Agarwal Polysacks Limited vs Kk Agro Foods & Storage Pvt. Ltd

[Arising out of order dated 29.07.2022 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi, Bench-V in IB-1705/(ND) /2019]

IN THE MATTER OF: M/s Agarwal Polysacks Limited E-649, M.I.A IInd Phase, Basni, Jodhpur - 342005 IN. ...Appellant

Vs.

M/s K. K. Agro Foods and Storage Limited 2244, Gali Raghunandan, Naya Bazar, New Delhi - 110006 IN. ...Respondent

Present: For Appellant: Mr. Manish Paliwal and Ms. Megha Yadav, Advocates. For Respondent: Mr. Abhijeet Sinha and Mr. Aman Lodha, Advocates.

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal has been filed challenging the order dated 29.07.2022

passed by the Adjudicating Authority (National Company Law Tribunal), New

Delhi, Bench-V by which order Section 7 application filed by the Appellant

has been rejected holding that Financial Creditor failed to show the nature of

transaction between the parties and the amount which has been paid comes

under definition of Financial Debt. The Appellant aggrieved by the order has

come up in this Appeal. Brief facts of the case necessary to be noticed for

deciding the Appeal are:

Cont'd.../ -2-

(i) The Corporate Debtor - M/s K. K. Agro Food and Storage Ltd.

approached the Appellant seeking financial assistance. The

Appellant agreed to grant Unsecured Term Loan of Rs.75 Lakhs to

the Corporate Debtor. The Appellant by RTGS payment disbursed

amount of Rs.50 Lakhs on 23.08.2017, Rs.5 Lakhs and Rs.20

Lakhs on 28.09.2017. It was agreed between the parties that the

repayment of the Unsecured Term Loan will be made on demand.

(ii) The Corporate Debtor deducted tax on the Interest amount in the

FY 2017-18. The Corporate Debtor deducted the total Tax

Deduction at Source of Rs.52,250 on the accrued interest till

31.03.2018.

(iii) Appellant asked the Corporate Debtor to send Statement of

Account from 01.04.2018 to 21.03.2019 by email dated

12.04.2019.

(iv) Appellant sent a letter dated 17.04.2019 to the Corporate Debtor

for repayment of Unsecured Loan alongwith interest within two

months.

(v) The Board of Directors of the Appellant have passed resolution on

05.07.2019 to file case against the Corporate Debtor in NCLT.

(vi) An application under Section 7 was filed on 12.07.2019 by the

Appellant claimed an amount of Rs.91,80,854. The Corporate

Debtor filed its reply in the Section 7 application to which rejoinder

was also filed by the Appellant.

(vii) On 16.01.2020, the Adjudicating Authority directed the Applicant

to demonstrate that income tax for the Assessment Year 2018-19

Company Appeal (AT) Insolvency No. 1126 of 2022 -3-

has taken in to account the TDS deducted was adjusted and

credited.

(viii) Appellant filed various documents including Auditor's report as on

31.03.2018 and 31.03.2019 as well as copy of Section 194A of the

Income Tax Act on 20.01.2020.

(ix) On 10.02.2020, the Adjudicating Authority directed Corporate

Debtor to file the documents based on which it has deducted the

TDS. The Corporate Debtor did not file any document as directed

by the Adjudicating Authority.

(x) The Adjudicating Authority heard the parties and by impugned

order rejected the application. The Adjudicating Authority making

following observations in Para 14 and 15 rejected the application:

"14. In the light of the above noted facts and circumstances, when we consider the case in hand then we find that the Financial Creditor has failed to show the nature of the transaction between the parties and that the amount which he has paid comes under the definition of Financial Debt.

15. Thus, in view of the discussions made supra, the instant Application filed by the Financial Creditor under Section 7 of IBC, 2016 is not maintainable and accordingly the same stands dismissed."

2. Learned counsel for the Appellant challenging the order of the

Adjudicating Authority contends that Unsecured Loan was advanced to the

Corporate Debtor which was disbursed by RTGS. The Corporate Debtor

deducted TDS towards payment of interest which is reflected in Form 26 AS

Company Appeal (AT) Insolvency No. 1126 of 2022 -4-

of the Financial Creditor. In Balance Sheet of 2018-19, Short Term Loan is

reflected. The Balance Sheet also indicate that in the Unsecured Loan of

Rs.75 Lakhs interest was added, hence, amount of Rs.79,72,250 was shown

as due. It is submitted that the Adjudicating Authority committed error in

holding that the Appellant had not been able to prove financial debt, however,

the documents brought on the record by the Appellant including the Balance

Sheets and bank transactions clearly prove the financial debt and the

Adjudicating Authority committed error in rejecting the application.

