Radhey Kunj Dairy and Milk Products Private Limited (hereinafter referred as SKD) had executed a Memorandum of Understanding (hereinafter referred as MOU) with the Respondent Company whereby the Applicant had agreed to invest a sum of Rs. 5,00,00,000.00 in the Respondent Company/CD. As per the MOU, the Applicant Company had to provide the sum of Rs. 2.50 Crores within a period of six months from the date of the execution of the MOU to the Respondent Company/CD and the remaining balance amount of Rs. 2.5 Crores within a period of next six months A copy of the Memorandum of Understanding is annexed and marked as Annexure R-2 in the reply dated 21.03.2023 filed by CD.

CD further submits that it was agreed between the parties that in case the Applicant fails to provide the funds as agreed under the said MOU, the Respondent will be entitled to terminate the said MOU and, in such case, any amount which might be provided by the Applicant Company to the Respondent will not be refundable and will stand forfeited. The relevant part of the memorandum is extracted below:

Therafter, as per the terms of MOU to which the parties herein had agreed, the Applicant Company had to provide/ invest an amount of Rs. 5 Crore till 31.08.2015 but CD had only received an investment of Rs. 1.57 Crores on behalf of the Applicant. CD contended that it had sent various letters to Applicant Company to make payment of the agreed funds as per terms of the MOU to which Applicant Company assured the CD that the amount will be disbursed shortly. Copy of letters by CD and response by Applicant Company are annexed as Annexure A-4, A-5, A-6, A-7, A-8, A-9, A-10, A-11, A-12 & A-13 to the Reply dated 21.03.2023 filed by CD.

CD stated in its reply that Applicant Company on 05.07.2016 had replied that the Applicant company is not in a position to honour its commitment under the MOU due to liquidity crisis. CD further submitted that on 07.03.2017, the parties had executed an Addendum #1 to MOU. The terms of the said addendum are reproduced herein below:

Therefore, CD submitted that all the rights of the Applicant for recovery of amount invested in Respondent Company stand transferred to SKD and the Respondent Company (CD) is not liable to pay any debt to the Applicant/FC. Further, it is submitted that the documents placed on record, the balance sheets relied upon by the Applicant only records and reflect principal amount and not any amount towards interest. It is further submitted that the Applicant never debited interest in its own account. That the Applicant company is required to debit interest in the account of Respondent/CD maintained with the Applicant and accordingly treat the same as income. It is submitted that there is no contract or agreement produced on record which would show when the default has taken place.

It is submitted by the CD that Applicant company has failed to show on record that the money was payable on 'Demand' and even assuming without admitting that the 'Default' took place in 'payment of interest' which is allegedly due and payable from 2015, the claim on the face of it, is barred by limitation.

We heard the learned Counsels appearing for the Applicant and the Corporate Debtor and perused the Application filed by the Applicant, reply filed by the Corporate Debtor, written submissions made by the parties and documents on record. Applicant in its original application did not mention the purported MOU which has been entered between the Applicant, CD and one SKD but in its rejoinder, Applicant submitted that MOU is a fabricated document prepared by the CD to mislead this Tribunal. It further submitted that as on date of MoU viz. 18 August 2014 there was no loan amount due or payable by FC/Applicant to SKD for which he has relied upon the bank statement (extracted below) showing the payment made by SKD to Applicant during 07.03.2015 to 30.03.2016 which is annexed on page 6 of the written submissions dated 16.01.2024 filed by the Applicant/FC.

After SKD having made payments to Applicant, Applicant paid only 57 lakhs to CD, however Rs 1 crore was already paid. Applicant further submitted that if there was no loan amount due as on date of MOU there was no occasion for SKD to have become the guarantor for execution of alleged MOU.

Also, it has been contended by the Applicant that the documents submitted by the CD are nothing but sham documents which seem to have been created/manufactured by directors of CD in connivance with ex-directors of Applicant and Directors of SKD. It is also the contention of the Applicant that all the three parties are related parties and have remained functional under the same management.

It is the contention of the CD that there is no contract or agreement produced on record which would show when the default has taken place. To this, we would find it pertinent to mention here that FC did not produce any financial contract between FC and CD but the entries in the books of accounts of CD as well as in the balance sheets of FC prima facie indicate the existence of debt due from CD to FC. On page 163 i.e. Additional documents attached with the Balance Sheet ending as on 31.03.2018 (Annexure A-7, Copy of Relevant Balance sheets of the CD) of the paperbook/Application filed by the Applicant under the heading of detail of unsecured Loan, a relevant entry (extracted below) is found in the name of ‘Shilpi Cables Private Limited showing the existence of unsecured loan from Shilpi Cables Private Limited.

Relevant portion of the balance sheet of the CD signed by the directors of CD as on 31.03.2018 is also extracted below:

Further on page 172, statement of loans and deposits taken or accepted and repaid for Financial Year 2017-2018 and Assessment year 2018-2019 (as mentioned on the document) is annexed. The relevant entry is reproduced below:

Note1: Above extracted entry is of the CD’s documents attached with its balance sheet.

