Vrundavan Residency Pvt Ltd vs Mars Remedies Pvt Ltd

The case is fixed for pronouncement of order.

The order is pronounced in open Court vide separate sheet.

This application is filed by M/s. Vrundavan Residency Private Limited – the Financial Creditor on 22.06.2020 through its authorized representative Mr. Vishal Jitendra Patel who is duly authorized vide Board Resolution dated 31.12.2019 to file this application, against M/s. Mars Remedies Private Limited – the Corporate Debtor under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC, 2016”) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 with a prayer to initiate the Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor.

Learned Counsel for the Financial Creditor appeared and made the averments which are summarised as under:

ii It is submitted that the Financial Creditor had provided said loan with sanction vide Board Resolution dated 19.04.2011 an amount not exceeding Rs.70,00,000/-. The terms and conditions were that the loan will be disbursed up to sixth financial year from the first instalment and at the end of sixth financial year the loan becomes continuous default. The rate of interest will vary from 13 to 18%. The Financial Creditor had disbursed a total amount of Rs.68,10,000/- on various dates to the corporate debtor by RTGS transfer as under:

On the point of the threshold limit for filing the application, it is stated in the application and submitted before the Hon'ble NCLAT that the aforesaid application was filed on 14.03.2020 before the Notification issued by the Ministry of Corporate Affairs dated 24.3.2020 whereby, enhancing the amount from Rs 1 lakhs to Rs 1 crore for triggering the process of resolution under Section 7 & 9 of the IBC 2016. The applicant filed an affidavit (addl.) on 25 April 2022 in response to order dated 18.4.2022 that he has sent a copy to the Tribunal on 22 March 2020 (copy of email enclosed). As verified from the court records, E filing was not applicable in 2020(stated period) and the stated application has been received on 22 June 2020. The applicant has also in its filing before the Hon'ble NCLAT stated that the application was filed on 14 March 2020. It is also to be mentioned that the learned counsel for the Petitioner submitted an additional affidavit in compliance of order dated 18.4.2022 that due to closure of registry from 19 to 27 March 2020, the applicant has filed without annexures and noted to submit on reopening of the office. The applicant/counsel would have been well aware that the registry does not accept e filing during that period. Being covid 19 time, it is clarified by the office of registry that it has received the physical copy only on 22 June 2020. However, the applicant has clarified that the Hon'ble Member (Judicial) and the head of the department at that time had stopped physical filing and had made compulsory for everyone to email a copy of petition to the Registry of the Hon'ble Adjudicating Authority. The physical filing was then submitted in June 2020 when it was permitted by Registry.

The admissibility of the application U/s 7 of the application, whether the applicant is a financial creditor. The applicant as per its application is in the business of Hostel Services as permitted in its memorandum of association. It is further submitted that as permitted in Clause III (B) (33) of the Memorandum of association, it can “lend, invest or …..in such manner as the Directors may think fit subject to the provisions of the Companies Act, 1956. One of the objections of the respondent (corporate debtor) to the application is that such claim is prohibited under the provisions of the Companies Act, 2013 as the alleged claim is much more than the paid up capital of the petitioner and the petitioner is admittedly not an NBFC and hence the business of lending and investment through inter-corporate deposit is not permissible beyond 60% of the total paid up capital of the company. The correspondence between the applicant and respondent (Demand Letter dated 3.4.2019 para 14) seems to be given for the purpose of reducing a liability with Vijaya Bank and get enhanced credit facility from Bank of Baroda. It also states that the loan should be repaid after getting credit facility within 5-6 weeks.

The applicant has submitted a document which is the Board Resolution dated 19^th April 2011 authorising grant of unsecured loan. No other document has been submitted of an MoU or signed document evidencing the loan was agreed upon.

The respondent in his affidavit dated 22 August 2023 has stated that the directors of the company along with their allies are stake holders in the respondent company holding sizeable shares up to 23.45% and both the petitioner and respondent are private limited and closely held companies. It is also submitted that a company floated by the Director (Mr Yogendra Patel) in the name of Indo Pharma Limited is holding 18.14% equity shares apart from shares held in the name of son(0.17%) and wife (5.14%) in the respondent company. It is stated that the petition is filed to take over the company as the Indo Pharma is a competitive company of the respondent. It is also submitted by the respondent that the petitioner even though is not an NBFC has invested more than its share capital (60% permitted). The affidavit reply of the respondent has been denied of its merits by the applicant in his affidavit dated 4 September 2023. He has also stated that the respondent has not stated in his balance sheet that the borrowing is a related party transaction. Also it is observed that the last repayment was on 29.09.2015 after which there is no repayment. The balance sheet provided of the respondent is for the period only upto 2015 and 2016.