3. Shri Abhijeet Sinha, learned counsel appearing for the Respondent

refuting the submissions of learned counsel for the Appellant contends that

there being no financial contract between the parties, Appellant failed to prove

the financial debt. Shri Sinha referring to the Balance Sheet of the Appellant

of FY 2017-18 submitted that under the 'Short Term Loan and Advances',

there is no entry with regard to the Corporate Debtor of the Amount, which is

claimed by the Appellant. It is submitted that the disbursement should have

been made for time value of the money. It is submitted that no oral contract,

if any, can be enforced. Shri Sinha has also relied on judgments of this

Tribunal in "Company Appeal (AT) (Ins.) No. 713 of 2019, Prayag Polytech

Pvt. Ltd. vs. Gem Batteries Pvt. Ltd.", "Company Appeal (AT) (Ins.) No.

468 of 2019, Jagdambey International vs. Visa Powertech Pvt. Ltd.",

"Company Appeal (AT) (CH) (Ins.) No. 108 of 2023, M/s IFCI Ltd. vs.

Sutanu Sinha & Anr." and judgment of this Tribunal in "Company Appeal

(AT) (Ins.) No. 251 of 2020, Pawan Kumar vs. Utsav Securities Pvt. Ltd.

& Anr.".

Company Appeal (AT) Insolvency No. 1126 of 2022 -5-

4. We have considered the submissions of learned counsel for the parties

and perused the record.

5. From the submissions of the parties and the material on record

following two questions arise for consideration:

(i) Whether to prove a financial debt a Financial Creditor has to enter

into a written financial contract?

(ii) Whether the Appellant from the materials brought on the record was

unable to prove that the Corporate Debtor owes a financial debt?

6. Both the questions being interconnected; we proceed to examine the

questions together. We may first notice the relevant statutory provisions

governing filing of Section 7 application and the relevant documents which

are to be filed alongwith Section 7 application. Section 7 of the I&B Code

empowers a Financial Creditor to initiate CIPR against the Corporate Debtor

before the Adjudicating Authority when a default has occurred. The

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,

2016 are the rules which regulates filing of application by the Financial

Creditors. Section 3(1)(d) defines 'Financial Contract' in following words:

"(d) "financial contract" means a contract between a corporate debtor and a financial creditor setting out the terms of the financial debt, including the tenure of the debt, interest payable and date of repayment;"

7. Rule 4 provides for "Application by Financial Creditor". Rule 4 Sub-

Rule (1) provides:

Company Appeal (AT) Insolvency No. 1126 of 2022 -6-

"4. Application by Financial Creditor. - (1) A financial creditor, either by itself or jointly, shall make an application for initiating the corporate insolvency resolution process against a corporate debtor under section 7 of the Code in Form 1, accompanied with documents and records required therein and as specified in Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016."

8. Rule 4(1) provides that application for initiating the Corporate

Insolvency Resolution Process against a Corporate Debtor is to be in Form 1,

accompanied with documents and records required therein and as specified

in Insolvency and Bankruptcy Board of India (Insolvency Resolution Process

for Corporate Persons) Regulations, 2016. We may also notice Form 1 of Rule

2016, where Part IV deals with 'Particulars of Financial Debt' and Part V deals

with 'Particulars of Financial Debt [Documents, Records and Evidence of

Default]. Part V of the Form 1 is as follows:

"Part-V

PARTICULARS OF FINANCIAL DEBT [DOCUMENTS, RECORDS AND EVIDENCE OF DEFAULT]

1. PARTICULARS OF SECURITY HELD, IF ANY, THE DATE OF ITS CREATION, ITS ESTIMATED VALUE AS PER THE CREDITOR. ATTACH A COPY OF A CERTIFICATE OF REGISTRATION OF CHARGE ISSUED BY THE REGISTRAR OF COMPANIES (IF THE CORPORATE DEBTOR IS A COMPANY)

2. PARTICULARS OF AN ORDER OF A COURT, TRIBUNAL OR ARBITRAL PANEL ADJUDICATING ON THE DEFAULT, IF ANY (ATTACH A COPY OF THE ORDER)

3. RECORD OF DEFAULT WITH THE INFORMATION UTILITY, IF ANY (ATTACH A COPY OF SUCH RECORD)

Company Appeal (AT) Insolvency No. 1126 of 2022 -7-

4. DETAILS OF SUCCESSION CERTIFICATE, OR PROBATE OF A WILL, OR LETTER OF ADMINISTRATION, OR COURT DECREE (AS MAY BE APPLICABLE), UNDER THE INDIAN SUCCESSION ACT, 1925 (10 OF 1925) (ATTACH A COPY)

5. THE LATEST AND COMPLETE COPY OF THE FINANCIAL CONTRACT REFLECTING ALL AMENDMENTS AND WAIVERS TO DATE (ATTACH A COPY)

6. A RECORD OF DEFAULT AS AVAILABLE WITH ANY CREDIT INFORMATION COMPANY (ATTACH A COPY)

7. COPIES OF ENTRIES IN A BANKERS BOOK IN ACCORDANCE WITH THE BANKERS BOOKS EVIDENCE ACT, 1891 (18 OF 1891) (ATTACH A COPY)

8. LIST OF OTHER DOCUMENTS ATTACHED TO THIS APPLICATION IN ORDER TO PROVE THE EXISTENCE OF FINANCIAL DEBT, THE AMOUNT AND DATE OF DEFAULT

I, hereby certify that, to the best of my knowledge, [name of proposed insolvency professional], is fully qualified and permitted to act as an insolvency professional in accordance with the Insolvency and Bankruptcy Code, 2016 and the associated rules and regulations.

