Desana Impex Ltd vs Brick & Mortar Realty Private Limited

Through its Authorized Representative Shri Shanti Kumar Dharewa ...Appellant

Versus

Brick and Mortar Realty Private Limited Registered Office at: 53, Justice Chandra Madhav Road Kolkata, West Bengal - 700020 Email: bricknmortar@supreme.in CIN: U70101WB2007PTC117693 ...Respondent

Present: For Appellant : Mr. Vaibhav Mahajan and Ms. Harshita Aggarwal, Advocates

For Respondent : None

JUDGMENT

(Hybrid Mode)

[Per: Arun Baroka, Member (Technical)]

The present Appeal is filed by the Appellant herein namely Desana

Impex Limited under Section 61 of the Insolvency and Bankruptcy Code,

2016 (IBC), against the Order dated 21.11.2023 by which the National

Company Law Tribunal (Adjudicating Authority), Kolkata Bench, in Company Petition (IB) No. 342/KB/2022 dismissed the Application under Section 7 of

the Code.

2. The Appellant is a Non-banking Financial Corporation (NBFC)

registered under the Companies Act, 2013, and is registered with the Reserve

Bank of India in accordance with Section 45-IA of the RBI Act, 1934, and is

recognised as a non-deposit vide certificate dated 20.04.1998. The

Respondent Company, namely Brick and Mortar Realty Private Limited, is a

real estate company.

3. It is contended by the Appellant that the Respondent approached the

Appellant for seeking a loan of ₹1,50,00,000/- (rupees one crores and fifty

lakhs only) to meet its business expansion and working capital requirement

in its usual course of business. This loan was mutually agreed in the form of

an Inter Corporate Loan. It was agreed to be disbursed by the Appellant as

and when required / demanded by the Respondent at an agreed upon rate

of interest of 12% per annum. It was also mutually decided by the parties

that the Inter Corporate Loan would become due and payable on demand

and, thus, the Respondent will be liable to refund the same.

4. The loan was disbursed in five instalments as per details given below:

Sl. Date of Amount disbursed with (Rs.) No. Disbursement

1. 24.05.2013 10,00,000 2. 24.05.2013 10,00,000 3. 28.06.2014 95,00,000 4. 29.07.2015 10,00,000 5. 05.09.2015 25,00,000 Total 1,50,00,000

Company Appeal (AT) (Insolvency) No. 318 of 2024 2 of 16

5. Appellant also contends that the Respondent, vide a letter dated

01.04.2015, issued a Confirmation of Accounts to the Appellant for the FY

2014-15; thus, admitting its financial debt to the Appellant. In this

confirmation of accounts there is a specific entry with respect to interest on

the unsecured loan @ 12% per annum. In the light of the same and admitting

the interest @ 12% per annum, the Respondent issued a cheque bearing

number 076733 dated 31.03.2015 towards a payment of the said interest

which is duly reflected in the Appellant's account statement on 27.06.2015.

It is also contended by the Appellant that the Respondent once again issued

a confirmation of accounts for the year 2016-17 thereby admitting its liability

towards payment. The Respondent also paid an interest amount of

₹14,69,688/- (rupees fourteen lakhs, sixty-nine thousand, six hundred and

eighty-eight only) on secured loan @ 12% per annum. This is on record

wherein confirmation of accounts is done by one Mr Dilip Mohanty.

6. There are emails issued by the designated financial accountant, Mr

Dilip Mohanty, who is the authorised accountant of the associate companies

falling within the group of companies namely Supreme and Company Private

Limited, of which the Respondent is a part, and vide email dated 16.10.2017

informed the Appellant of the Respondent's ledger account for the FY 2016-

17, along with request to the Appellant to share its ledger account for their

records and reference (page 51 of the appeal paper book).It is also contended

by the Appellant that Mr Dilip Mohanty had time and again issued various

confirmation of accounts to the Appellant for the FY 2017-18, 2018-19 and

Company Appeal (AT) (Insolvency) No. 318 of 2024 3 of 16 2020-21 respectively, admitting its financial liability towards the Appellant

(pages 54 to 64 of the appeal paper book).

