S.K. Mohapatra, Member.
1. M/s Carnoustie Management India Private Limited, claiming as the financial creditor, has filed the instant application under section 7 of the Insolvency and Bankruptcy Code, 2016 (for brevity 'the Code') read with rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (for brevity 'the Rules') with a prayer to trigger Corporate Insolvency Resolution Process in respect of respondent Company M/s CBS International Projects Private Limited, referred to as the corporate debtor.
2. The Respondent Company CBS International Projects Private Limited (CIN No. U45400 DL2007 PTC 307791) against whom initiation of Corporate Insolvency Resolution Process has been prayed for, was incorporated on 29.03.2007 and presently has its registered office at S-2, Manish Chamber, LSC Plot no. 6, Mayur Vihar, New Delhi-110001. Since the registered office of the respondent corporate debtor is in New Delhi, this Tribunal having territorial jurisdiction over the NCT of Delhi is the Adjudicating Authority in relation to the prayer for initiation of Corporate Insolvency Resolution Process in respect of respondent corporate debtor under subsection (1) of Section 60 of the Code.
3. It is appropriate to mention that Mr. Rajesh Malik Managing Director of the applicant company duly authorized by Board Resolution dated 14.05.2018 has preferred the present application on behalf of the applicant, M/s Carnoustie Management India Pvt. Ltd., for initiation of Corporate Insolvency Resolution Process against the respondent corporate debtor in terms of the provisions of the Code. A copy of the relevant Board Resolution of the applicant company held on 14.05.2018 has been placed on record.
4. The applicant has proposed the name of Mr. Aditya Agarwal, for appointment as Interim Resolution Professional having registration number IBBI / IPA - 001 / IP-P-000529 / 2017-18 / 10954 resident of 3A/105, Azad Nagar, Kanpur-208002 with email-id email@example.com. Mr. Aditya Agarwal has agreed to accept appointment as the interim resolution professional and has signed a communication dated 07th June, 2018 in Form 2 in terms of Rule 9(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. There is a declaration made by him that no disciplinary proceedings are pending against him in Insolvency and Bankruptcy Board of India or elsewhere. In addition, further necessary disclosures have been made by Mr. Aditya Agarwal as per the requirement of the IBBI Regulations. Accordingly, he satisfies the requirement of Section 7 (3) (b) of the Code.
5. The case of the applicant M/s Carnoustie Management India Pvt. Ltd. (CMIPL) as stated in the application is that the respondent Corporate Debtor M/s CBS International Projects Private Limited (CBS) was incorporated on 29.03.2007 by the applicant Financial Creditor and the respondent company was a 100% subsidiary of the applicant Financial Creditor till 13.08.2015. It is submitted that the Corporate Debtor being a 100% owned subsidiary of the Financial Creditor availed a loan/inter corporate deposit from the Financial Creditor vide Loan Agreement dated 11.05.2007 for an amount up to Rs. 40,00,00,000/- (Rupees Forty Crores only) to be received as and when required, to make payments to NOIDA Authority and for meeting other expenses for execution of the Project of development of IT & IT enabled services. It is submitted that as per the loan agreement executed between the parties, the Loan was to become repayable with interest at the rate of 12% per annum. In terms of the agreement the Loan was to have a moratorium period for levy of interest which was to end at the start of the financial year following the happening of either of the following eventualities viz,
i. receipt of completion certificate for the CBS Project, or
ii. induction of a partner, financier or investor with regard to the CBS Project; or
iii. Upon CBS no longer remaining a subsidiary of CMIPL.
6. The agreement further provides that the interest was to become payable from the beginning of Financial year following the Moratorium Period or upon demand by CMIPL, whichever was later, the determination of which was to be at the sole option of CMIPL.
7. It is further emphasized that the audited financial statement of the respondent Corporate Debtor for the financial year 2007-08 till 2015-16 had clearly acknowledged the debt owed by the Corporate Debtor to the Financial Creditor. The audited balance sheet for the financial year 2015-16 has been placed on record which acknowledges the debt owned by Corporate Debtor to the Financial Creditor under the head of "Unsecured Loans - Other Loans and Advances as ICD" i.e. Rs. 34,05,50,365/- (Rupees Thirty-Four Crores Five Lakh Fifty Thousand Three Hundred Five Only).
8. Subsequently on 13.08.2015, a Share Purchase Agreement was signed between Mr. Sanjay Rastogi; and Corporate Debtor and Financial Creditor wherein, Financial Creditor had sold 100% shares in Corporate Debtor to Mr. Rastogi and his nominees. The Financial Creditor had disclosed all the liabilities of the Corporate Debtor in the Share Purchase Agreement and the same was acknowledged by Mr. Rastogi. It is submitted that Mr. Rastogi being the director of the Corporate Debtor at the time of acquisition had access to all the financial documents of the Corporate Debtor and was well aware about the fact that Corporate Debtor has taken a loan from the Financial Creditor.
9. The audited balance sheet for the financial year 2015-16 acknowledges the total Loan outstanding and payable by Corporate Debtor to Financial Creditor under the head of "Unsecured Loans - Other Loans and Advances as Inter Corporate Deposits" i.e. Rs. 34,05,50,365/- (Rupees Thirty Four Crores Five Lakh Fifty Thousand Three Hundred Five Only) and the same was verified and approved by Mr. Sanjay Rastogi on behalf of Corporate Debtor.
10. Thereafter in July, 2016 the Financial Creditor again disbursed Rs. 25,30,000/-through a banker's cheque extending a further loan to the Corporate Debtor. This payment was stated to have been made almost after a year of acquisition of Corporate Debtor by Mr. Rastogi.
11. Further, the Corporate Debtor vide its Notice dated 30.08.2016 under section 13(4) of the Companies Act, 2013 read with Rule 30(6) (b) of the Companies (Incorporation) Rules 2014 sent to the Financial Creditor admitted the liability of Corporate Debtor to the extent of Rs. 34,31,87,965/- (Rupees Thirty Four Crores Thirty One Lakh Eighty Seven Thousand Nine Hundred Sixty Five Only). The Corporate Debtor in its audited financial statements for financial year 2016-17 has yet again acknowledged and verified the amount due and payable to the financial Creditor. But in the balance sheet for financial year 2016-17, the Corporate Debtor has recognized the same liability under the head of "Trade Payables as Sundry Creditors" instead "Unsecured Loans - Other Loans and Advances as ICD".
12. Thereafter, the financial Creditor vide various communications requested the Corporate Debtor to repay the loan amount due and payable to the Financial Creditor but the Corporate Debtor failed to repay the same. It is submitted that the applicant was constrained to issue a demand notice dated 28.03.2018 claiming all the due and payable amount to the Financial Creditor but the Corporate Debtor vide its reply dated 13.04.2018 maliciously denied such admitted amount as due and payable to the Financial Creditor. The Financial Creditor issued a rejoinder dated 02.05.2018 to the reply sent by the Corporate Debtor and reiterated its stand and rebutted all frivolous and malicious claims of the Corporate Debtor. It is alleged that since the issue of the Notice dated 28.03.2018, the Corporate Debtor is raising one or the other contentions to avoid payment of the debt.
13. It is stated in the application that the total outstanding amount due comes to Rs. 34,31,87,965/- (Rupees Thirty Four Crore Thirty One Lakh Seven Thousand Nine Hundred Sixty Five only) excluding the interest of 12% per annum.
14. It is contended that as the Corporate Debtor failed to pay the applicant Financial Creditor the admitted financial debt, the Financial Creditor prays to initiate insolvency proceedings against the Corporate Debtor.
15. Respondent company in its reply filed on 05.09.2018 has raised objection that the debt claimed in the petition was not disbursed against interest or consideration for time value of money and therefore the claim of the applicant is not a financial debt. It is contended that no interest or time period for repayment was ever prescribed on the alleged transaction.
16. In support of the contention, respondent has relied upon various Balance Sheets of the applicant company and its auditor's report. Respondent has pointed out that in the audited balance sheet of the applicant company for the year ending 31.03.2008 it has been reflected in the auditor's report that an amount of Rs. 16,56,365/- is recoverable from the respondent. However, it is clearly specified in the audit report that the same was interest free. In the auditor's report the type of transaction was mentioned as "Loan to subsidiary, interest-free."
17. Similarly, in the audited balance sheet of the applicant company for the year ending 31.03.2009, it has been reflected in the auditor's report that an amount of Rs. 23,58,88,567/- is recoverable from the respondent, however the transaction was clearly mentioned as "Loan to subsidiary, interest-free." The next year audited balance sheet of the applicant company of the year ending 31.03.2010, relied upon also reveals that the transaction was mentioned' as "Loan to subsidiary, interest-free." The copy of the said balance sheets for the year ending 31-03-2009 to 31.03.2010 have been placed on record.
18. It is submitted that even after the respondent ceased to be a subsidiary of the applicant, no interest has been provided in the books of accounts of the applicant. In this regard respondent has relied upon the Balance Sheets for the year ending 31.03.2016 and 31.03.2017. Accordingly, it is argued that the alleged debt amount was not disbursed against the payment of interest.