[Name of the financial creditor] has paid the requisite fee for this application through [state means of payment] on [date and served a copy of this application by registered post/speed post/ by hand/electronic means to the registered office of the corporate debtor and to the Board.]

Yours sincerely,

Signature of person authorised to act on behalf of the financial creditor

Name in block letters

Position with or in relation to the financial creditor

Address of person signing

Instructions

Please attach the following to this application:

Annex I Copies of all documents referred to in this application.

Company Appeal (AT) Insolvency No. 1126 of 2022 -8-

Annex II Written communication by the proposed interim resolution professional as set out in Form 2. Annex III Proof that the specified application fee has been paid. Annex IV Where the application is made jointly, the particulars specified in this form shall be furnished in respect of all the joint applicants along with a copy of authorisation to the financial creditor to file and act on this application on behalf of all the applicants. [Annex V Proofs of serving a copy of the application (a) to the corporate debtor, and (b) to the Board.]"

9. A bare perusal of Part V indicates that particulars of financial debt,

several documents, records and evidence of default has been referred to which

documents are contemplated to be particulars of financial debt. Rule 4(1),

Application to Adjudicating Authority Rule, 2016 refers to Insolvency and

Bankruptcy Board of India (Insolvency Resolution Process for Corporate

Persons) Regulations, 2016, hence, we need to notice CIRP Regulations.

Regulation 8 deals with claim by Financial Creditor. Rule 8(2) provides:

"8(2) The existence of debt due to the financial creditor may be proved on the basis of -

(a) the records available with an information utility, if any; or

(b) other relevant documents, including -

(i) a financial contract supported by financial statements as evidence of the debt;

(ii) a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor;

(iii) financial statements showing that the debt has not been [paid]; or

Company Appeal (AT) Insolvency No. 1126 of 2022 -9-

(iv) an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any."

10. When we look into Regulation 8 Sub-regulation (2), it is clear that

Regulation do not contemplate existence of all documents. Use of word "or"

in Regulation 8(2)(a) indicate by any of the document referred to in Sub-

regulation (2) existence of debt can be proved.

11. We need to test the submission of learned counsel for the Respondent

that the written financial contract is necessary for proving debt. A financial

contract supported by financial statements as evidence of the debt is one of

the documents contemplated in Regulation 8(2) but that is not exclusive

requirement for proving existence of debt. Financial contract thus can very

well be furnished to prove the financial debt but a plain reading of Regulation

8(2) indicate that it is not mandatory that existence of financial debt has to

be proved by a financial contract. For example: records available with an

information utility can very well be used as proof for existence of financial

debt. Further, financial statements showing that the debt has not been paid

is also one of the clauses in Regulation 8(2) by which existence of debt can be

proved.

12. Learned counsel for the Respondent has relied on judgment of this

Tribunal in "Company Appeal (AT) (Ins.) No. 251 of 2020, Pawan Kumar

vs. Utsav Securities Pvt. Ltd. & Anr." To support his submission that it is

obligatory on part of the Financial Creditor that there should be a Loan

Agreement in writing only. This Tribunal in the above case considered the

issue as to whether a transaction in question is a financial debt. This Tribunal

Company Appeal (AT) Insolvency No. 1126 of 2022 -10-

has referred to RBI Guidelines dated 18.08.2023 which was issued for Non-

Banking Financial Corporation (NBFC). In Para 20 of the judgment following

was stated:

"20. On the other hand, as per the Corporate Debtor in absence of a Financial Contract defined in Rule 3 (1)

(d) the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 between the Corporate Debtor and Financial Creditor, the transaction cannot be termed as Financial Debt. RBI on 18.02.2013 issued guidelines to Non-Banking Finances Companies for fair practices which states that the Non-Baking Finances Company should convey in writing to the borrower in vernacular language as understood by the borrower by means sanctioned letter or otherwise, the amount of loan sanctioned alongwith the terms and conditions including annualised rate of interest. Thus, it is obligatory on the part of the Financial Creditor that there should be a loan agreement in writing only."