7. Furthermore, the Respondent has duly deposited the TDS amount on

the interest amount calculated @ 12% per annum starting from the FY 2014-

15 till FY 2020-21 under Section 194A of the Income Tax Act, 1961, which

is reflected in Form 26AS submitted by the Appellant (pages 65 to 73 of

appeal paper book). However, after since 01.04.2017, the Respondent has

failed to pay the accruing interest amount.

8. The Respondent has failed to pay the interest amount agreed upon the

@ 12% per annum, despite various reminders verbally and also through other

modes of communication. One such communication through WhatsApp is in

the record (pages 74 to 78 of appeal paper book).

9. A demand notice was issued on 12.03.2022 by the Appellant to repay

the entire loan amount along with interest @ 12% per annum totaling

₹2,31,44,999/- (rupees two crores, thirty-one lakhs, forty-four thousand,

nine hundred and ninety-nine only), which includes Rs 1.5 crores as the

principal amount and ₹81,44,999/- (rupees eighty-one lakhs, forty-four

thousand, nine hundred and ninety-nine only) as the interest amount, within

15 days from the date of its receipt (page 79 of appeal paper book).

10. The Respondent failed to reply to the demand notice. Thereafter, a

reminder was issued on 04.05.2022, which was also unanswered. Thereafter,

Company Appeal (AT) (Insolvency) No. 318 of 2024 4 of 16 a legal notice was issued by the Appellant on 26.05.2022, which was also

unanswered.

11. Thereafter, the Appellant, being a Financial Creditor, filed an

Application under Section 7 of the Code before the NCLT, Kolkata Bench. The

Adjudicating Authority dismissed the Application on the following grounds:

"a) The Appellant Financial Creditor being an NBFC is bound by the Master Circular on Fair Practices Code dated 01.07.2015 and that in light of the Ld. Adjudicating Authority's own decision in Narendra Promoters & Fincon Pvt. Ltd. V. Vinline Engineering Pvt Ltd. Bearing CP (IB) 749/KB/2020 which held that RBI guidelines have statutory force which is well recognized by the law, therefore, an explicit written agreement of loan is a mandatory instrument for an NBFC to substantiate the nature of its transactions.

b) Due to absence of a written loan agreement, it cannot be determined whether the amount advanced was a financial debt nor could the rate of interest and tenure of the loan could be ascertained to arrive at the date of default.

c) The case of Narendra Kumar Aggarwal v. Monotrone Leasing Private Limited bearing CA (AT) (Insolvency) No. 549 of 2020 would not come to the rescue of the Appellant Financial Creditor even thought in the said case an oral agreement of loan was entered into between the parties.

d) Since the Inter-Corporate Loan amount has been shown as "Other Liabilities" instead of a "loan" and that the Confirmation of Accounts was not send by the authorized person thus the same cannot be treated as confirmation of debt."

12. This Appeal now challenges the above dismissal of Section 7 under the

Code. Despite several hearings on 23.02.2024, 27.02.2024, 18.04.2024,

15.05.2024, 22.07.2024, 21.08.2024 and 01.10.2024, the Respondent did

not appear despite the substituted service and the matter was taken up ex-

parte on 12.11.2024, being reserved for orders. Thereafter, the matter was

once again taken up on 21.11.2024 for some clarifications. Company Appeal (AT) (Insolvency) No. 318 of 2024 5 of 16

13. The Appellant relies upon the judgment of this Tribunal in 'Agarwal

Polysacks Ltd. v. K.K. Agro Foods and Storage Ltd. (2023 SCC OnLine

NCLAT 624)'.

14. The Appellant has also relied upon the judgment in 'Satish Balan

Director of Balan and Chheda Developers Pvt. Ltd. Vs. Neeta Navin

Nagda & Anr. (2023 SCC OnLine NCLAT 1999)'.

15. Both the Adjudicating Authority and the Respondent had relied upon

the judgment in 'Narendra Promoters & Fincon Pvt. Ltd. Vs. Vinline

Engineering Pvt. Ltd. CP (IB) No.749 / KB / 2020)'.

16. Despite the fact that the Respondent has not appeared before this

Tribunal, as noted by us earlier, we are noting the submissions of the

Respondent/Corporate Debtor as placed before this Adjudicating Authority,

which are part of the Appeal Paper Book.