The Adjudicating Authority Ahmedabad had vide its order dated 22.03.2021 gone through the application and disposed off as not maintainable as time barred. The applicant being aggrieved by this order filed an appeal before the Hon'ble‟ NCLAT vide CA (AT)(IS) No.345/2021. The Hon' ble NCLAT vide its order dated 4.3.2022 allowed the Appeal with the following order: Taking all these facts and circumstances of the case, we are of the considered view that the impugned order dated 22.3.2021 passed by the Ld. AA (NCLT) Ahmedabad bench in CP (IB) No.300/NCLT/AHM/2020 is hereby set aside and the matter is remitted back to the Ld. AA (NCLT) Ahmedabad Bench, Ahmedabad with a request to hear the parties and after perusing the aforesaid documents whereby the Respondent categorically acknowledged the debt, pass fresh orders within 12 weeks from the receipt of this judgment”.

The applicant has proved the grant of advance on the stated `date. There is no agreement between both the parties and as per documents, the balance sheet of respondent acknowledges the debt up to 31 March 2017 which is dated 5.9.2017. There have been some email correspondence between the applicant and the respondent, which are not clearly specifying the debt, however for the limited purpose of analysis there seems to be some reconciliation issues, on interest, conversion to equity from the letters. If there are any other intention of the emails of transactions that is not taken note of and may be under purview of other regulatory authorities.

The objections of the Respondent in the application has not been sustained. The eligibility of application filed on 22.3.2020 is objected by respondent but based on the documents produced, it is taken on record that it is filed within the stipulated time (e-filing) before the enhancement of limit of Rs 1 crore. If the debt is acknowledged in the balance sheet of 31 March 2017 on 5.9.2017, the date of notice issued and date of filing the application on 22.3.2020 is within the limitation period (3 years).

The objection of the respondent that the applicant violates Sec 186(2) of the Companies Act, is not in order, it is apparent that it appears to be an unsecured inter company loan (even though the activity of applicant is different and MOA does not prohibit investment) is not allowed as the respondent has received the stated amount in to his account and had not repaid as per the documents produced.

The objection of the respondent that the applicant is a share holders in the company through his family or the entity in which he is a major share holder does not in any way prove that the debt was a grant which cannot be repaid.

The respondent has not denied the debt or has produced any document that the amount has been repaid. The respondent has stated reasons which seek to escape the amount of debt that is to be repaid and has not submitted the balance sheet copies to prove that the debt has been repaid or converted to equity.

The applicant based on the clarifications given on 27.9.2023 has not been able to show the balance sheet of the respondent (CORPORATE DEBTOR) after 31 March 2017 which is approved dated 5 September 2017 and his issue of notice is dated 3.4.2019 is within the period of 3 years. The respondent has chosen not to reply to this letter. Respondent has also not submitted any clarifications, if any in the matter additionally. He has not denied the repayment made earlier. The respondent has not denied the loan, but argued on admissibility and other issues. Within 3 years from that date 3.4.2019 the application U/s 7 of IBC has been filed on 20.3.2020. It is also observed that the applicant is not an equity holder of the respondent, even though it is alleged his connected entity or relatives have a share. Debt by whatever means raised has to be repaid, which has been denied for various reasons by the respondent. As per Companies Act, a share holder cannot be considered a related person unless the person is a director. The loan has been approved by the board of the applicant before the facility was granted.

Its maintainability based on e filing on 20.3.2020 and submission of physical documents in June 2020 is allowed based on the documents produced which was during operational shut down of the registry. Two judgments are of relevance in the case for reference.

Whether to prove a financial debt, a financial creditor has to enter into a "written" financial Contract? Agarwal Polysacks Ltd vs K K Agro Foods Ltd - Justice Ashok Bhushan and Mr Barun Mitra, NCLAT AND

Hon'ble Supreme Court judgment in Asset Reconstruction Ltd Vs Bishal Jaiswal Ltd - Acknowledgment of Debt in Balance Sheet.

In view of the above, we admit this application and pass the following order:

a. 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;

b. transferring, encumbering, alienating or disposing of by the corporate debtor 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 corporate debtor in respect of its property including any action under the Securitisation 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 corporate debtor.

The IRP is expected to take full charge of the corporate debtor‟s assets, and documents without any delay whatsoever. He is also free to take police assistance in this regard, and this Court hereby directs the Police Authorities to render all assistance as may be required by the IRP in this regard.

The IRP shall also serve a copy of this order to the various departments such as Income Tax, GST (centre), State Trade Tax, Provident Fund etc. who are likely to have their claim against Corporate Debtor as well as to the trade unions/employees associations so that they are informed timely of the initiation of CIRP against the Corporate Debtor timely.

Accordingly, the present application i.e., CP (IB)/300 (AHM) 2020 stands admitted.