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Judgment
This Application has been filed by one UGRO CAPITAL LIMITED (hereinafter referred to as ‘Financial Creditor’) on 20.09.2023 under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) r/w Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, against RIGHT HEALTH PLATTER PRIVATE LIMITED (hereinafter referred to as ‘Corporate Debtor’). The prayer made is to admit the Application, to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, declare moratorium and appoint Interim Resolution Professional (IRP).
In Part-I of the Application, it is stated that the Financial Creditor is a Limited Company. The registered office address of the Financial Creditor is situated at Equinox Business Park, Tower 3, Fourth Floor, Off BKC, LBS Road, Kurla, Mumbai- 400 070.
Part II of the Application lays down the details of the Corporate Debtor. The Corporate Debtor is a Private limited company incorporated under the Companies Act, 2013 on 09.01.2020 with CIN: U15134TN2020PTC133700. The registered office of the Corporate Debtor is situated at No.115/63, Dr. Radhakrishnan Salai, 3rd Floor, North Flat, Mylapore, Chennai – 600 004.
In Part-III of the Application, the Financial Creditor has proposed the name of the Interim Resolution Professional (IRP) viz., Rongali Sridevi, Reg. No. IBBI/IPA-003/IP-N00172/2018-19/12105.
In Part-IV of the Application, the Financial Creditor has claimed a debt amount of Rs.5,06,34,266/-(Rupees Five Crore Six Lakhs Thirty Four Thousand Two Hundred and Sixty Six Only) which is due and payable by the Corporate Debtor. The date of default as averred in Part-IV of the Application is 05.09.2023. Part V of the application describes the particulars of Financial Debt, documents and the list of documents between the Financial Creditor and the Corporate Debtor.
FACTUAL BACKGROUND OF THE CASE:
It is stated that the Corporate Debtor is engaged in the trading business of Food and Dairy Products with various suppliers including one Kamadhenu Beverages Private Limited (hereinafter referred to as the "Principal") who supplies/sells goods and/or renders services, to various customers including the Borrowers from time to time and raises invoices containing particulars of goods supplied and amounts due under such Invoice(s) ("Invoice"), in accordance with the terms of agreement between the Principal and the Borrower.
It is stated that the Lender and the Principal have an arrangement, in terms of which the Principal has inter alia agreed to identify and recommend buyers from its network to the Lender, for the purpose of short term financing from the Lender. The Lender will, provide the credit facility to the Borrowers, which monies shall be considered as payment towards the supply of goods to the borrower.
It is stated that on 26.05.2023 the Corporate Debtor executed a Demand Promissory Note and Letter of Continuity in favour of the Applicant.
It is stated that the Financial Creditor and the Corporate Debtor entered into a Facility Agreement dated 27.05.2023 under which the Financial Creditor granted the credit facility to the tune of Rs. 5,00,00,000/-. The Corporate Debtor agreed to repay the relevant tranche of the Facility along with applicable interest, costs and charges to the Lender within the tenor of each tranche as per clause 5 of the Facility Agreement, read with Schedule II. The amount of Rs. 4,99,95,075/- was disbursed on 30.05.2023 in multiple tranches.
It is stated that, in contravention to the mutually agreed terms & conditions stipulated under the Facility Agreement dated 27.05.2023 executed between the Corporate Debtor and the Financial Creditor, the Corporate Debtor failed to make repayment of the Outstanding Amounts to the Financial Creditor despite repeated requests, reminders, demands and personal follow-ups by the officials of the Financial Creditor.
It is stated that Under Clause 10 ‘Events of Default and Consequences of the Facility Agreement’, provides that if any one or more fails to comply, it would constitute the Corporate Debtor an "Event of Default".
It is stated that Under the Clause 5 of the Facility Agreement – ‘Repayment Clause’, Financial Creditor is entitled to declare the Loan, interest accrued thereupon and other amounts payable under the agreement as immediately due and payable.
It is stated that accordingly, the Financial Creditor issued Loan Recall Notice dated 29.08.2023 seeking a repayment of Rs. 5,06,34,266/-.
It is stated that the outstanding amount being the amount in default is Rs.5,06,34,266/- (Rupees Five Crores Six Lakhs Thirty Four Thousand Two Hundred Sixty Six Only) as on 29.08.2023 plus further applicable interest from 29.08.2023 till actual date of payment as per the demand notice issued to the Personal Guarantor as well as the loan recall notice dated 29.08.2023 issued by the Applicant to the Personal Guarantor as well as the Corporate Debtor namely, Right Health Platter Private Limited and its other director, Mr. Murali Babu Y V.