17. The Respondent / Corporate Debtor had contended before the

Adjudicating Authority that the Appellant has not disclosed any loan

agreement executed between the parties. Further, there is no document that

records the terms and conditions of the purported loan issued by the

Appellant to the alleged Corporate Debtor. Therefore, the Petition before the

Adjudicating Authority fails to satisfy the definition of a financial debt as per

the Code. Therefore, no cognizance can be taken with respect to the

purported bank statements disclosed in the Petition. Further, the bank

statements do not indicate the nature of transactions between the parties. It

Company Appeal (AT) (Insolvency) No. 318 of 2024 6 of 16 also claims that not a single document has been produced to demonstrate

that there has been loan transaction or that the purported loan amount was

to be repaid after a particular period. There are no averments with respect to

the loan tenure or when the purported loan amount was due. Therefore, it

cannot be said that the alleged amount became due and payable by the

Respondent. The Alleged loan amount of Rs 1.5 crores was disbursed in 5

tranches from 2013-2015 and the interest was paid till 31.03.2017. Despite

this, the Appellant had not issued any notice of demand from April, 2017, to

12.03.2022. Therefore, this is ex-facie barred by limitation.

18. The Respondent had also denied the confirmation of accounts which

was annexed in the Petition before the Adjudicating Authority. It claims that

one Mr Dilip Mohanty from one Supreme and Company had issued the

account confirmation but the Respondent is not Supreme and Company and

no person by the name of Mr Dilip Mohanty works for the Respondent.

19. The Respondent had also contended before the Adjudicating Authority

that the purported confirmation of accounts cannot be relied upon as these

documents are forged and manufactured by the Petitioner to show purported

acknowledgment of the Respondent. Further, the purported account

confirmation does not extend the period of limitation as the Petition was filed

on 14.12.2022, much after the expiry of three years from the alleged

confirmation. The Respondent also denies any admission and / or

acknowledgement by the Respondent in its balance sheet for the FY

Company Appeal (AT) (Insolvency) No. 318 of 2024 7 of 16 31.03.2021. It states that the name of the Petitioner is not even mentioned

in the notes to the said balance sheet.

20. The Respondent had also contended before the Adjudicating Authority

that the Petitioner's reliance on the chat history does not establish the nature

of the transaction and the parties involved in the transaction. No admission

has been made by the Respondent or any person on behalf of the Respondent

at any point of time in these chats. There is no causal link between the chat

history and the purported transaction which is the subject matter of the

present Section 7 Petition.

21. The Respondent had also denied before the Adjudicating Authority

about the TDS certificates as no document has been disclosed by the

Appellant to show that there is any time value for money or any loan was

advanced to the Respondent or there is any provision of interest in respect of

such purported loan.

Appraisal

22. Heard the Learned Counsel for the Appellant and also carefully

analysed the submissions, documents and applicable legal provisions. We

have also gone through the submissions of the Respondent as made before

the Adjudication Authority as it had not appeared before this Tribunal

despite repeated adjournments and the matter was heard ex-parte.

23. Basis the material on record, the following issues arise in this case:

Company Appeal (AT) (Insolvency) No. 318 of 2024 8 of 16 I. Whether the amount advanced by the Appellant qualifies as a

financial debt under Section 5(8) of the IBC with the confirmation

of accounts, TDS deduction and other material on record?

II. Whether the Appellant's Petition is barred by limitation?

III. Whether the dismissal of the Section 7 Petition by the Adjudicating

Authority is sustainable or not?

24. Issue (I) and (II) are examined together. With respect to the finding

whether the amount advanced qualifies as a financial debt or not, it will be

appropriate to look into the definition of debt under Section 5(8) of the IBC,

which is reproduced as follows:

"5. In this Part, unless the context otherwise requires,-- .......

(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;

.........."

Section 5(8) defines financial debt as a debt i.e. disbursed against the

consideration for time value of money including money borrowed against the

payment of interest.

25. In the present case, we look into the materials on record to determine

whether there is existence or otherwise of the financial debt:

a) The loan was disbursed in 5 instalments from 24.05.2023 to

05.09.2015 aggregating to ₹1.5 crores. