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Judgment
Ashok Bhushan, J.
This Appeal by the Corporate Debtor has been filed challenging the order dated 19.01.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Jaipur Bench in IA No.651/JPR/2022 & IA No.652/JPR/2022 filed by the Corporate Debtor/Appellant for dismissing Section 7 application filed by the Financial Creditor (Respondent herein) which applications have been rejected by the impugned order dated 19.01.2024 and the Adjudicating Authority has directed the parties to appear on 24.01.2024 for arguments in the matter.
Brief facts of the case to be noticed for deciding the Appeal are:-
2.1. The Directors of the Appellant incorporated a Company in USA by the name of M/s. Selma Precision Technologies, NC, LLC (hereinafter referred to as “SPT”) with purpose to participate in bidding process for the auction of a U.S Company namely M/s. Sona BLW Precision Forge INC, 500 Oak Tree Drive, Selma LC 27576, USA. On 23.12.2017, a letter of intent was issued between the Financial Creditor- ‘Surya Testing Services Limited’ and Corporate Debtor- ‘Warm Forging Pvt. Ltd.’ agreeing for equal participation to restructure the entity M/s. Selma Precision Technologies, NC, LLC. A new company was proposed in the name M/s. MV Forge Inc. (MVF) or such other name as may be mutually agreed to take over the assets of M/s. Selma Precision Technologies. Financial Creditor- ‘Surya Testing Services Limited’ agreed to pay a token amount to M/s. Warm Forging Pvt. Ltd. for exploring and participating in business activity. The funds for the token amount of $ 1,00,000/- for the business evaluation process was to be transferred through the HDFC Bank account of M/s. Warm Forgings Pvt. Ltd. Letter of Intent further provided that the closure date of deal is not later than 28.02.2018. Financial Creditor was unable to get permission from RBI to send the money abroad. The Financial Creditor transferred money to account of Corporate Debtor in India from Bank account of Financial Creditor amount of Rs.1,85,00,000/- was transferred between 27.12.2017 to 23.02.2018. The amount which was transferred by the Financial Creditor to the Corporate Debtor was reflected as unsecured borrowing in the balance sheets of the Corporate Debtor for financial years 2017-18 and 2018-19.
2.2. On 14.02.2018, an agreement was entered between SPT, Amit Rajput and Ajay Kumar Jain. It was proposed to acquire 50% ownership in ‘Selma Precision Technologies NC, LLC’ by third party i.e. Ajay Kumar Jain. After the agreement dated 14.02.2018, another agreement was entered on 14.07.2018 between SPT, Amit Rajput and Ajay Kumar Jain (parties to the earlier agreement dated 14.02.2018). By the agreement dated 14.07.2018, parties expressed their wish to change terms and conditions as well as certain theme of the agreement. Hence, the new agreement was entered into. Second party represented that the third party to acquire additional 85% ownership to the ‘Selma Precision Technologies NC, LLC’, 15% being already in the name of Anamika Jain wife of Ajay Kumar Jain. Third party entered into agreement to have 100% ownership of ‘Selma Precision Technologies NC, LLC’. Agreement further noticed that the funds put in by the third party shall be used to pay off the liabilities. ‘Warm Forging Pvt. Ltd.’- Corporate Debtor was to receive 0.80 million USD. Agreement further mentioned that the Corporate Debtor after receipt of 0.80 million USD, shall return the amount of Rs.3,50,00,000/- to Reckon Industries Limited and Rs.1,95,00,000/- to Surya Testing Services Pvt. Ltd.- Financial Creditor. Agreement entered on 14.07.2018 fell in bad weather and could not be implemented.
2.3. A complaint was filed by Amit Rajput and other members of Rajput family before the General Court of Justice, Superior Court, State of North Carolina, County of Johnston seeking certain reliefs against Anamika Jain, Virat Jain and Ajay Kumar Jain. In the aforesaid proceedings, a Receiver was appointed on 30.09.2019 to hold monies from an auction of certain properties owned by SPT. Receiver also invited claims. Several claims were filed before the Receiver including the Claim 1 by Reckon Industries Ltd., Claim 2 by Amit Rajput, Claim 3 by Anamika Jain, Virat Jain, Ajay Jain, Surya Testing Services Ltd. and other two claims. The Receiver submitted a Report-1 disallowing the portion of the Jain Claim based on purported contributions of Surya to SPT. Certain recommendations was made in the report submitted by the receiver dated 21.09.2020. Supplement of claim was submitted by Jain Group including Surya on which further report dated 14.10.2020 was submitted by receiver. Receiver’s report was responded by Jain Group. Jain Group thereafter did not participate in the proceeding and default judgment was delivered by Superior Court Judge dated 01.08.2023.
2.4. A Section 7 application CP No.(IB)- 92/7/JPR/2021 was filed by Surya Testing Services Limited against Warm Forging Pvt. Ltd. claiming debt and default of Rs.1,60,00,000/-. Date of default being mentioned as 22.05.2018. Application claimed the financial debt on the basis of amount transferred to Warm Forging Pvt. Ltd. totalling Rs.1,85,00,000/-. Receipt of the amount of Rs.25,00,000/- was also acknowledged on 27.05.2018 and hence, for balance due Rs.1,60,00,000/-, application under Section 7 was filed.