13. The above observations made by this Tribunal were in reference to

Non-Banking Financial Corporation which had claimed financial debt in the

above case. The observation in Para 20 that it is obligatory on part of the

Financial Creditor that there should be a Loan Agreement in writing is in

context of a Non-Banking Financial Corporation. Although this Tribunal has

referred to Rule 3(1)(d) of Application to Adjudicating Authority Rules, 2016

but Tribunal has not referred to Regulation 8 of Insolvency and Bankruptcy

Board of India (Insolvency Resolution Process for Corporate Persons)

Regulations, 2016 which are clearly referred to in Rule 4 of Application to

Company Appeal (AT) Insolvency No. 1126 of 2022 -11-

Adjudicating Authority Rules, 2016, as noted above. After referring to Rule

3(1)(d) of the Application to Adjudicating Authority Rules, 2016, following has

been observed in Paras 21 and 22 of the judgment:

"21. We have considered the submissions, the Financial Creditor has not furnished any document to show that the transaction in question is a loan transaction. So far as the section 10 of Indian Contract Act and Rule 3 (1) (d) of the Rules is concerned we again refer the Prayag Polytech (Supra) in which this Tribunal held that:

"7. As regard relying on Section 10 of the Contract Act, 1872, in our view IBC is a complete code in itself. Section 238 of IBC has overriding effect on provisions inconsistent with IBC. The 'Financial contract' is defined in "Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016" Rule 3(1)(d) requires setting out the terms of the financial debt including tenure etc. We find that Appellant has failed to show any record showing financial debt to be there. As such, we are unable to find any fault in the impugned order while rejecting Section 7 application."

22. With the aforesaid, we are of the view that the Financial Contract as per the Rule 3(1) (d) is must between the corporate Debtor and the Financial Creditor for setting out the terms of a Financial Debt including the tenure of the Debt, interest payable and the date of repayment. In the absence of such Financial Contract, the Financial Creditor has failed to satisfy that when the debt and interest become due and payable."

Company Appeal (AT) Insolvency No. 1126 of 2022 -12-

14. After making aforesaid observations, this Tribunal in Para 33 has laid

down following in Para 33:

"33. With the aforesaid discussion, we are of the considered view that Ld. Adjudicating Authority has erroneously admitted the Application under Section 7 of the IBC, whereas, the Financial Creditor has failed to establish that the transaction in question is a Financial Debt and due and payable and the Corporate Debtor has committed default. Thus, we have no other option but to set aside the impugned order."

15. This Tribunal has held in Para 33 that the Financial Creditor has failed

to establish that the transaction in question is a Financial Debt and due and

payable and the Corporate Debtor has committed default. The judgment

cannot be relied as laying down any preposition that unless there is Financial

Contract to establish financial debt, Financial Creditor cannot prove the

financial debt by any other document. The above judgment of this Tribunal

has also referred to another judgment of this Tribunal in "Prayag Polytech".

16. "Prayag Polytech Pvt. Ltd. vs. Gem Batteries Pvt. Ltd., Company

Appeal (AT) (Ins.) No. 713 of 2019" decided on 24.09.2019 was a case where

Financial Creditor was relying on the TDS deducted on the interest to prove

the Financial Debt. It was held that merely pointing on the TDS deducted

would not be sufficient to conclude that there was financial debt. In Para 5,

6 and 7 following was held:

"5. Learned Counsel for the Appellant further submits that "financial contract" as defined in the Insolvency and Bankruptcy (Application to Adjudicating Authority)

Company Appeal (AT) Insolvency No. 1126 of 2022 -13-

Rules, 2016 does not debar oral contract and financial contract can be oral in terms of Section 10 of the Contract Act. According to him Section 7 application under IBC should not have been rejected.

6. We have gone through the records and the impugned order. Merely pointing out that TDS was deducted would not be sufficient to conclude that there was financial debt. TDS can be deducted for various reasons.

7. As regard relying on Section 10 of the Contract Act, 1872, in our view IBC is a complete code in itself. Section 238 of IBC has overriding effect on provisions inconsistent with IBC. The 'Financial contract' is defined in "Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016" Rule 3(1)(d) requires setting out the terms of the financial debt including tenure etc. We find that Appellant has failed to show any record showing financial debt to be there. As such, we are unable to find any fault in the impugned order while rejecting Section 7 application."

17. What was held in Para 7 that Appellant has failed to show any record

showing financial debt to be there. Thus, above judgment also does not lay

down that unless there is written contract, the Financial Creditor is precluded

to prove financial debt by any other relevant material.

18. The next judgment relied by learned counsel for the Respondent is in

"Prayag Polytech Private Limited vs. Bon Lon Petrochem LLP, Compnay

Appeal (AT) (Ins.) No. 705 of 2019" was the case where this Tribunal held

that default could not be established. The Appellant in that case disbursed

Company Appeal (AT) Insolvency No. 1126 of 2022 -14-

amount on the basis of alleged oral agreement. It was held by this Tribunal

that default cannot be established on oral pleading of evidence. The above

judgment cannot be relied as it does not lay down any preposition that written

financial contract is mandatory and is the only document by which a

Financial Creditor can prove the financial debt.