19. Respondent company has also claimed that the loan agreement dated 11.05.2007 relied upon by applicant is false and fabricated for the purpose of filing of the present application.
20. The claim of applicant that the original loan agreement is with the borrower, has been vehemently denied as illogical and unbelievable. It is argued that the original of any loan agreement is always kept by the lender.
21. In this regard, it is further alleged that the applicant in the legal notice dated 28.03.2018 had made no reference of any alleged loan agreement dated 11.05.2007. In the reply to the notice dated 13.04.2018 more particularly in Para IV, the respondent had mentioned that petitioner had failed to produce any loan agreement. Despite objection raised regarding loan agreement, in the rejoinder dated 02.03.2018 of the applicant there was no mention of alleged loan agreement.
22. The respondent has also relied upon the handwriting expert opinion in support of its pleading that the loan agreement is a forged one.
23. It is submitted that with regard to the forged loan agreement an FIR is already lodged against the applicant. It is prayed that no reliance on such photocopy can be placed in the present summary proceedings.
24. It is further pointed out that the respondent company was incorporated on 29.03.2007 and the alleged loan agreement was executed on 11.05.2007. It is alleged that as on 11.05.2007, the applicant was not even a shareholder of the respondent company and as such there was no occasion to refer respondent company as a subsidiary company in the loan agreement. It is accordingly argued that when the respondent company was not a subsidiary company of the petitioner on 11.05.2007, it is not clear how the loan agreement dated 11.05.2007 refers the respondent company as its subsidiary.
25. Learned counsel for respondent relied upon the stamp paper of the alleged loan agreement, which was dated 20.03.2007 about 9 days before the incorporation of the respondent company. It is accordingly alleged that there was no occasion on 20.03.2007 to purchase the stamp paper for a transaction by a company, which was not even in existence on that day.
26. The respondent further pointed out that if there was any default in payment of principal loan amount for so many years then there was no occasion for the applicant to advance further loan amount of Rs. 25,30,000/- and Rs. 1,77,600/- in the year 2016. It is alleged that the transaction between the parties is not on account of loan.
27. Respondent has also alleged that the applicant further committed fraud at the time of entering into Share Purchase Agreement and misrepresented about the outstanding dues of Noida Authority and understated the dues to the extent of more than Rs. 20 crores. The respondent referred to the letter dated 12.07.2018 of Noida Authority and stated that as on 13.08.2015 i.e. date of SPA the outstanding dues were more than 68.60 crores instead of about 48 crores as mentioned in the Share Purchase Agreement. It is argued that fraud vitiates all acts and the application is liable to be dismissed.
28. Heard learned counsel for the parties and perused the case records including the rejoinder and written submission of the parties.
29. There is no dispute that the applicant company had disbursed interest free amount to the respondent company. A perusal of the Balance Sheets of the applicant company itself clearly shows that transaction was interest free. Besides the auditor's report clearly states that these transactions were "interest-free."
30. Nevertheless, applicant has relied upon the loan agreement dated 11.05.2007, which provides interalia that the interest shall become payable from the beginning of Financial year following the Moratorium Period or upon demand by CMIPL, whichever is later, the determination of which shall be at the sole option of the applicant (CMIPL).
31. In this regard the respondent company has alleged that the sole loan agreement dated 11.05.2007 relied upon by the applicant is false and fabricated. It is alleged that the loan agreement has been forged for the purpose of filing of the present application. It is claimed that apart from the alleged forged loan document, there is nothing on record to show that the respondent company ever agreed to pay any such interest component. Accordingly, it is argued that the applicant is not a 'financial creditor' and the debt claimed in the application does not come within the purview of "financial debt" and therefore the present application is not maintainable.
32. In connection with the maintainability of the application, it is necessary to note the scheme of the Code which provides for triggering the insolvency resolution process by three categories of persons namely,
a) Financial creditor
b) Operational creditor, and
c) Corporate debtor itself.
33. The procedure in relation to the initiation of Corporate Insolvency Resolution Process by the "Financial Creditor" is delineated under Section 7 of the Code, wherein only "Financial Creditor" / "Financial Creditors" can file an application. As per Section 7(1) of the Code an application could be maintained by a Financial Creditor either by itself or jointly with other Financial Creditors. Section 7 of the Code thus mandates that the applicant "Financial Creditor" has to prove the default. In other words, even if there is a clear default, the application under Section 7 of the Code is not maintainable in case the applicant is not a financial creditor. Therefore, in order to maintain the present application filed under Section 7 of the Code for initiation of Corporate Insolvency Resolution Process in respect of respondent corporate debtor, the present applicant has to satisfy that he comes within the definition of "Financial Creditor".