2.4. In the Company Petition, IA No.651/JPR/2022 & IA No.652/JPR/2022 were filed by the Corporate Debtor. In IA No.652/JPR/2022, Corporate Debtor pleaded that Section 7 application is not maintainable. In IA No.651/JPR/2022 filed by the Corporate Debtor prayed for prior hearing of application under Section 7. Both the applications were heard by the Adjudicating Authority and by order dated 19.01.2024 both the applications have been rejected. Adjudicating Authority held that the Financial Creditor having disbursed the amount out of which Rs.1,60,00,000/- is due. The Adjudicating Authority also referred to and relied on the financial balance sheet of the corporate debtor where acknowledgment of amount by the corporate debtor was reflected. Adjudicating Authority also referred to the agreement dated 14.07.2018 which contained a clause that the Corporate Debtor shall refund the amount of Rs.1,95,00,000/-.
We have heard Shri Arun Kathpalia, Learned Senior Counsel for the Appellant and Shri Ravi Chirania, Learned Counsel appearing for the Respondent.
Shri Arun Kathpalia, Learned Senior Counsel for the Appellant challenging the order submits that the amount which was disbursed by the Financial Creditor to the Corporate Debtor amounting to Rs.1,95,00,000/-was the amount which was disbursed for obtaining equity in U.S Company ‘Selma Precision Technologies NC, LLC’ and the amount was not a financial debt to the Corporate Debtor , hence, the application filed by the financial creditor under Section 7 was not maintainable. Counsel for the Appellant relied on the agreement dated 14.02.2018 as well as agreement dated 14.07.2018. Whatever amount was paid by ‘Surya Testing Services Limited’ to M/s. Warm Forging Pvt. Ltd. was investment in ‘Selma Precision Technologies NC, LLC’ and the amount cannot be treated as financial debt. Agreement dated 14.07.2018 was executed between ‘Selma Precision Technologies NC, LLC’, Amit Rajput and Ajay Kumar Jain whereby Ajay Kumar Jain agreed to acquire 85% additional ownership unit in the ‘Selma Precision Technologies NC, LLC’ by making an investment of $5.2 Million. Counsel for the Appellant has also referred to the balance sheet of Financial Creditor for the financial year ending on 31.03.2021 wherein in the auditor’s report it has been mentioned that the company has not granted any loan secured or unsecured to the companies and the appellant has been described as sundry debtor. There is no mention of any long-term loan and advances being given to the Appellant. When Jain Group failed to make an investment of $ 5.2 million, a complaint was filed by Amit Rajput and his family members against Ajay Kumar Jain etc. in the General Court of Justice, Superior Court Division, State of North Carolina where claims were invited by receiver. Receiver has observed that 15% ownership interest was held by Anamika Jain on 28.03.2018. As per contract dated 14.07.2018 amount of $ 0.8 million were never received by M/s. Warm Forging Pvt. Ltd. from ‘Selma Precision Technologies NC, LLC’, hence, there was no occasion for refund of amount of Rs.1,95,00,000/- as mentioned in the agreement dated 14.07.2018. The Financial Creditor has again submitted supplement to claims which claims have not been accepted. It is submitted that the U.S Court passed a default judgment in favour of the Plaintiff where it was observed that Anamika Jain holds a 15% ownership interest in SPT by virtue of payments made by ‘Surya Testing Services Limited’. It is submitted that the judgment referred by this Tribunal in Reckon Industries is concerned, the said judgment was on its own fact and does not help the financial creditor in the present case. It is submitted that Ajay Kumar Jain has already filed a suit before Gurugram Court where he admitted that the amount paid by ‘Surya Testing Services Limited’ was on his behalf and the same was only for the purpose of acquiring equity stake in the SPT.
Shri Ravi Chirania, Learned Counsel appearing for the Respondent refuting the submission of the Appellant submits that the amount paid by the financial creditor was amount disbursed to the corporate debtor. Although letter of intent was issued on 23.12.2017 between the financial creditor and the corporate debtor but financial creditor could not obtain permission from RBI to send the money abroad. On request of the corporate debtor, financial creditor transferred the money in the account of corporate debtor in India which was to be returned to the financial creditor. A short term loan of Rs.1.85 Crore was extended from Axis Bank account of the financial creditor to the bank account of the corporate debtor in India which disbursal is fully proved on bank statement filed before the Adjudicating Authority. Out of Rs.1.85 Crores, Rs. 25 Lacs was refunded by the corporate debtor to the financial creditor on 22.05.2018 and the balance amount of Rs.1.60 Crores was required to be refunded to the financial creditor. The balance sheet of the corporate debtor for Financial Years 2017-18 and 2018-19 clearly mentioned the amount as unsecured borrowing. In the balance sheet as ending on 31.03.2017 amount of Rs.3.5 Crores was shown as unsecured borrowing which increased as on 31.03.2018 to Rs.5.35 Crores. The increase in the borrowing as reflected in the balance sheets of the corporate debtor was on account of disbursal of Rs.1.85 Crore by the financial creditor to the corporate debtor. Entry recorded in the balance sheet is acknowledgment and acceptance of financial debt. Payment of Rs.25 lacs to the financial creditor on 22.05.2018 is again clear acknowledgment of the corporate debtor that the amount which was disbursed by the financial creditor was required to be refunded to the financial creditor in line of which understanding amount of Rs.25 lacs was admittedly refunded on 22.05.2018. Agreements dated 14.02.2018 and 14.07.2018 were executed between U.S Company ‘Selma Precision Technologies NC, LLC’, Amit Rajput and Ajay Kumar Jain, the financial creditor was not party to any of the agreements. Understanding as reflected in the letter of intent dated 23.12.2017 having not been fulfilled and was abandoned, a new agreement was entered on 14.07.2018. Agreement dated 14.07.2018 also records undertaking by the corporate debtor that it shall return amount of Rs.3.5 Crores to Reckon Industries and Rs.1.95 Crores to financial creditor.
Coming to the receiver report relied by Counsel for the Appellant. It is submitted that the receiver did not accept the claim of the financial creditor holding that there is no proof of any payment by financial creditor to U.S Company ‘Selma Precision Technologies NC, LLC’ and the claim on the basis of payments made to Warm Forging Pvt. Ltd. cannot be accepted. The rejection of the claim of financial creditor by receiver was also upheld by U.S Court. It is submitted that the Adjudicating Authority relying on the relevant documents filed before it has rightly come to the conclusion that the application filed under Section 7 is maintainable and there is no ground to reject Section 7 application as prayed by the corporate debtor.
We have considered the submissions of the Counsel for the parties and perused the record.
The first agreement which has been referred to by the parties is letter of intent dated 23.12.2017 which was entered between the financial creditor and the corporate debtor under which letter of intent both the parties i.e. financial creditor and corporate debtor agreed to restructure M/s. Selma Precision Technologies, NC, LLC. It is the case of the financial creditor that there being no permission of the RBI to transfer the fund by financial creditor to the U.S Company, no amount could be transferred by the financial creditor to the U.S Company. At that stage, the corporate debtor requested that the amount be transferred to corporate debtor in its account consequently the amount of Rs.1.85 Crores was transferred by financial creditor to the corporate debtor which amount was a borrowing by the corporate debtor. Insofar as disbursement of amount of Rs.1.85 Crores there is no dispute between the parties regarding such disbursement by financial creditor to corporate debtor. Adjudicating Authority in paragraph 9 of the judgment also noted the details of disbursement. It is useful to extract paragraph 9 of the impugned order of the Adjudicating Authority: -
“9. We have noticed the details of the payment made by the Financial Creditor to the Corporate as averred in the main Petition filed under Section 7 of the Code. The details as provided demonstrate that a total of Rs. 1,85,00,000/- (Rupees One Crore Eighty-Five Lakh) was disbursed to the Corporate Debtor by the Financial Creditor, against which Rs. 25,00,000/-(Rupees Twenty-Five Thousand Only) was repaid by the Corporate Debtor on 22.05.2018. Hence, the net claim amount as alleged and reflected in PART IV of the main Application is Rs.1,60,00,000/- (Rupees One Crore Sixty Lakh). The details of the transactions are tabulated below for the ease of reference:
Sr. No.
Disbursal date
Disbursed vide
Cheque No.
Disbursal Amount
(In Rupees)
1.
27.12.2017
208458
35,00,000/-
2.
28.12.2017
208459
15,00,000/-
3.
29.12.2017
208460
15,00,000/-
4.
19.01.2018
208466
60,00,000/-
5.
30.01.2018
------------
40,00,000/-
6.
23.02.2018
208465
20,00,000/-
Total Amount Disbursed (A)
Total amount Repaid on 22.05.2018 (B)
Net Total Amount in Claim (A-B)
1,85,00,000/-
(25,00,000/-)
1,60,00,000/-
The bone of contention between the parties is regarding the nature of such disbursement. Appellant’s case is that the said disbursement was made by the financial creditor for obtaining equity in the U.S Company M/s. Selma Precision Technologies, NC, LLC and the said was not a financial debt extended by financial creditor to the corporate debtor. Both the parties have advanced various submissions in support of their respective case. There are several documents and materials brought on record by both the parties which need to be noticed for finding out the nature of transaction. We have already noticed the letter of intent dated 23.12.2017 entered between the corporate debtor and the financial creditor. It is useful to extract the entire letter of intent which is as follows:-
“Date: December 23, 2017,
Letter of Intent (LOI) for M/s. MY FORGE Inc., Selma,
NC, USA
This LOI is between:
M/s. Surya Testing Services Ltd., 23/3 East Patel Nagar. New Delhi 110008.
• Represented by: Mr. Ajay Kumar Jain & Mr. Virat Jain.
M/s. Warm Forgings Pvt. Ltd., Bhiwadi, Rajasthan, India.
• Represented by: Mr. Amit Rajput, Mrs. Anupam Chauhan & Mayank Rajput
The salient points of this LOI are:
Both parties agree for equal equity participation (50:50) to restructure the existing entity M/s. Selma Precision Technologies, NC, LLC (SPT) located at, 500 Oak Tree Drive, Selma, NC 27576, USA, SPT assets includes Land: 17.38 Acres; Building: 100,000 Sq., feet, with fair market value of US$ 4.51 Million and Plant & Machinery with fair market value of US$ 14.265 Million.
Total Fair Market Value: US$ 18.775 Million.
While the actual evaluation from Duff & Phelps and local Johnston County authorities is USS 18.775 Million, the current evaluation of the SPT assets, for this exercise, vide a mutual understanding is agreed at $ 7.5 Million, based on expenses incurred in SPT since its procurement on 28.12.2016.
The new company which will be formed, from this exercise, is proposed to be named M/s. MV Forge, INC. (MVF) or such other name as may be mutually agreed, to take over the assets of SPT.
Both parties plan a joint visit to evaluate the quality of the assets and future business prospects in mid-January 2018
During & post the visit both the parties will work out a detailed "action plan & next steps" for MVF for 2018 & beyond.
M/s. Surya Testing Services Ltd has agreed to pay a Token Amount to M/s Warm Forgings for exploring & participating in this business activity. The funds for the Token Amount of $ 100,000/- for the business evaluation process will be transferred through the HDFC Bank account of M/s. Warm Forgings Pvt. Ltd.
This LOI is also to be construed as a "CONFIDENTIALITY AGREEMENT" between the two parties, till there is proper closure on the subject. By signing this document, both parties are committing to not share any data or information in the public domain or any third party, without formal written mutual consent.
The closure date of this deal is not later than February 28, 2018.
All other relevant points which both parties wish to add for the mutual clarity will be additional to this current agreement of December 23rd, 2017.
For and on behalf of
M/s. Surya Testing Services Ltd., 23/3 East Patel Nagar New Delhi 110008
Mr. Ajay Kumar Jain Mr. Virat Jain
M/s. Warm Forgings Pvt. Ltd., Bhiwadi, Rajasthan, India.
Mr. Amit Rajput Mrs. Anupam Chauhan Mr. Mayank Rajput”
It is the case of the financial creditor that it could not obtained permission from RBI to send money abroad, hence, the money could not be transferred by the financial creditor abroad. Admittedly, the money was disbursed to the corporate debtor which disbursement has already been noted above and accepted by the Adjudicating Authority. There are two other subsequent agreements which have been referred to and relied which need to be noticed. The agreement dated 14.02.2018 was entered between SPT, Amit Rajput and Ajay Kumar Jain. The said agreement was to acquire 50% ownership of ‘Selma Precision Technologies NC, LLC’ by third party i.e. Ajay Kumar Jain. The amount of 2 million USD was to be remitted by the third party and its family members and relatives within six months from February, 2018 to August, 2018. The said investment was to be made in ‘Selma Precision Technologies NC, LLC’. Agreement dated 14.02.2018 is as follows:-
“Agreement
This agreement is executed at Gurgaon on this 14th day February 2018 in continuation of understanding entered on December 23rd, 2017, by and between
Selma Precision Technologies NC, LLC, 500 Oak Tree Dr, Selma, NC 27576, USA through its Manager Mr. Amit Rajput (Hereinafter referred to as First party),
Amit Rajput S/o Shri Bhupinder Singh R/o Villa no. 8, Hibiscus, Sector 50, Gurgaon, Haryana-122018 (Hereinafter referred to as Second party) and
Ajay Kumar Jain S/o Shri Salek Chand Jain R/o C-13/55, Sector 3, Rohini, Delhi-110085 (Hereinafter referred to as Third Party)
Whereas the First Party has acquired through Bankruptcy Court, the assets of Sona BLW Precision Forge Inc. on-14/12/2016 at the sum of 4.675 million USD. The Second party is one of promoter in First party holding 40% ownership in his own name and 30% ownership units in the name of Mrs. Anupam Chauhan (wife of second party) and 30% ownership units in the name of Mayank Rajput(son of Second Party). The First party has also taken a bridge loan of USD 3.50 million from Utica lease company, USA. The bridge loan is to be repaid in 48 EMIs of 86269.06 USD p.m. out of which 14 EMI's has already been paid by First party.
Beside this the First party also has taken short term loan of 2.503 million USD as details below :-
Warm Forging Pvt. Ltd, Bhiwadi, India. 0.50 million USD
➤ Address of S.No. 1 SPL 238 B&C Kaharani Industrial Estate, Bhiwadi, Rajasthan 301019
Mr. Jai Prakash Aggarwal (S/o. Late Shri K.N.
Aggarwal) 0.25 million USD
Mr. Sandeip Agarrwal (S/o Mr. Jai Prakash Aggarwal) 0.25 million USD
Mrs. Sumitra Agarwal (W/o Mr. Jai Prakash Aggarwal) 0.25 million USD
M/s Reckon Industries Ltd. 0.75 million USD
➤ Address of S.No. 2 to 5 is (111 Tribhuwan Complex, Ishwar Nagar, Mathura Road, New Delhi 110065
Dr. Kartic Rajput (S/o Jai Pal Singh) 0.502876 million USD
➤ Address of S.No. 6 is 1536, Warbler CIR, Grand Island, NE 68803.
The Second Party has assured the Third Party that there is no other loan/liability except as mentioned above.
The Second Party has represented that the present venture is beneficial and has invited Third Party to buy shares of the same as the Second Party does not have adequate capital at this stage.
Based on the representations of the Second Party, the third party has agreed to enter into this venture by having 50% holding in the First Party.
NOW THIS AGREEMENT WITNESSETH AS FOLLOWS:
That to acquire 50% ownership units in the first party, the third party or his relatives, associates or his companies have agreed to invest 2.25 million USD in the First party.
That further, this 2 million USD has to be remitted by the third party and his family members and relatives within six months as per the following schedule
By Feb 2018 500000 USD
March 2018 500000 USD
April 2018 250000 USD
May 2018 250000 USD
June 2018 250000 USD
July 2018 250000 USD
August 2018 250000 USD
That the First Party, on receiving the funds as stated above, will utilize funds as under-
(A) For repayment of existing short-term loansas stated above.
(B) For Electricity connection USD 175000
(C) For payment of Expenses USD 50000 for repayment of EMI of Utica Lease Co.
(D) That the future funds, if required by first party for working capital or running Expenses shall be send / remitted by Second and Third party in equal proportions till the time working capital loan is granted by any Bank /Financial Institute in USA to the first party.
That total contribution for getting 50% holding in the company is settled at 2.25 million USD.
That the said consideration is required to be send to first party as per payment schedule as stated in para 2 above.
That the second party shall have no objection, whatsoever for the said transfer/allotment/dilution of holding to the third party.
The Second Party agrees to indemnify, defend and hold harmless the Third Party, affiliates, directors, officers, representatives, employees and agents (collectively, the "Indemnified Persons"), from and against any and all claims, actions, suits, proceedings, costs, damages, Judgments, amounts paid in settlement and expenses (including without limitation reasonable attorneys' fees and reasonable disbursements at actual) (collectively, "Loss") asserted against or incurred by the Indemnified Persons, to the extent directly suffered (excluding consequential or special losses), as a result of, arising from, or in connection with or relating to any matter inconsistent with, or any breach or Inaccuracy of any representation, warranty, covenant or agreement made or failure to perform (whether in whole or part) any obligation required to be performed by them under this Agreement or non-observance /non-compliance of any applicable laws, rules and regulations.
Neither Party shall be liable to the other for any delay or failure in the performance by it of any obligation under the MOU to the extent affected, delayed or prevented by an event of Force Majeure, provided that the Party that is affected by the Force Majeure shall notify the other Party as soon as practicable.
Any delay, inability, omission or failure of either party to exercise any of its right under this Agreement shall not affect or impair or be deemed to be waiver of its rights under this Agreement and neither shall it be deemed to affect or impair such party's rights with respect to any continuing or subsequent default of the other of the same or different nature under this Agreement.
If any representations of the Second Party is found to be false/untrue at a later stage, the Third Party shall have a right to claim back all the amounts invested/given on the representations of the Second Party. In such case, the Third Party shall demand any/all amounts paid by it under this agreement and the Second Party shall refund the same without any protest.
This Agreement shall be governed by laws of India and the courts at Gurgaon only shall have sole and exclusive jurisdiction in relation to any matters, dispute arising under this Agreement.
This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes any prior oral or written agreements, commitments or understandings with respect to the matter provided for herein.
That this agreement is executed in duplicate and each party shall retain one original copy.”
From the above agreement, it is clear that the financial creditor i.e. ‘Surya Testing Services Limited’ was not a party to the said agreement and the said agreement was between three different parties which are neither the financial creditor nor the corporate debtor. The amount to be invested by third party in the U.S. Company namely ‘Selma Precision Technologies NC, LLC’. Paragraph 12 of the agreement, as noted above, is as follows:-
“12. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes any prior oral or written agreements, commitments or understandings with respect to the matter provided for herein.”
Agreement, thus, supersedes any prior oral or written agreements, commitments or understandings with respect to the matter provided therein. With regard to acquisition of ownership of ‘Selma Precision Technologies NC, LLC’, earlier transactions were superseded.
