Adventz Finance Private Limited vs Jai Annanya Investments Private ...

[Arising out of Order dated 12.01.2022 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata in C.P. (IB) No. 2119/KB/2019]

IN THE MATTER OF:

Adventz Finance Private Limited Registered office at: Hongkong House, 31, B.B.D. Bagh (S), Kolkata - 700001 ...Appellant

Versus

Jai Annanya Investments Private Limited Registered office at: 8, Camac Street, Shantiniketan Building, 7th Floor, Room No. 11 & 12, Kolkata - 700017. ...Respondent

Present:

For Appellant: Ms. Neha Somani, PCS.

For Respondent:

JUDGMENT

ASHOK BHUSHAN, J.

This appeal by the Financial Creditor has been filed against the order

dated 12.01.2022 passed by the Adjudicating Authority (National Company

Law Tribunal), Kolkata Bench, Kolkata rejecting Section 7 application filed

Cont'd.../ -2-

by the Appellant. Brief facts of the case necessary for deciding this appeal

are:-

(i) The Corporate Debtor vide letter dated 14.05.2014 sent a request

for grant of Inter Corporate Deposit to 'Adventz Investments and

Holdings Ltd.'. Request was for Inter Corporate Deposit of Rs.40

Crore with interest @12.5% payable half yearly.

(ii) Adventz Investments and Holdings Ltd.' (which subsequently got

merged with the Appellant pursuant to a scheme of amalgamation

sanctioned by Hon'ble Calcutta High Court on 02.06.2014)

accepted to grant Inter Corporate Deposit to the Corporate Debtor

of Rs.40 Crore and a cheque of Rs.25 Crore was annexed

alongwith letter dated 16.05.2014.

(iii) The Corporate Debtor from time to time has repaid some amounts

on account of principal and also on account of interest. Corporate

Debtor had also made deductions on account of Tax Deducted at

Source and Form 26 AS was also filed in this regard.

(iv) Due to defaults committed by the Corporate Debtor in servicing

its Interest and its repayment obligation, a legal notice dated

04.01.2016 was issued regarding repayment of inter-corporate

deposit, which notice was replied by the Corporate Debtor on

03.02.2016 where the Corporate Debtor stated that entire amount

of Inter Corporate Deposit has been invested in various securities

and due to adverse directions issued by the Securities and

Exchange Board of India (SEBI) business of the company has

Company Appeal (AT) (Insolvency) No. 475 of 2022 -3-

come to a standstill. It was further stated that company has been

making best possible efforts to manage funds to repay. The

Corporate Debtor even thereafter in writing has acknowledged and

admitted its liability towards the Appellant.

(v) In view of the defaults committed by the Corporate Debtor, an

application was filed under Section 7 of the Insolvency and

Bankruptcy Code, 2016 (hereinafter referred as 'I&B Code') in

March, 2019.

(vi) The Corporate Debtor appeared before the Adjudicating Authority

on 16.12.2019 and sought direction to file vakalatnama and reply.

(vii) The Adjudicating Authority proceeded ex-parte against the

Corporate Debtor by order dated 22.09.2021.

(viii) Subsequently, by order dated 12.01.2022, the application under

Section 7 has been rejected.

2. In this appeal notices were issued to the Corporate Debtor on

04.05.2022. Although notices were served but no one appeared nor any

reply was filed.

3. We have heard Ms. Neha Somani, Authorized Representative of the

Appellant on 28.09.2022. None had appeared for the Respondent. Learned

Authorized Representative of the Appellant challenging the order passed by

the Adjudicating Authority submits that the Adjudicating Authority erred

in not taking into consideration the acknowledgements in writing issued by

the Corporate Debtor where debt was acknowledged. It is submitted that

Company Appeal (AT) (Insolvency) No. 475 of 2022 -4-

the Adjudicating Authority also erred in observing that in the Independent

Auditor's Report of the Financial Creditor for Financial Years 2014-15,

2015-16, 2016-17, 2017-18 and 2018-19 names of the companies to whom

Financial Creditor has advanced Inter Corporate Deposit are distinctly

mentioned whereas there is no mention with regard to the Corporate

Debtor. It is submitted that the mention of names of those few companies

was made against whom litigations were going on and the total of Inter

Corporate Deposit given by the Financial Creditor were mentioned.