19. Another judgment which has been relied by learned counsel for the

Respondent is "Company Appeal (AT) (CH) (Ins.) No. 108 of 2023, M/s IFCI

Ltd. vs. Sutanu Sinha & Anr.". In the above case, this Tribunal has looked

into the Balance Sheets to find out as to whether any such entry can be

construed as financial debt as defined in the Code. Para 32 of the judgment

is as follows:

"32. It is evidenced from the material on record that as per terms of the CLA between the Lenders Consortium, assigned to ACRE and the Corporate Debtor, the Corporate Debtor was prohibited from taking any further debt without the consent of the assignee. The Record does not show anywhere that any such approval was sought by the Corporate Debtor from the Lenders Consortium. At the time of disbursal of the amount, it was to be treated as Equity alone and not as 'Debt'. Even if these amounts were reflected in the financial statements of the Corporate Debtor as 'Other Financial Liability', it would depend on the facts of each case as to whether such an entry in the balance sheet construes a 'Financial Debt' as defined under the Code. In the instant case, the terms of the DSA, CLA and the 'Share Agreement' have to be read together with the fact that it was the Sponsor Company which was liable to pay the interest component and not the

Company Appeal (AT) Insolvency No. 1126 of 2022 -15-

Corporate Debtor. The Hon'ble Supreme Court in a catena of Judgments has categorically held that 'IBC Code, 2016' is a time bound process and any delay in challenging the rejection of the claims cannot be condoned as a matter of routine. In the instant case, the claim of the Appellant was rejected on 09/08/2022 where as the challenge to the Rejection was filed only on 30/11/2022 after a period of four months after the rejection of the claim. Today, the Resolution Plan has already been approved by the CoC by 100% majority voting share."

20. The above judgment also thus indicate that Balance Sheets can also

be looked into to find out existence of financial debt. Learned counsel for the

Appellant has relied on judgment of this Tribunal in "Satish Balan VS Mrs.

Neeta Navin Nagda & Anr., Company Appeal (AT) (Ins.) No. 718 of 2023"

decided on 04.07.2023, where in Para 14 and 15 following has been laid down:

"14. This 'Appellate Tribunal' observe that the Code nowhere prescribes that there should be a written agreement between the parties to prove the loan and its disbursement to be treated as financial debts. It is also observed that if there are acknowledgments by the 'Corporate Debtor' and where the statements of accounts of the 'Corporate Debtor' are in position to proof disbursement of loan and payment of interest, the absence of formal written agreement would not bar the 'Financial Creditor' (the Respondent No. 1 herein) from initiating the CIRP.

15. We take note from the record made available that there have been clear acknowledgments which have been issued by the 'Corporate Debtor' for the money

Company Appeal (AT) Insolvency No. 1126 of 2022 -16-

received from the Respondent No. 1 which also mentioned the quantum of interest payment to be made by the 'Corporate Debtor' to the Respondent No. 1. Similarly, we also take into account the fact that TDS was deducted regarding interest paid and the name of the Appellant as 'dedutor' and the name of the Respondent No. 1 as 'deductee' is clearly evident. This does not give any scope for benefits of the 'Appellant'."

21. When we look into the statutory scheme as reflected in the Application

to Adjudicating Authority Rules, 2016 and CIRP Regulations, 2016, it is clear

that financial debt can be proved from other relevant documents and it is not

mandatory that written financial contract can be only basis for proving the

financial debt. We, thus, answer Issue No.1 holding that it is not necessary

that written financial contract be the only material to prove the financial debt.

22. The second question is as to whether Appellant by filing relevant

materials was unable to prove that there was any financial debt which was

extended to the Corporate Debtor.

23. It is relevant to note that in the present case disbursement of Rs.75

Lakhs by RTGS is proved by the bank record and not ever disputed by the

Corporate Debtor. We may now look into the relevant Balance Sheets which

have been relied by learned counsel for the Appellant to prove his submission.

The Appellant has referred to and relied on Balance Sheet of the Corporate

Debtor as on 31.03.2018 (FY 2017-18). Under the heading 'Note-III' Long

Term Borrowing of amount of Rs.79,70,250 has been mentioned against

Agarwal Polysacks Limited unsecured. Under the heading 'Term of Repayment

of Loan', it is mentioned that against M/s Agarwal Polysacks Limited

Company Appeal (AT) Insolvency No. 1126 of 2022 -17-

"repayment on demand". Balance Sheet for FY 2017-18 of Corporate Debtor

is as follows:

"KK AGRO FOODS & STORAGE PRIVATE LIMITED (F.Y. 2017-2018) 2244, Gali Raghunandan, Naya Bazar, Delhi-110006 CIN : U51909DL2012PTC234782, Ph. No: 9811441758 Email : aniltradingco1@gmail.com

Note No.3 Long-term borrowings In rupees As at 31st Match 2018 As at 31st March 2017 Particulars Non- Current Total Non-Current Current Total Current Maturitie Maturities s Term Loan-