Now the next agreement which is relevant to be noted is agreement dated 14.07.2018. Agreement dated 14.07.2018 was again entered between three parties who were parties to the agreement dated 14.02.2018. The financial creditor- ‘Surya Testing Services Limited’ was not a party to this agreement. Agreement dated 14.07.2018 was entered with intent to change terms and conditions. The agreement noticed that 15% ownership is already with Ajay Kumar Jain and he intends to acquire balance 85%. Clauses 1 to 5 are as follows:-
“NOW THIS AGREEMENT WITNESSETH AS FOLLOWS:
That to acquire 85% additional ownership units in the first party, the third party or his relatives, associates or his companies has agreed to invest further 5.2 million USD in the First party by July, 2019 through his own accounts/ family members accounts and through his partnership firm M/s Himani International (23/3 East Patel Nagar, New Delhi-110008). The Funds put in by the Third Party shall be used to pay off the following liabilities:
i. Mr. Jai Prakash Aggarwal along with his family members Mr. Sandip and Mrs. Sumitra Aggarwal and his company M/s Reckon Industries Ltd. 1.40 million USD
ii. UTICA Leaseco, LLC 2.5 million USD Address: 905, South Boluevard East, Rochester Hills, Michigan-48307
iii. Mr. Kartick Rajput 0.502866 million USD
iv. Warm Forging Pvt. Ltd, Bhiwadi, India. 0.80 million USD Address SPL 238 B&C Kaharani Industrial Estate, Bhiwadi, Rajasthan 301019
v. Other Current Liabilities of First Party 0.20 million USD
___________________________
TOTAL 5.4028 million USD
The Second Party has assured the Third Party that there is no other loan/liability except as mentioned above.
On receipt of 0.80 million USD, Warm Forging shall return the amount of Rs. 3,50,00,000/- (Rupees Three Crore Fifty Lacs only) to Reckan Industries Limited and Rs. 1,95,00,000/- (Rupees One Crore Ninety Five Lacs) to Surya Testing services Pvt Ltd. The same is confirmed by the Second Party who is Director in Warm Forgings Pvt Ltd.
The Second Party agrees to indemnify, defend and hold harmless the Third Party, affiliates, directors, officers, representatives, employees and agents (collectively, the "Indemnified Persons"), from and against any and all claims, actions, suits, proceedings, costs, damages, judgments, amounts paid In settlement and expenses (Including - without limitation reasonable attorneys' fees and reasonable disbursements at actual) (collectively, "Loss") asserted against or incurred by the Indemnified Persons, to the extent directly suffered (excluding consequential or special losses), as a result of, arising from, or in connection with or relating to any matter inconsistent with, or any breach or Inaccuracy of any representation, warranty, covenant or agreement made or failure to perform (whether in whole or part) any obligation required to be performed by them under this Agreement or non-observance/non-compliance of any applicable laws, rules and regulations.
Neither Party shall be liable to the other for any delay or failure in the performance by It of any obligation under the MOU to the extent affected, delayed or prevented by an event of Force Majeure, provided that the Party that is affected by the Force Majeure shall notify the other Party as soon as practicable.
That the Second Party shall replace the Corporate Guarantee given by Warm Forging Pvt Ltd, and personal Guarantee given by Amit Rajput and Anupam Chauhan. That further, the Third Party shall pay the amount of 0.502866 million USD as mentioned at serial (ii) to Kartick Rajput in five equal monthly installment of USD 0.10 million USD each starting from 25.08.2018 tο 25.12.2019.
That further the Second Party who is Director of Warm Forgings Pvt Ltd., undertakes to pay Rs. 3,50,00,000/- (Rupees Three Crores Fifty Lacs only) tο M/s Reckon Industries Limited and Rs. 1,95,00,000/-(Rupees One Crore Ninety Five Lacs only) M/s Surya Testing Services Pvt Ltd within 3 days of receipt of the amount of 0.80 million USD or any part thereof.”
The above agreement contains two relevant statements i.e. ‘Warm Forging Pvt. Ltd.’- Corporate Debtor shall return the amount of Rs.3,50,00,000/- to Reckon Industries Limited and Rs.1,95,00,000/- to Surya Testing Services Pvt. Ltd.- Financial Creditor after receipt of 0.80 million USD. Paragraph 5 of the agreement is statement on behalf of second party who was director of the corporate debtor- ‘Warm Forging Pvt. Ltd.’ that amount of Rs.3,50,00,000/- be returned to Reckon Industries Limited and Rs.1,95,00,000/- to Surya Testing Services Pvt. Ltd. i.e. Financial Creditor.
It is relevant to notice that how the amount disbursed to the corporate debtor, has been treated in the balance sheet of the corporate debtor on which much reliance was placed by counsel for the Respondent. In Paragraphs 16 & 17 of the judgment, the Adjudicating Authority refers to the balance sheet of the corporate debtor for the financial years 2017-18 and 2018-19. It is useful to extract paragraphs 16 & 17 of the judgment which is as follows:-
“16. We have also referred to the Balance Sheet of the Corporate Debtor for the year 2017-18. In the Balance Sheet of the Corporate Debtor under the classification of 'Borrowing' as 'Unsecured Borrowing, the borrowings for the year ending on 31.03.2017 is Rs. 3,50,00,000/- (Rupees Three Crores Fifty Lakhs Only) and for the year ending on 31.03.2018 is Rs. 5,35,00,000/- (Rupees Five Crores Thirty-Five Lakhs Only). The increase in the borrowings as reflected in the balance sheet is directly proportional to the amount disbursed by the Financial Creditor in the account of the Corporate Debtor i.e. the amount of Rs. 1,85,00,000/- (Rupees One Crores Eighty-Five Lakhs Only). It is an admitted fact that later, the Corporate Debtor returned the amount of Rs. 25,00,000/-(Rupees Twenty-Five Lakhs Only) on 22.05.2018, hence, the same is not reflected in the Balance Sheet for the year ending on 31.03.2018. The said disbursal is corroborated by bank entries filed by the Financial Creditor. Moreso, the Corporate Debtor has not denied the receipt of the amount by the Financial Creditor.