34. The expressions "Financial Creditor" and "Financial debt" have been defined in Section 5 (7) and 5 (8) of the Code, which are reproduced below.
"5. In this part, unless the context otherwise requires, -
(7) "Financial creditor" means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to.
(8) "financial debt" means a debt alongwith 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 under any acceptance credit facility or its dematerialised 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 non-recourse basis;
f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the effect of a borrowing.
Explanation-For the purpose 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."
35. A creditor in order to come within the meaning of "Financial Creditor" has to fulfil the following essential criteria:
(i) A person to whom a 'financial debt' is owned and includes a person whom such debt has been legally assigned or transferred;
(ii) The debt along with interest, if any, is disbursed against the consideration for time value of money and includes any one or more mode of disbursed as mentioned in clause (a) to Clause (i) of sub-section (8) of Section 5.
36. Mere grant of loan and admission of taking loan will ipso facto not treat the applicant as 'Financial Creditor' within the meaning of Section 5 (8) of the Code.
37. Precisely "financial debt" is a debt along with interest, if any, which is disbursed against consideration for time value of money.
38. In the present case the applicant has relied upon the loan agreement dated 11.05.2007 in support of the pleading that the loan was disbursed against consideration for time value of money.
39. Respondent has alleged that the loan agreement dated 11.05.2007 is a created one and that the sole loan agreement dated 11.05.2007 relied upon by the applicant is false and fabricated.
40. Admittedly original of the disputed loan agreement dated 11.05.2018 has not been placed on record. Normally the original loan agreement is always kept by the lender.
41. Despite serious dispute on the very existence of the loan agreement, applicant has failed to explain as to how; under what circumstances and since when the loan document was given to the borrower. Except a word of mouth, no acknowledgement or papers in this regard have been placed. Neither original loan agreement has been produced nor proper explanation is on record. It is the duty of the applicant to plead and produce evidence, we are constrained to draw adverse inference, in the absence of original loan agreement and for want of adequate explanation in this regard.
42. Additionally, respondent has placed reports of two experts dated 29.07.2018 and 04.08.2018 respectively in support of the contention that the alleged loan agreement dated 11.05.2007 is a forged one. Applicant has failed to explain as to why the expert opinions are to be ignored.
43. It is also pertinent to note that in the loan agreement it is specifically mentioned that on the date of loan agreement respondent was a subsidiary of the applicant. However, respondent has placed on record the Annual Return of the company for the year ending 31.03.2008 to show that the company was incorporated on 29.03.2007 and that as on 11.05.2007 i.e. on the date of the loan agreement petitioner was not a shareholder of the respondent company and the respondent was not a subsidiary of the applicant. This fact also creates doubt on the genuine
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ness of the loan agreement. 44. It is further seen that the stamp paper on which the loan agreement was prepared is dated 20.03.2007. However, the respondent company was incorporated on 29.03.2007 i.e. about 9 days after the purchase of the stamp paper. This also creates a doubt, as the stamp paper was purchased for a transaction with a company which was not even in existence on that date. 45. It is further relevant to note that an FIR bearing No. 1276 of 2018 has also been lodged against the applicant for having forged the said alleged loan agreement which is under investigation. 46. It is well settled that the onus lies on the applicant to establish that the loan was given against the consideration for time value of money. When the respondent debtor disputes that there is no question of payment of interest at any point of time on the debt in question and also disputed the existence of the loan agreement, it becomes more onerous on the part of the applicant to prove that the amount was disbursed against the consideration for time value of money. Admittedly, original loan agreement has not been produced. Expert opinions have been placed in support of the pleading that the loan agreement is a forged one. In the facts discussed above and in the absence of the original loan agreement and in the light of serious dispute and allegation of fraud; it appears that the matter requires proper trial and investigation. Admission of the application under the Code has serious civil consequences. Heavy onus lies on the applicant to prove the claim of interest component, date of default and as to when the repayment is due. Simply, relying upon the copy of a seriously disputed document would not suffice in the present summary proceedings. 47. For the reasons stated above this petition fails and the same stands dismissed as not maintainable. 48. We make it clear that any observations made in this order shall not be construed as an expression of opinion on the merit of the controversy. We have not recorded any findings on the loan agreement dated 11.05.2007 in these summary proceedings, therefore, leave the parties to settle dispute before a competent forum. The right of the applicant before any other forum shall not be prejudiced on account of dismissal of the instant application. 49. Let the copy of the order be served to the parties.