Carnoustie Management India Pvt Ltd vs Cbs International Projects Pvt Ltd

[ arising out of Order dated 2nd January, 2019 by NCLT, Principal Bench, New Delhi in CP No. (IB) - 792/PB/2018 ]

IN THE MATTER OF:

M/s. Carnoustie Management India Pvt. Ltd. 19-A, 8th Floor, Film City, Section 16A, Noida, Gautam Budh Nagar, Uttar Pradesh - 201 301 ...Appellant

Versus

CBS International Projects Pvt. Ltd. S-2, Manish Chamber, LSC Plot No. 6, Mayur Vihar, New Delhi - 110 091 ...Respondent

Present: For Appellant : Mr. Amit Sibal, Senior Advocate with Mr. Rudreshwar Singh, Mr. Gautam Singh, Ms. Radhika Malik and Mr. Rahul Singh, Advocates

For Respondent : Mr. Arun Kathpalia, Senior Advocate with Mr. Ashish Aggarwal and Mr. Gurcharan Singh, Advocates

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

The Appellant - 'M/s. Carnoustie Management India Pvt. Ltd.' moved

an application under Section 7 of the 'Insolvency and Bankruptcy Code, 2016 2

('I&B Code', for short) against the 'CBS International Projects Pvt. Ltd.

(Corporate Debtor). The Adjudicating Authority (National Company Law

Tribunal), Principal Bench, New Delhi by impugned order dated 2nd January,

2019 held that mere grant of loan ipso facto do not treat the Appellant as

'Financial Creditor' within the meaning of Section 5(7) of the 'I&B Code'. The

loan granted was not disbursed against consideration for time value of money

and thereby does not come within the meaning of Section 5(8) 'Financial Debt'.

2. The case of the Appellant is that the Respondent - 'CBS International

Projects Pvt. Ltd.' was incorporated on 29th March, 2007 and was a subsidiary

of the Appellant. It was on a special purpose vehicle of the Appellant for

undertaking large real estate project in India. The Respondent was granted

the facility of Loan Agreement dated 11th May, 2007 by the Appellant and

agreed to give financial assistance up to Rs. 40 Crores towards the Application

money and instalment payments, etc. to be paid for allotments of plots at

NOIDA.

3. Clause 5(a) of the Loan Agreement provided interest @ of 12% per

annum. It also provides for penal interest at the rate of 24% per annum.

However, there was a Moratorium for payment of interest which ends upon

the happening of amongst other events, the Respondent ceased to be the

subsidiary of the Appellant.

4. The Respondent submitted its application on 6th August, 2007 for

allotment of plot at NOIDA. As such the Respondent got the benefit of the

application for allotment because of the Appellant's financial assistance.

Company Appeal (AT) (Insolvency) No. 154 of 2019 3

5. Further, the Respondent, which was a subsidiary of the Appellant,

ceased to remain so since 13th August, 2015. By way of the Share Purchase

Agreement (SPA) dated 13th August, 2015, Mr. Sanjay Rastogi along with his

family members purchased 100% shares of the Respondent from the

Appellant.

6. The Loan amount was disbursed by the Appellant to the Respondent on

various dates starting from 6th August, 2007 till 13th August, 2015. Further,

loan was disbursed on 1st July, 2016 and 21st July, 2016. The loan amount

was to be repaid on demand of the Appellant in terms of Clause 5 (b) and 5(d)

of the loan agreement which was so made on 28th March, 2018. However, it

was denied by the Respondent by letter dated 13th April, 2018.

7. Learned counsel for the Appellant submitted that in terms of Clause 6.3

of the SPA given by Mr. Sanjay Rastogi is bound by the loan documentation

entered into by the company and outstanding loan amount as on 13th August,

2015 is Rs.49,03,54,672/- of which around Rs. 34 Crores is due to the

Appellant as per Clause 5(b)(ii) of the 'Loan Agreement', the Appellant is

entitled to interest from 1st April, 2016.

8. It was submitted that the loan amount has been admitted by the

Respondent in its balance-sheets for the financial years 2008 to 2016.

However, in the balance sheet for the financial year 2016-17, the loan is

maliciously shifted under the heading 'trade payables-sundry creditors' to use

it as a self-serving shield in any litigation.

Company Appeal (AT) (Insolvency) No. 154 of 2019 4

9. It is also submitted that pursuant to the notice dated 30th August, 2016

under Section 13(4) of the SARFAESI Act to the Registrar of Companies, the

Respondent admitted its liability to the extent of Rs.34,31,87,965 owed to the

Appellant. Learned counsel for the Appellant referred to Section 5(7) of the

'I&B Code' and submitted that the loan given to the Respondent was not

interest free. It was so disbursed for purchase of land for construction of

building thereon i.e. for the business of the Respondent. The interest was

become payable from 1st April, 2016 as the Respondent was no longer a

subsidiary of the Appellant with effect from 13th August, 2015.

10. Learned counsel for the Respondent submitted that the alleged debt

was not covered under Section 5(8) of the 'I&B Code'. On the face of the

record, it was not disbursed against interest or consideration for time value

of money. Mere grant of loan and admission of taking loan will not ipso facto

treat the Appellant as a 'Financial Creditor' within the meaning of Section 5(7)

of the 'I&B Code'.

11. It was submitted that even as per the audited balance-sheets of the

Appellant Company, there was no interest for the year ending 31st March,

2009 and 31st March, 2010. Even after that, the Respondent ceased to be a

subsidiary of the Appellant since 2015, no interest has been provided in the

books of accounts/financial statements of the Respondent. Reliance has been

placed on Clause 5(b)(ii) of the alleged 'Loan Agreement' by the Appellant is

baseless, which allegedly specified that the interest will be levied upon the

Respondent.

Company Appeal (AT) (Insolvency) No. 154 of 2019 5

12. According to the Respondent, in the years 31st March, 2016 and 31st

March, 2017, the record of the Respondent shows that it had not specifically

mentioned loan amount or interest payable thereon.

13. It was further contended that there was no liability on the part of the

Respondent to pay the alleged loan amount to the Appellant. As per Clause

2.1 of the 'Share Purchase Agreement' (SPA), the consideration of Rs.6.60

Lakhs was arrived at after taking into account the share of liabilities to be

borne by the Appellant. So, admittedly certain liabilities will be borne by the

Appellant Company.

14. It was also contended that the Respondent was in heavy losses for more

than Rs. 40 Crores approximately due to delay in execution of the project

between 2007 - 2015 by the Respondent, which resulted into consequential

heavy interest and penalty by NOIDA Authority. The said losses were

accumulated in the form of fictitious closing stock on the assets side. The

acquirer agreed to purchase the shares on the condition that the loan liability

was not to be borne by the Respondent. On the contrary, the same was to be

adjusted in future in a tax efficient manner.

15. The aforesaid fact is further corroborated from Clause 6 of the SPA,

wherein under the obligations of the acquirer, it has been specified that the

acquirer shall be responsible for the advances of Rs. 20 Crores approximately

received from the customers and Rs. 48 Crores approximately payable to the

NOIDA Authority. It is admitted position that as on the date of SPA the

liability of NOIDA Authority was deliberately understated by Rs. 22 Crores

approximately, which in fact the Appellant was liable to pay to the

Company Appeal (AT) (Insolvency) No. 154 of 2019 6

Respondent. In the said Clause 6 of the SPA or any other clause of the SPA,

there was no covenant for the acquirers to pay the alleged loan amount of Rs.

33 Crores. It is submitted that the Loan Agreement, alleged to be dated 11th

May, 2007, is false and fabricated document and there was no original Loan

Agreement and in fact criminal proceedings are pending against the Appellant

and as such the Appellant is deliberately not producing the forged document.

Further, according to the Respondent, no Board Resolution passed either by

the Appellant or the Respondent for entering into the alleged 'Loan

Agreement'.

16. From the record of the Balance-sheet of the Respondent company for

the year ending 2012-2013 were signed by Mr. Rajesh Malik and Mr. Randeep

Waraich, Directors of the Appellant. It is duly acknowledged in the said

Balance-sheet that there is no term of repayment were stipulated. This is the

reason that the Respondent alleged that the forged Loan Agreement was made

in which there is a specific clause of repayment.

17. The legal notice dated 28th March, 2018 was issued by the Appellant

and therein they have not referred to the 'Loan Agreement' dated 11th May,

2007. In the reply dated 14th April, 2018, the Respondent specifically

mentioned that "it is also denied that amongst the documents handed over to

my client there was any loan agreement between your client and my client".

18. In the rejoinder notice dated 2nd May, 2018, despite specific objection

by the Respondent, no alleged loan agreement was referred to by the

Appellant. The Appellant claimed interest @ 24% per annum totally contrary

to 12% alleged to be contained in the Loan Agreement.

Company Appeal (AT) (Insolvency) No. 154 of 2019 7

19. The Adjudicating Authority (National Company Law Tribunal), Principal

Bench, New Delhi noticed the aforesaid fact and observed :

"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."

20. The Respondent placed reports of two experts dated 29th July, 2018 and

4th August, 2018 before the Adjudicating Authority in support of the

contention that the alleged Loan Agreement dated 11th May, 2007 is a forged

one. The Appellant failed to explain as to why the 'Expert's opinion' is to be

ignored.

21. Before the Adjudicating Authority, the Respondent has placed on record

the 'Annual Returns' of the company for the year ending 31st March, 2008 to

show that the company was incorporated on 29th March, 2007 and that as on

11th May, 2007 i.e. the date of the Loan Agreement, the Appellant was not a

shareholder of the Respondent company and the Respondent was not a

subsidiary of the Appellant.

Company Appeal (AT) (Insolvency) No. 154 of 2019 8

22. It is not in dispute that the Respondent was a subsidiary of the

Appellant and the Respondent ceased to be wholly owned subsidiary after

purchase of the share from third party.

23. In view of the aforesaid fact and in absence of any genuine document,

on the strength of ex-agreement of which original copy was not produced

before the Adjudicating Authority, it is not desirable to hold that the Appellant

is a 'Financial Creditor' of the Respondent Company. We may mention that

we have not gone into the question of limitation to decide whether the

application under Section 7 of the 'I&B Code' was maintainable as the

Respondent having ceased to be subsidiary of the Appellant since 31st August,

2015, which will be the date of default, as the aforesaid issue was not raised

before the Adjudicating Authority.

The Appeal is accordingly dismissed. No order as to costs.

[Justice S.J. Mukhopadhaya] Chairperson

[ Justice A.I.S. Cheema ] Member (Judicial)

[ Kanthi Narahari ] Member (Technical)

New Delhi

5th February, 2020

/ns/

Company Appeal (AT) (Insolvency) No. 154 of 2019