From banks Secured Loan 2,72,26,254.0 35,32,178. 3,07,58,432.

from HDFC 0 00 00 Bank 2,72,26,254. 35,32,178 3,07,58,432 00 .00 .00 Term Loan- From Others Reception 2,00,00,000.0 2,00,00,000. 0 00 Tracom Pvt. Ltd. Unsecured Gin Raj Estate Pvt. Ltd. 2,00,00,000.0 2,00,00,000. unsecured 0 00 Agarwal Polysacks Ltd. 79,70,250.00 79,70,250.00 unsecured 2,79,70,250. 2,79,70,250 2,00,00,000. 2,00,00,000 00 .00 00 .00 Loans and advances from related parties Om Prakash Kasal 22,21,166.00 22,21,166.00 18,40,849.00 18,40,849.00 unsecured Kisan Lal 30,12,379.00 30,12,379.00 16,91,667.00 16,91,667.00 Kamani unsecured 52,33,545.0 52,33,545.0 35,32,516.00 35,32,516.0 0 0 0

The Above Amount includes

Secured 2,72,26,254.0 35,32,178. 3,07,58,432.

Borrowings 0 00 00 Unsecured 3,32,03,795.0 3,32,03,795. 2,35,32,516.0 2,35,32,516.

Borrowings 0 00 0 00 Amount Disclosed Under the Head "Other Current Liabilities" (35,32,178. (35,32,178.0 0 0 (Note No.5) 00) 0) Net Amount 6,04,30,049. 6,04,30,049 2,35,32,516. 0 2,35,32,516 00 0 .00 00 .00

Company Appeal (AT) Insolvency No. 1126 of 2022 -18-

a. Term of Repayment of Loan

i. During the year HDFC BANK LTD. granted loan of Rs.3.30 Cr. Repayable in 60 instalments per month, Particulars of the property or asset(s) charged (including complete address and location of the property) 1) Hypothecation on Plant and Machinery 2) Industrial unit admeasuring 12140.47 Sq. Mts. (24 Kanal i.e. 3 acres). Comprised in Khewat No.30, Khata No.42, Mustail No.22, Killa No.23 (8-

0), Mustail No.25 Killa No. 3(8-0), Situated at village- Liwaspur, Sonipat, Haryana.

ii. M/s. Reception Tracom Private Limited: Term of Repayment on Demand iii. M/s. Giri Raj Estate Private Limited, Repayment on Demand iv. M/s. Agarwal Polysacks Limited; Repayment on Demand v. Mr. Om Prakash Kasat, Repayment on Demand as Director of the Company vi. Mr. Kisan Lal Karnahi, Repayment on Demand"

24. Balance Sheet of FY 2018-19 of the Corporate Debtor has also been

brought on record, where under the heading Long Term Borrowing against

M/s Agarwal Polysacks Limited Rs.88,42,993 has been mentioned and

previous year balance was Rs.79,70,250. Balance Sheet of FY 2018-19 is as

follows:

"KK AGRO FOODS & STORAGE PRIVATE LIMITED (F.Y. 2018-2019) 2244, Gali Raghunandan, Naya Bazar, Delhi-110006 CIN : U51909DL2012PTC234782, Ph. No: 9811441758 Email : aniltradingco1@gmail.com

Note No.3 Long-term borrowings In rupees As at 31st Match 2019 As at 31st March 2018 Particulars Non- Current Total Non- Current Total Current Maturities Current Maturities Term Loan-

From banks Secured Loan 1,88,22,041. 62,40,296.00 2,50,62,337. 2,72,26,254. 35,32,178.0 3,07,58,432.0 00 00 00 0 0 from HDFC Bank

1,88,22,041 62,40,296.0 2,50,62,337 2,72,26,254 35,32,178. 3,07,58,432.

.00 0 .00 .00 00 00 Term Loan-

From Others Giri Raj 25,00,000.0 25,00,000.00 2,00,00,000. 2,00,00,000.0 Estate Pvt.

0 00 0 Ltd.

Unsecured

Agarwal Polysacks 88,42,993.0 88,42,993.00 79,70,250.00 79,70,250.00 Ltd. 0 unsecured 1,13,42,993 1,13,42,993 2,79,70,250 2,79,70,250.