COUNTER FILED BY THE RESPONDENT:
The Respondent has filed the counter. It is stated that Financial Creditor has relied on the documents which are unsigned by both the parties. The Sanction Letter dated 27.05.2023 and the Facility Agreement dated 27.05.2023 are unsigned documents and therefore cannot be relied upon by the Financial Creditor in the present proceedings.
It is stated that the Financial Creditor has miserably failed to establish as to how the alleged financial debt satisfies the basic tenets of the code. It is stated that the alleged debt is not a Financial Debt for the purposes of the code and for this reason alone the proceedings initiated by the Financial Creditor should be dismissed.
It is stated that Financial Creditor has failed to plead in the present application as to how monies were received by the Corporate Debtor. It is stated that no monies were ever received from the Financial Creditor, therefore, it failed to satisfy the basic tenets of the definition of a "Financial Debt" provided under section 5 (8) of the Code. It is stated that the Sanction Letter filed by the Financial Creditor dated 27.05.2023 provides that the "disbursement has been made to suppliers" and not to the Corporate Debtor herein, therefore it fails to meet the basic yardstick of a "Financial Debt" under the provisions of the Code.
It is stated that the recitals of the Facility Agreement dated 27.05.2023 provide that the alleged payment made by the Financial Creditor "shall be considered as payment towards the purchase of goods from the principal". It is stated that from this very fact and document relied upon by the Financial Creditor, it is established that the alleged discharge of monies by the Financial Creditor is not a loan facility but ought to be considered as payment towards purchase of goods.
It is stated that the Financial Creditor has failed to file any of the invoices submitted by the Corporate Debtor. It is stated that the reason as to why no invoices were filed by the Financial Creditor is to camouflage the fact that the alleged distribution does not meet the threshold or qualifications of a "Financial Debt".
It is stated that without prejudice to the grounds stated above, "Part 4 of Form 1" filed by the Financial Creditor does not contain a single averment as to whether monies were disbursed to the Corporate Debtor. It is stated that the Financial Creditor has failed to describe the alleged nature of disbursement as provided in the Sanction Letter dated 27.05.2023 and the Facility Agreement dated 27.05.2023.
It is stated that proceedings filed by the Financial Creditor are with an erroneous date of default with no evidence or bank statements evidencing any disbursement to the Corporate Debtor. It is stated that the "Commercial Credit Information Report" filed by the Financial Creditor does not evidence a single default by the Corporate Debtor but refers to irrelevant documents. It is stated that the the Corporate Debtor could not have defaulted as alleged by the Financial Creditor as no monies were ever distributed or received by the Corporate Debtor.
REJOINDER FILED BY THE APPLICANT:
The Applicant has filed the rejoinder. It is stated that Applicant is a non-banking financial institution. The Corporate Debtor had approached it in the year 2023 seeking for Supply-Chain facility to the tune of Rs.5,00,00,000/-(Rupees Five Crores Only).
Supply chain facility:
Supply chain finance is a process of availing financial help from financing institutions when a business urgently needs funds to carry on its operations. This process is a part of trade finance which deals with providing funds to companies to fulfill their working capital requirements. Supply chain facility operates on the basis of invoices, wherein the financier used to fund based on the invoices submitted by the borrower or supplier.
It is stated that on considering the said request, the applicant sanctioned the same vide sanction letter dated 27.05.2023 to the tune of Rs. 5,00,00,000/- (Rupees Five Crore Only) which was digitally signed by both the parties and the same is enclosed herein as Annexure- A1. To secure the same, the corporate Debtor executed the Demand Promissory Note dated 26.05.2023 and also executed facility agreement dated 27.05.2023 which were digitally signed by the Corporate Debtor in favour of the Applicant, wherein the Corporate Debtor duly accepted the terms and condition of the sanction of the said facility. The copy of the digitally signed facility agreement is enclosed here as Annexure-2.
It is stated that the Applicant disbursed the funds based on the invoices submitted by the Corporate Debtor.
It is stated that the assertion made in paragraph no.1 that the respondent is an operational creditor, is incorrect. The Applicant specifically denies the allegations made in paragraph No.2 of the counter stating that this application is very well maintainable as the facility agreement dated 27.05.2023 has been executed by the corporate debtor and subsequently digitally signed by both the parties. By digitally signing the agreement, the corporate debtor acknowledged and committed to abide by the terms and conditions in the agreement.
The Applicant denied the averments and allegations made in paragraph no.3 of the counter, and stated that it is clearly evident that the applicant is undoubtedly a financial creditor, as it has extended financial support to the corporate debtor amounting to sum of Rs.5,00,00,000/-. The sanction letter clearly identifies the loan as a short- term working capital loan, confirming the applicant's status as a "financial creditor" categorizing the debt as "financial debt".
The applicant also denied the allegations made in paragraph no. 7 of the counter and stated that, the application includes the details of the invoices submitted by the debtor at page no. 100B of the application, which is the Statement of Account of the Corporate Debtor and the same would sufficiently prove that disbursement had been made at the request and on behalf of the Corporate Debtor. The copy of the invoices submitted by the Corporate Debtor are also enclosed herein as Annexue-3.
It is stated that the respondent who is a defaulter has ventured upon to raise untenable allegations and averments in the above counter affidavit only with a malafide intention to defeat the rights of the applicant. It is the respondent who has approached this Tribunal with unclean hands with an ulterior motive to defeat the rights of the Applicant initiating the CIRP as against the Respondent.
FINDINGS OF THIS TRIBUNAL:
Heard the submissions made by the Learned Counsel for both the parties and perused the documents including the pleadings placed on record.
The contention of the Respondent is that the Sanction Letter dated 27.05.2023 and the Facility Agreement dated 27.05.2023 filed by the Financial Creditor are the unsinged Documents and therefore cannot be relied upon.
The Sanction Letter and Facility Agreement Annexed as Annexure A1 and Annexure A2 clearly evidence that the Corporate Debtor had digitally signed the agreement. The same is extracted hereunder:
The Respondent has contended that the debt is not a financial debt. To buttress this submission, the Corporate Debtor has relied on the NCLAT Judgments in the cases of Invoice Discounters of Riva Perfumes LLP Represented by Minion Ventures Pvt Ltd vs Riva Perfumes LLP Company Appeal (AT) (Insolvency) No.518 of 2024 and Mudraksh Investfin Pvt Ltd vs Brijesh Singh Bhaduriya Company Appeal (AT) (Insolvency) No.1671 of 2023 wherein it was held that such transactions can only be classified as an “Operational Debt” and cannot be termed as “Financial Debt”.
The above Judgements relate to discounting of invoices and are not applicable in the present case.
As regards non filing of invoices, the Financial Creditor has denied the allegations and annexed the invoices in its Rejoinder at Page No. 23-27 of the typeset. Copy of one of the Invoices is extracted hereunder:
With respect to this allegation of Commercial Credit Information Report, the Financial Creditor has filed the ‘Record of Default’ vide S.R.No.4712 dated 14.11.2023 wherein the date of default has been mentioned.
In the present Application, the Financial Creditor has claimed a sum of Rs.5,06,34,266/- (Rupees Five Crores Six Lakhs Thirty Four Thousand Two Hundred and Sixty Six Only) which includes the Principal amount of Rs.4,99,95,075/- (Rupees Four Crores Ninety-Nine Lakhs Ninety Five Thousand and Seventy Five Only) and Interest amount of Rs.6,39,191/- (Rupees Six Lakhs Thirty Nine Thousand One Hundred and Ninety One Only).
The grounds taken by the Corporate Debtor can be countenanced by the Judgment of the Hon’ble Supreme Court in the matter of Innoventive Industries Limited v. ICICI Bank Limited, (2018) 1 SCC 407which is as follows;
27.The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of “debt”, we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a “claim” and for the meaning of “claim”, we have to go back to Section 3(6) which defines “claim” to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor.
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.
Further, the Hon’ble Supreme Court in Suresh Kumar Reddy v. Canara Bank in Civil Appeal No. 7121 of 2022 has laid down that the view taken in Innovative Industries still holds good, which lays down that the Adjudicating Authority has only to ascertain the existence of ‘debt’ and ‘default’ for admission of an application under Section 7 of the Code.
The Hon’ble NCLAT in the case of Mr. Rajeev Kumar Jain v. Uno Minda Ltd. and Anr. (2024) ibclaw.in 72 NCLAT has held that the definition does not use the expression that disbursal should be made to the Corporate Debtor only. It can be implied that any disbursal made on behalf of the Corporate Debtor or at the instructions of the Corporate Debtor may also tantamount to disbursal made to the Corporate Debtor.
In the present case, the Lender and the Principal had an arrangement, in terms of which the Principal had inter alia agreed to identify and recommend buyers from its network to the Lender, for the purpose of short term financing from the Lender. The Lender agreed to provide the Facility (defined below) to the Borrower, which monies shall be considered as payment towards the purchase of Goods from the Principal. Thus, from the nature of transaction it is clearly manifested that the transaction falls within the ambit of “Financial Debt.”
Thus, the moment the Corporate Debtor commits default in repayment of the ‘financial debt’ and the due is more than Rs.1 Crore, the Code gets triggered and it is of no matter that the debt is disputed so long the debt is “due” and payable.
It is relevant to refer Section 5(8) of the IBC, 2016. It reads as under:
(8)"financial debt" means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes—
(a)money borrowed against the payment of interest;
any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent;
(c)any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;
(d)the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed;
(e)receivables sold or discounted other than any receivables sold on nonrecourse basis;
(f)any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing;
[Explanation. -For the purposes of this sub-clause, -
(i)any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and
(ii)the expressions, “allottee” and “real estate project” shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);]
(g)any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account;
(h)any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution;
(i)the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;
The Record of Default from the ‘Information Utility’ which was authenticated on 29.10.2023 shows the Status of Authentication as “Deemed to be authenticated”. Thus, in all respects, the Application filed by the Financial Creditor is complete and as such in terms of Section 7(5) of IBC, 2016, the present Application filed by the Financial Creditor is required to be admitted.
In view of the facts as stated supra and also in view of the ‘financial debt’ which is proved by the Financial Creditor and the ‘default’ having been committed on the part of the Corporate Debtor, this Tribunal is left with no other option than to proceed with the present case and initiate the Corporate Insolvency Resolution Process in relation to the Corporate Debtor. It is ordered accordingly.
As a consequence of the Application being admitted in terms of Section 7 of the Code, moratorium as envisaged under provisions of Section 14(1) and as extracted hereunder shall follow in relation to the Corporate Debtor;
a. The institution of suits or continuation of pending suits or proceedings against the respondent including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
b. Transferring, encumbering, alienating or disposing of by the respondent any of its assets or any legal right or beneficial interest therein;
c. Any action to foreclose, recover or enforce any security interest created by the respondent in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
d. The recovery of any property by an owner or lessor where such property is occupied by or in the possession of the respondent.
Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a licence, permit, registration, quota, concession, clearance or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license or a similar grant or right during moratorium period;
However during the pendency of moratorium period in terms of Section 14(2) and 14(3) as extracted hereunder;
(2)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.
(2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the Corporate Debtor and manage the operations of such Corporate Debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such Corporate Debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.
(3)The provisions of sub-section (1) shall not apply to
(a)such transactions, agreements or other arrangement as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;
(b)a surety in a contract of guarantee to a corporate debtor.
The duration of period of moratorium shall be as provided in Section 14(4) of the Code which is reproduced below for ready reference;
(4)The order of moratorium shall have effect from the date of such order till the completion of the Corporate Insolvency Resolution Process:
Provided that where at any time during the Corporate Insolvency Resolution Process period, if the Adjudicating Authority approves the Resolution Plan under sub-Section (1) of Section 31 or passes an order for liquidation of Corporate Debtor under Section 33, the moratorium shall cease to have effect from the date of such approval or Liquidation Order, as the case may be.
The Financial Creditor has proposed the name of Rongali Sridevi, (Email id:[email protected]), Reg.No.IBBI/IPA-003/IP-N00172/2018-19/12105 as the Interim Resolution Professional (IRP) who has also filed his consent in Form – 2 and also upon verification from the IBBI website, it is seen that the said person hold valid Authorization for Assignment till 30.06.2025.
Ms. Rongali Sridevi is appointed as the IRP is directed to take charge of the Corporate Debtor’s management immediately. The IRP is also directed to cause public announcement as prescribed under Section 15 of the IBC, 2016 within three days from the date the copy of this Order is received, and call for submissions of claim by the creditors in the manner as prescribed under Regulation 6 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
The IRP appointed shall take in this regard such other and further steps as are required under the Statute, more specifically in terms of Section 15, 17, 18 of the IBC, 2016. The powers of the Board of Directors of the Corporate Debtor shall stand superseded as a consequence of the initiation of the CIRP in relation to the Corporate Debtor in terms of the provisions of IBC, 2016.
The IRP shall comply with the provisions of Sections 13 (2), 15, 17 & 18 of the Code. The Directors of the Corporate Debtor, its Promoters or any person associated with the management of the Corporate Debtor are directed to extend all assistance and cooperation to the IRP as stipulated under Section 19 of IBC, 2016 for the purpose of discharging his functions.
Based on the above terms, the Application stands admitted in terms of Section 7(5) of IBC, 2016 and the moratorium shall come in to effect as of this date. A copy of the Order shall be communicated to the Financial Creditor as well as to the Corporate Debtor above named by the Registry. In addition, a copy of the Order shall also be forwarded to IBBI for its records. Further, the Interim Resolution Professional above named who is figuring in the list of Resolution Professionals forwarded by IBBI be also furnished with copy of this Order forthwith by the Registry, who will also communicate the initiation of the CIRP in relation to the Corporate Debtor to the Registrar of Companies concerned.
Accordingly, the present Application stands admitted.