Further, all details of the dues in a tabular chart has been mentioned. It

is submitted that the Adjudicating Authority erred in rejecting Section 7

application whereas debt and default both were successfully proved.

3. We have considered the submissions of learned Authorized

Representative for the Appellant and perused the record.

4. It is relevant to notice that alongwith Section 7 application, the

Financial Creditor in Part IV has given the details of amounts which were

granted as Inter Corporate Deposit to the Corporate Debtor. The request

letter dated 14.05.2014 which was received from the Corporate Debtor has

been mentioned and the same was filed as Annexure A-IV. It is useful to

extract the letter dated 14.05.2014.

"Dated: 14th May, 2014

Adventz Investments And Holdings Ltd. 31, Hongkong House, B.B.D. Bagh (South), Kolkata - 700001

Company Appeal (AT) (Insolvency) No. 475 of 2022 -5-

Sub: Request for grant of Inter-Corporate Deposit (ICD).

Sir,

With reference to above you are requested to kindly grant us an Inter-Corporate Deposit (ICD) of Rs.40 Crore on the following terms and conditions:

1. ICD Amount : Rs. 40 Crore (Rupees Forty Crore only)

2. Rate of Interest : 12.50% p.a. (payable half yearly)

3. Repayment : 1 year with an option to renew further

4. Disbursement : Immediate in single or tranches

5. PAN No. : AABCGO769Q

We shall appreciate for your immediate response.

Thanking you

Yours faithfully For Jai Annanya Investments Pvt. Ltd."

5. The request made by the Corporate Debtor was accepted vide letter

dated 16.05.2014 which was also referred to and filed as part of Annexure

IV, which is as follows:-

"Dated: 16th May, 2014

Jai Annanya Investments Pvt. Ltd.

31, Hongkong House, B.B.D. Bagh (South), Kolkata - 700001

Company Appeal (AT) (Insolvency) No. 475 of 2022 -6-

Sub: Inter-Corporate Deposit.

Dear Sir,

This has reference to you request letter dated 14/05/2014, requesting for providing for Inter- Corporate Deposit for a sum of Rs. 40 Crore on the terms mentioned therein.

We are pleased to inform you that we have sanctioned ICD on the following terms as mentioned below:

1. ICD Amount : Rs. 40 Crore (Rupees Forty Crore only)

2. Rate of Interest : 12.50% p.a. (payable half yearly)

3. Repayment : 1 year with an option to renew further

4. Disbursement : In tranches

We enclose herewith out Cheque No. 000309 dated 16/05/2014 drawn on The Ratnakar Bank Ltd for Rs. 25 Crore (Rupees Twenty Five Crore only) towards the said ICD.

Our PAN is AACCP3995N.

You are requested to acknowledge the receipt of the same.

Thanking you

Yours faithfully For Adventz Investments & Holdings Ltd."

6. The Financial Creditor has also brought on record the Bank

Statement to prove that in pursuance of the communication dated

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16.05.2014 an amount of Rs.25 Crore was deposited in the account of the

Corporate Debtor. The Inter Corporate Deposit with the terms and

conditions as contained in the both the above letters clearly prove that

financial facility by Inter Corporate Deposit was extended by the Financial

Creditor. In the Part IV of the application there is a specific reference of

legal notice dated 04.01.2016 issued on behalf of the Financial Creditor to

the Corporate Debtor where it was mentioned that a sum of

Rs.4,03,17,465/- is due towards interest. The Corporate Debtor was called

upon to pay the interest on the said corporate deposit since 01.10.2014.

The legal notice was replied by the Corporate Debtor by letter dated

03.02.2016 which is also part of Section 7 application. In the reply dated

03.02.2016 following has been stated by the Corporate Debtor:-

"February 3, 2016

By Hand Delivery

To, The Director Adventz Finance Private Limited 31, B.B.D. Bagh (S), Hong Kong House, Kolkata - 700001

Dear Sir,

Sub: Your Legal Notice dated January 4, 2016

We refer to your subject legal notice whereby you have called upon us to pay an amount of Rs. 29,03,17,465/- being the balance amount of inter- corporate deposit sanctioned by you vide your

Company Appeal (AT) (Insolvency) No. 475 of 2022 -8-

letter dated May 16, 2016 together with interest thereon calculated at the rate of 12.50 % p.a. within 7 days from the date of receipt of the notice.

In reply thereto, we inform you that the entire amount of inter-corporate deposit has been invested in various securities. Vide order dated August 20, 2015, the Securities and Exchange Board of India (SEBI) has restrained the Company from buying, selling or dealing in the securities markets, either directly or indirectly, in any manner, till further directions.

Due to the adverse directions issued by SEBI vide its order dated August 20, 2015, the complete business of the Company has come to a standstill resulting in a loss of INR 93.12 Lacs to the Company.

Further, the demat accounts of the Company has been frozen thereby preventing us from liquidating the investments and paying off our creditors.

We further inform you that in order to liquidate the Company's investments and pay off its creditors, applications have been made by the Company to SEBI including dated February 2, 2016 seeking certain interim reliefs. Please find enclosed a copy of the interim application dated February 2, 2016 for your reference.

The Company has been making best possible efforts to arrange for funds to repay its creditors. However, due to unforeseen circumstances

Company Appeal (AT) (Insolvency) No. 475 of 2022 -9-

beyond its control, the Company is unable to discharge its commitments within time.

In the interest of maintaining business relations, we request you to kindly hold back initiation of legal recourse against the Company until the disposal of the above interim application by SEBI.

We sincerely regret the inconvenience caused to you by the delay in repayment of the balance amount of inter-corporate deposit.

Thanking you

Yours faithfully,

For Jai Ananya Investments Private Limited

Director"

7. When we look into the above letters issued by the Corporate Debtor

there is a clear acknowledgement of debt. The Adjudicating Authority had

not adverted to aforesaid materials before coming to the conclusion that

there is no acknowledgement of the Inter Corporate Deposit in the

Independent Auditor's Report of the Financial Creditor for Financial Years

2014-15 to 2018-19.

8. Now coming to the Independent Auditor's Report of the Financial

Creditor which has relied by the Adjudicating Authority in Para 9, it is

relevant to notice that there is mention of name of certain companies in the

Independent Auditor's Report. For example: at page 160, Para 2.28 (FY-

2014-15), following has been stated:-

Company Appeal (AT) (Insolvency) No. 475 of 2022 -10-

"2.28 The company has given Inter-Corporate Deposits of Rs. 2 crores to M/s . Chopra Marketing Private Limited, Rs.7 crores to Enso Private Limited and Rs.2.30 crores to Birla Power Solutions Limited. Since the amounts were not refunded by the said parties on time, the Company has filed legal cases at Division/High Court at Calcutta/ Bombay for recovery of the said amount. Necessary provisions have been made in the accounts."

9. Similarly, there is mention of certain other companies at page 181

(para 2.21, FY 2015-16), page 211 (para 2.19, FY 2016-17), page 238 (para

2.19, FY 2017-18), page 276 (para 2.30, FY 2018-19) of the paper book.

When we look into all the above paras, mention of Inter Corporate Deposit

given to certain entities has been clearly mentioned but what is relevant is

that all those refer to litigations with regard to Inter Corporate Deposit. It

is further relevant to notice that in the Financial Statements details of Inter

Corporate Deposit where total Short Term Loans and Advance have been

given. For example in the Balance Sheet as on 31.03.2015, Short Term

Loans and Advance as on 31.03.2015 are mentioned as 1,46,31,84,491/-

which referred to Note No. 2.14, which is to the following effect:-

"NOTE No. - 2.14 SHORT TERM LOANS AND ADVANCES Unsecured. Considered good Inter-Corporate Deposit 1,43,37,53,247