Combined reading of the Agreement dated 14.07.2018, as well as Balance Sheet for the year 2017-18 and the Bank statements, make it clear that the net amount of Rs. 1,60,00,000/- (Rupees One Crore Sixty Lakh Only) which was disbursed by the Financial Creditor to the Corporate Debtor was a 'Financial Debt'. In this context, we may refer to Section 5(8) of the Code which reads as below:
‘5(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:
b) any amount raised by acceptance sunder 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;”
From the balance sheets of the corporate debtor for the financial years 2017-18 and 2018-19, it is clear that the amount disbursed has been referred as ‘unsecured borrowing’. The amount of Rs.3,50,00,000/- given by Reckon Industries Limited and Rs.1,95,00,000/- was given by Financial Creditor has been duly reflected in the balance sheets for the financial years 2017-18 and 2018-19.
The contemporaneous financial statement of the corporate debtor immediately after disbursal of the amount reflects the true nature of transactions and understanding between the parties. The amount disbursed by financial creditor could not be disbursed to U.S Company of which initially equity was to be obtained by the financial creditor as per letter of intent dated 27.12.2017 but the amount was disbursed to the corporate debtor in its bank account which is also reflected in the balance sheet. Adjudicating Authority has rightly come to the conclusion that the amount disbursed to the corporate debtor was financial debt.
Counsel for the Appellant has placed much reliance on the receiver’s report which was received on complaint filed by Amit Rajput and his family with regard to ‘Selma Precision Technologies NC, LLC’ in U.S. Court.
We now proceed to notice the receiver report as well as order of the U.S Court relied by the Appellant. As noted above, the complaint was filed by Amit Rajput and his family against Amit Jain and others alleging breach of contract with respect to ‘Selma Precision Technologies NC, LLC’ and claimed amount. Receiver was appointed by the court with regard to ‘Selma Precision Technologies NC, LLC’ and the receiver invited claims with regard to ‘Selma Precision Technologies NC, LLC’. In the report submitted by the receiver dated 21.09.2020, in paragraph 7, receiver has noted five groups of the claim in which Claim No.3, name of Surya Testing Services Ltd. has also been noticed. Paragraph 7 of the receiver’s report as follows:-
“7. The Receiver received five groups of claims.
These claims include the following:
a. Claim No. 1: Reckon Industries, Ltd. ("Reckon"), J.P. Aggarwal, Sandeip Aggarwal, and Sumitra Aggarwal (collectively, the "Reckon Group") in the amount of $6,809,124 based upon contributions by them for an equity interest in SPT, demands for refund of those contributions, conversion, fraud and Unfair and Deceptive Trade Practice allegations (the "Reckon Claim");
b. Claim No. 2: Amit Rajput, Anupam Chauhan, Mayank Rajput, and Kartik Rajput and Warm Forgings Pvt. Ltd. ("Warm Forgings") (collectively, the "Rajput Group") seek enforcement of a contract dated July 14, 2018 providing for payment of $800,000 to Warm Forgings by July of 2019 in liquidation of their interest in SPT and otherwise seek loan balances and prepayment balances due and owing to Warm Forgings plus any residual liquidation value (the Rajput Claim");
c. Claim No. 3: Anamika Jain, Virat Jain, Ajay Jain, Himani Jain. V.P. Industries, Ltd. ("V.P."), Surya Testing Services, Ltd. ("Surya") (collectively, the "Jain Group"), Meghna Venhateshwar, Mettu Venkateshwar, Akhil Nigam, Rinki Jain, Manish Jain, Pooja Jain, Anamik Singhal, Vikash Jain, and Divyank Goswami in the amount of $1,631,595 of funds they claim were provided to SPT in 2018 and 2019 as either capital contributions or loans (the "Jain Claim");
d. Claim No. 4: Linamar consisting of various claims under the terms of its lease of real estate from SPT including claimed rights to offset rent and for possession and ownership of residual SPT equipment (the "Linamar Claim"); and
e. Claim No. 5: Gerhard Schicktanz in the amount of $66,500 for an employee loan to SPT (the "Schicktanz Claim").”
In paragraph 11 of the report, the claim of Jain Group based on purported contributions of Surya Testing Services Ltd. was disallowed. In paragraph 11, the receiver states follows:-
“11. The Receiver disallows the portion of the Jain Claim based upon purported contributions of Surya. There is no record of a contribution of funds by Surya to SPT. To the extent that Surya provided funds to Warm Forgings in India that dispute is not a proper claim against SPT. The remainder of the Jain Claim is for funds invested as equity. The Receiver disallows any claim for return of these funds until all debts of SPT have been satisfied. Should funds remain after satisfaction of all debts, the Receiver will address, by a supplemental report, distribution of those funds among those who contributed equity capital to SPT.”