.00 .00 .00 00 Company Appeal (AT) Insolvency No. 1126 of 2022 -19-

Loans and advances from related parties Om Prakash Kasat 33,94,640.0 33,94,640.00 22,21,166.00 22,21,166.00 unsecured 0

Kisan Lal Kamani 33,78,154.0 33,78,154.00 30,12,379.00 30,12,379.00 unsecured 0 67,72,794.0 67,72,794.0 52,33,545.0 52,33,545.0 0 0 0 0 The above Amount Includes Secured 1,88,22,041. 62,40,296.00 2,50,62,337. 2,72,26,254. 35,32,178.0 3,07,58,432.0 Borrowings 00 00 00 0 0

Unsecured 1,81,15,787. 1,81,15,787. 3,32,03,795. 3,32,03,795.0 Borrowings 00 00 00 0

Amount (62,40,296.0 (62,40,296.0 (35,32,178.0 Disclosed 0) 0) 0) Under the Head "Other Current Liabilities"

(Note No.5) Net Amount 3,69,37,828 0 3,69,37,828 6,04,30,049 6,04,30,049. .00 .00 .00 00

a. Term of Repayment of Loan i. During the year HDFC BANK LTD. granted loan of Rs.3.30 Cr. Repayable in 60 instalments per month, Particulars of the property or asset(s) charged (including complete address and location of the property) 1) Hypothecation on Plant and Machinery 2) Industrial unit admeasuring 12140.47 Sq. Mts. (24 Kanal i.e. 3 acres). Comprised in Khewat No.30, Khata No.42, Mustail No.22, Killa No.23 (8-

0), Mustail No.25 Killa No. 3(8-0), Situated at village- Liwaspur, Sonipat, Haryana.

ii. M/s. Reception Tracom Private Limited: Term of Repayment on Demand iii. M/s. Giri Raj Estate Private Limited, Repayment on Demand iv. M/s. Agarwal Polysacks Limited; Repayment on Demand v. Mr. Om Prakash Kasat, Repayment on Demand as Director of the Company vi. Mr. Kisan Lal Karnahi, Repayment on Demand, as Director of the Company."

25. From the aforesaid Balance Sheet following can be deciphered:

(i) The Corporate Debtor has referred to amount received from the

Appellant as 'Long Terms Borrowing'.

Company Appeal (AT) Insolvency No. 1126 of 2022 -20-

(ii) M/s Agarwal Polysacks Ltd. is mentioned as 'unsecured' under

the heading 'Term Loan'

(iii) Term of payment of loan indicates that loan of M/s Agarwal

Polysacks Ltd. is 'repayable on demand'.

26. The above clearly prove that there was tenure of the loan i.e.

repayment on demand. Further, loan was unsecured loan and thereby the

loan was coupled with interest component since in the Balance Sheet of FY

2017-18 amount mentioned was Rs.79,70,250 which was increased to

Rs.88,42,993 in the FY 2018-19, which is on account of interest component.

27. Learned counsel for the Respondent referring to the reply filed in this

case submitted that in the Balance Sheet of Appellant the borrowing is not

shown as Long Term Borrowing with regard to the aforesaid amount.

Respondent has brought on record the Balance Sheet of FY 2017-18 of the

Appellant alongwith Annexures to Director's Report, Schedule '10', which is

to the following effect:

"AGARWAL POLYSACKS LIMITED E-649, M.I.A. II ND PHASE, BASNI, JODHPUR

SCHEDULE '10'

S. SHORT TERM LOANS & ADVANCES As at 31st As at 31st No. March 2018 March 2017 Rs. Rs.

SECURITY DEPOSITS 1 Security Deposit- JVVN Limited for Unit I 176151 484732 2 Security Deposit- JVVN Limited for Unit II 489158 974879 3 Security with Cattle Feed 5000 5000 4 Sales Tax Security 2000 2000 5 Security with Andhra Dairy 25000 25000 6 Security with Jalgaon Jhila Sahkari 25000 25000 Sangh Ltd.

7 Security- RCDF Ltd. 632000 246000 8 Security- Karnataka Milk Federation Ltd. 420239 395239 9 Security with SDCMPU Ltd., Salem 10000 10000

Company Appeal (AT) Insolvency No. 1126 of 2022 -21-

10 Security with GCMMF Ltd. 341000 341000 11 Security with Punjab State Co-op. Milk 210000 0 Producers 12 Security with Gangol SDUS Ltd., 25000 25000 Pratappur 13 Security with Deshratna Dr. Rajendra 0 50000 Prasad DCMPU Ltd.

14 Security- Krishna DCMPU Ltd. 16500 16500 TOTAL A 2377048 2600350 ADVANCE RECOVERABLE IN CASH OR IN KIND 1 Tata Capital Ltd. - TDS 0 434 2 Indiabulls Housing Finance Ltd.- TDS 81078 71616 3 Staragri Finance Ltd.- TDS 0 342215 4 Prem Kishore Agarwal & Sons HUF 0 397189 5 Sai Krupa Gravure 106965 0 6 Pre paid expenses 1149720 893100 7 Advance for Land & Property -762500 23513500 8 Karuna Distributors (P) Ltd. 22200000 0 9 K.K. Agro Foods (P) Ltd. 7970250 0 10 Samdari Strips (P) Ltd. 3000000 0 11 S.J. Datamatics (P) Ltd. 5000000 0 TOTAL B 38745513 25218054

28. When we look into the above financial statement, it is clear that

amount of Rs.79,70,250 is mentioned against the Corporate Debtor - K. K.

Agro Foods (P) Ltd. under the heading "Advance Recoverable in Cash or in

Kind". Thus, the factum of amount of Rs.79,70,250 due on the Corporate

Debtor is corroborated by Balance Sheet of Appellant also. The mere fact that

it is under the heading Short Term Loans and Advances does not have any

adverse consequence. We already noticed that term of loan as reflected in the

Balance Sheet of the Corporate Debtor is 'on demand'. Thus, the Balance

Sheet of the Corporate Debtor also corroborate the amount due on the

Corporate Debtor.

29. Learned counsel for the Appellant has also relied on Form 26AS, where

TDS on payment of interest has been deducted of Rs.52,250 in the FY 2017-

18. Payment of interest has been shown from Corporate Debtor in Form

26AS. This Tribunal in "Prayag Polytech Pvt. Ltd. vs. Gem Batteries Pvt.

Company Appeal (AT) Insolvency No. 1126 of 2022 -22-

Ltd., Company Appeal (AT) (Ins.) No. 713 of 2019" has held that merely

pointing out that TDS was deducted would not be sufficient to conclude that

there was financial debt. There can be no quarrel to the above preposition

but when the said document i.e. Form 26AS entries corroborates to the claim

of the financial debt, the document is a piece of evidence which can be looked

into. Thus, Form 26AS corroborates to the entries in the Balance Sheet to

prove that it is a financial debt.

30. In view of the above foregoing discussion and conclusions, we are of

the considered opinion that the Adjudicating Authority committed error in

dismissing Section 7 application holding that the Appellant failed to show the

nature of transaction and the amount shown is covered under the definition

of 'financial debt'. The findings recorded by the Adjudicating Authority are

not in accordance with the relevant documents brought on the record by the

Financial Creditor. The Adjudicating Authority has returned a finding in Para

5 that Financial Creditor disbursed a total amount of Rs.75,00,000/- to the

Corporate Debtor at the interest rate of 12% per annum. In Para 5 of the

judgment following has been observed by the Adjudicating Authority:

"5. In the case at hand, we have perused the Bank Statements for the period of 01.07.2017 to 29.09.2017 submitted by the Financial Creditor, we find that the Financial Creditor disbursed a total amount of Rs.75,00,000/- to the Corporate Debtor at the interest rate of 12% per annum and the said amount was credited in the account of the Corporate Debtor through RTGS and in support of that the Financial Creditor placed reliance upon Annexure-7 of the paper book which is the Bank Account Statement of the Financial

Company Appeal (AT) Insolvency No. 1126 of 2022 -23-

Creditor. However, the same is not stamped or certified as per Regulation 2A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016."

31. The Adjudicating Authority, however, took a view that there should be

financial contract between the parties which elucidate the rate of interest and

date of repayment. The Adjudicating Authority took a view that there is no

written agreement to establish the nature of transaction between the parties,

hence, Appellant failed to prove the debt. We have already held that

requirement of written financial contract is not a pre-condition for proving

debt. When Adjudicating Authority itself given finding in Para 5-6 the

disbursement was with interest and repayment was on demand, two essential

conditions of financial debt were present with regard to time value of money.

When the financial statement indicate amount with interest since the loan of

Rs.75,00,000 increased in the FY 2017-18 and amount due was shown as

Rs.79,70,250, which clearly was after adding the interest, disbursement has

to be held for time value of money. We, thus, are satisfied that all pre-

conditions for establishing financial debt are proved by the Financial Creditor

and the order of the Adjudicating Authority rejecting Section 7 application is

not sustainable.

32. Learned counsel for the Respondent has also referred to requirement

of special resolution for the purpose of Section 186 of the Companies Act,

2013. Learned counsel for the Appellant has made two submissions. Firstly,

it is submitted that a resolution was passed by the Board of Directors as well

as the loan granted was well within the limit of the Financial Creditor.

We may also notice that the Adjudicating Authority on 10.02.2020 has

Company Appeal (AT) Insolvency No. 1126 of 2022 -24-

passed an order directing the Corporate Debtor to file the documents based

on which it has deducted the TDS. The Corporate Debtor did not comply with

the order, which was noticed in the subsequent order dated 28.02.2020. The

Appellant has brought the copy of Board Resolution dated 10.07.2007. We,

thus, are of the view that there is no non-compliance of Section 186(3) of the

Companies Act, 2013.

33. In view of the foregoing discussion and our conclusions, we hold order

of the Adjudicating Authority rejecting Section 7 application is unsustainable

and deserve to be set aside. In result, we allow the Appeal. Set aside order

dated 29.07.2022 and direct the Adjudicating Authority to pass an order

admitting Section 7 application within the period of 30 days from the date

copy of this order is produced. Appeal is allowed accordingly.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical) NEW DELHI

11th September, 2023

Archana

Company Appeal (AT) Insolvency No. 1126 of 2022