Advances (recoverable in cash or kind or value to be received

Company Appeal (AT) (Insolvency) No. 475 of 2022 -11-

Advance Income Tax 54,01,771 (net of provision) Advances to Employees 14,83,873 Prepaid Expenses 3,16,286 Others 2,22,29,314 Unsecured. Considered Doubtful Inter-Corporate Deposit 18,56,87,409 Less: Provision for 18,56,87,409 Doubtful Loans 1,46,31,84,491

10. The above financial statement clearly mentions the Inter Corporate

Deposit of Rs.1,43,37,53,247/-. Similarly, with regard to other financial

years mention of total Inter Corporate Deposit is given. The Adjudicating

Authority has drawn adverse inference against the Financial Creditor only

relying on few names of companies to whom Inter Corporate Deposit was

given and whose names were mentioned in the note in the Independent

Auditor's Report, but as noted above the names in the Report were with

regard to those companies with whom litigations were going on. As noted

above, the details of total Inter Corporate Deposits, which runs to Rs.143

Crores, has been reflected in the financial statements and the Adjudicating

Authority without adverting to the relevant material jumped to conclusion

that financial creditor has failed to prove Inter Corporate Deposit given to

the Corporate Debtor, which finding is unsustainable.

11. Now, we come to the observation of the Adjudicating Authority that

there is no date of default mentioned in the application. In the Part IV Item

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No.2 under the column "Amount claimed to be in default and the date on

which the default occurred", following has been stated:-

2. AMOUNT AMOUNT CLAIMED TO BE IN CLAIMED DEFAULT TO BE IN Rs. 4,05,51,038/- (Rupees Four DEFAULT Crores Five Lakh Fifty One AND THE Thousand and Thirty Eight only) DATE ON Rs.1,18,50,000/- on account of WHICH principal, ii) Rs.2,87,01,038/- on THE account of interest.

DEFAULT OCCURRED DATES ON WHICH THE DEFAULT OCCURRED

On 31-03-2015, interest to be received was Rs.3,27,48,287/- out of which only Rs.1,31,14,726/- was received and balance Rs.1,96,33,561/- was in default.

On 31-03-2016, total outstanding interest was Rs.35,10,16,758/- out of which only Rs.54,00,000/- was received and balance Rs.4,56,16,758/- was in default.

On 31-03-2017, total outstanding interest was Rs.6,62,57,905/- out of which only Rs.2,75,56,867/- was received and balance Rs.3,87,01,038/- was in default.

Company Appeal (AT) (Insolvency) No. 475 of 2022 -13-

On 31-03-2018, total outstanding interest was Rs.3,87,01,038/- out of which only Rs.1,00,00,000/- was received and balance Rs.2,87,01,038/- was in default.

The details of amount of default in tabular format attached hereto and marked as "Annexure A-XVI".

12. Further details of amount of default in tabular format are annexed

as Annexure-XVI. Thus, observation of the Adjudicating Authority that

date of default has not been mentioned also cannot be accepted.

13. It is also relevant to notice that Corporate Debtor has also made

payments in the years 2015, 2016, 2017 till the financial year 2018-19

which details are all mentioned in the Part IV of the application. It is further

relevant to notice that Corporate Debtor although once appeared before the

Adjudicating Authority but neither filed any reply nor appeared thereafter

and Adjudicating Authority proceeded ex-parte against the Corporate

Debtor. In this appeal also despite service of notice, Corporate Debtor did

not appear. There is not even dispute to allegations and case set up by the

Financial Creditor against the Corporate Debtor.

14. We, thus, are of the view that Adjudicating Authority committed error

in rejecting Section 7 application. The order passed by the Adjudicating

Authority dated 12.01.2022 cannot be sustained and is hereby set aside.

Section 7 application being CP (IB) No. 2119/KB/2019 is revived before the

Company Appeal (AT) (Insolvency) No. 475 of 2022 -14-

Adjudicating Authority and Adjudicating Authority is directed to pass an

order of admission alongwith all consequential directions within period of

one month from the date the copy of this order is produced before the

Adjudicating Authority. The Appeal is allowed accordingly.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

NEW DELHI

12th October, 2022

Archana

Company Appeal (AT) (Insolvency) No. 475 of 2022