Supplement claims were submitted by Jain Group, in the supplement to claim again reiterated their claims on the basis of funds transferred by Surya Testing Services Ltd. to ‘Warm Forging Pvt. Ltd.’. The General Court of Justice, Superior Court, State of North Carolina, County of Johnston passed an order on 01.08.2023. In paragraph 9 of order dated 01.08.2023, receiver’s recommendation has been noticed. Paragraph 9 of the order is as follows:-
“9. Though not under oath, certain claims were submitted to the Receiver by various parties. The Receiver’s recommendations per the Receiver’s Report #1, as amended by the Receiver’s Report #2 dated July 24, 2023, were as follows:-
Claimant
Amount Claimed
Recommendation
Anamika Jain
$3,40,000
Disallow
Virat Jain
$3,25,700
Disallow
Ajay Jain
$54,800
Disallow
Himani Jain
$2,50,000
Allow
V.P. Industries Ltd.
$10,000
Disallow
Surya Testing Services Ltd.
$3,00,000
Disallow
Meghna Venhateshwar
$6,879
Disallow
Mettu Venkateshwar
$20,163
Disallow
Akhil Nigam
$16,587
Disallow
Rinki Jain
$26,100
Allow
Vikas Jain
$1,52,414
Allow
Manish Jain
$38,350
Disallow
Pooja Jain
$35,500
Disallow
Anamika Singhal
$24,100
Allow
Divyank Goswami
$31,021
Allow
Gerhard Schicktanz
$66,500
Allow
Warm Forgings
$5,00,000
Allow, but subordinate
Warm Forgings
$4,82,599
Allow, but subordinate
In the conclusion of paragraph 5, following has been observed:-
“5. Anamika Jain holds a 15% ownership interest in SPT by virtue of payments made by Surya Testing Services Ltd. in furtherance of a December 23, 2017 Letter of Intent with Warm Forgings, and by Anamika Jain pursuant a February 14, 2018 agreement with SPT.”
The receiver report as noticed above did not allow the claim of Surya Testing Services Ltd. with respect to M/s. Selma Precision Technologies, NC, LLC although 15% ownership interest of Anamika Jain was accepted in M/s. Selma Precision Technologies, NC, LLC. The facts on the record thus, clearly indicate that the financial creditor has neither been given any equity percentage in M/s. Selma Precision Technologies, NC, LLC nor its claim has been admitted in the liquidation of M/s. Selma Precision Technologies, NC, LLC which is going in U.S. Court. Amount of Rs.1.85 Crores was disbursed to the Corporate Debtor which disbursement have clearly been admitted in the balance sheet of the corporate debtor, the said amount has been shown as borrowing from the financial creditor. It is clear that the letter of intent dated 23.12.2017 could not be fructified which was subsequently clearly superseded by 14.02.2018 agreement as noted above. Hence, the amount disbursed by the financial creditor to the corporate debtor has to be treated to be borrowing by corporate debtor which was required to be refunded. As noted above, in the agreement dated 14.07.2018 in which director of the corporate debtor was also party, there was undertaking recorded in paragraph 5 as noted above that Warm Forgings Pvt. Ltd. shall refund amount of Rs.1.85 Crores to the Corporate Debtor. The factum of acknowledgment on behalf of the director of Warm Forgings Pvt. Ltd. clearly indicate that the amount was borrowing, hence, there is obligation of the corporate debtor to return the said amount which undertaking is reflected in the agreement dated 14.07.2018 also. Further, there is no denial that on 22.05.2018 amount of Rs.25 lacs was returned by the corporate debtor to the financial creditor which is an admitted fact. Had the amount of Rs.1.85 Crores was given by financial creditor only for the purposes of equity in M/s. Selma Precision Technologies, NC, LLC, there was no question of refund of any amount. The refund of Rs.25 lacs clearly proves that amount was borrowed by the corporate debtor as reflected in its balance sheet as noted by the Adjudicating Authority.
Counsel for the Appellant has also referred to the Civil Suit filed by Ajay Kumar Jain in Gurugram Court which suit has been filed by Ajay Kumar Jain against Amit Rajput and others. The injunction has been sought with regard to suit property. Ajay Kumar Jain has claimed that the amount was paid by ‘Surya Testing Services Limited’ to M/s. Warm Forgings Pvt. Ltd. which was payment made by the Appellant. The said pleading by Ajay Kumar Jain in a suit which was filed subsequent to filing of Section 7 application cannot be treated to be pleading on behalf of the financial creditor. The present appeal arises out of the order passed by the Adjudicating Authority rejecting two IAs being IA No.651/JPR/2022 & IA No.652/JPR/2022 by which corporate debtor has prayed for dismissal of Section 7 application. The applications as noted above have been rejected by the Adjudicating Authority by the impugned order dated 19.01.2024. The Adjudicating Authority has given sufficient reasons for rejecting IA No.651/JPR/2022 & IA No.652/JPR/2022 in which we do not find any infirmity.
In view of the foregoing discussions and our conclusion, we are of the view that no ground has been made out to interfere with the impugned order passed by the Adjudicating Authority. The Appeal is dismissed.