Note 2: In the true typed copy, the figure against the ‘installment credited’ written as Rs. 10,24,985.56/- seems to be clerically incorrect, it must be 15,24,985.56/-

It is also relevant to mention that it is the liquidator who has filed the instant application for initiation of CIRP against the CD unlike the financial creditor himself. We canot be oblivious to the situation where Liquidator does not get the full co-operation in the form of documents from the ex-management to carry forward the liquidation process. Hence, his inability to produce financial contract between FC and CD to further buttress its case. Infact, Applicant in its rejoinder dated 24.04.2023 submitted that MOU and addendum to the MOU surfaced for the first time as these documents have never been provided by the ex-diectors of the Applicant. Infact Hon’ble NCLAT in its Judgement dated 12 Jan 2023 in Company Appeal (AT) (Insolvency) No. 950 of 2022 in the matter of Pradeep Tayal vs. M/s Essbert Fashion Private Limited and Ors. Has held that financial contract is not necessary and a financial debt can be evidenced from other documents viz. balance sheet, Form 16- A (TDS) and demand notices.” Relevant extract of the judgement is reproduced below:

Further, CD contended that the cause of action accrued in 2015 and hence the present application is barred by limitation. To counter this, we find it relevant to mention here that the above extracted entries in para 17 are from the additional documents attached to the financial statements of the CD i.e. Statement of Loans and Deposits taken or accepted and repaid of the Assessment year 2018-2019 (i.e. year ending on 31.03.2018), Details of Unsecured Loan and Balance sheet of CD as on 31.03.2018. Further, the date of default as mentioned in the Application filed by the Liquidator of Applicant Company is 16.10.2019 i.e. when the demand notice for payment was issued to CD. The application was filed in the year of August 2022 and on perusal of the various entries in the books of accounts of CD which is a valid acknowledgement in accordance to law and considering the averment of Applicant regarding the exclusion of COVID period for computing the limitation period, we find that present application is very well within the limitation excluding the COVID period.

We find it relevant to mention that MOU was executed in the year 2014 and at that time Mr. Gaurav Singhal as director of SKD signed the MOU and a year after, same Mr. Gaurav Singhal signed the replies on behalf of M/s Shilpi Cables Private Limited acknowledging the liability for the disbursal of balance money. Relevant part of the reply is extracted below:

Also, on perusal of the Avoidance Application IA 2086/ 2021 in CP (IB) 461/2017 M/s BDR Builders vs. M/s Shilpi Cables Private Limited, it is found that all the ex-Directors of the Applicant, and ex- directors of SKD,and directors of CD are party to it and arrayed as Respondents in the Application. Respondent Directors have not filed any reply till date. Similarly, in avoidance application as well, the same amount of Rs. 1,57,00,000/- is alleged to be misappropriated. Further, on perusal of MCA data for the year 2014 to 2017 of the three companies namely M/s Shilpi Cables Private Limited, M/s Jhunsons Chemicals Private Limited and M/s Shri Radhe Kunj Dairy and Milk Products Private Limited, it seems that few directors are interchangeably director of one company and then in the next year for the other company. This fact creates a doubt as to the genuineness of the letters exchanged between the parties. This fact is not denied by the parties that all three companies are related parties. The extract for the details of the ex-directors and former directors of all three companies are reproduced below:

Also, another important point to be mentioned here which is also raised by the Applicant as well that the MOU was neither stamped nor notorized, nor there are any witnesses to it. Usually, as an act of caution, such transactions and agreements and MOUs are entered upon in such corporate setting with all the legal formalities and due diligence and paper work because at the time of dispute, the documentary evidence plays a crucial role in establishing the claim. But in the instant case, this is not so.

Further, on perusal of various clauses of the alleged MOU executed between the parties, the terms of the MOU give the impression that the contract is unilateral and on the face of it seems to be unconscionable. The MoU entered upon is totally one-sided, unilateral, and causes significant changes in the rights of the Applicant. It is the settled law of land that whenever any transaction on the face of it seems to be unconscionable which is the present case before us, then the onus of proof is on the opposite party to prove otherwise. In our opinion, the burden of proof has not been discharged by the Respondent/CD. Relevant clauses of the MOU are extracted below:

The stipulation in para 2.1 above that unless Applicant disburse a certain amount, it shall not receive any amount sounds strange. There is nothing on record that Applicant has ever got any profit from such a contract. In addition to this, Applicant has annexed the balance sheet of the relevant years which shows that an amount of INR 1.57 crore has been disbursed and the same is reflected as long term borrowing in the books of Applicant. Applicant has also annexed the balance sheet of the CD (year ending on 31.03.2018) (extracted in para 17 @page 13 (supra)) which shows the amount due under the head of ‘unsecured loan’ which prima facie establishes the existence of debt. Apart from this, Applicant also submitted Additional Affidavit dated 8 July 2023 annexing the record of financial information (Form C) which indicates primarily towards existence of default. Further Applicant in its written submissions attached the copy of the latest update of NeSL website regarding the default of the financial debt. The status of the Authetication is shown as ‘deemed to be authenticated’.

Therefore, we hold that the requirements of ‘Debt and Default” envisaged under the Code has been fulfilled. Accordingly, this is a fit case to admit CD into CIRP.

In light of the above facts and circumstances, it is hereby ordered as follows: -

The Registry is further directed to send the copy of the order to the IBBI also for their record.

Certified copy of the order may be issued to all the concerned parties, if applied for, upon compliance with all requisite formalities.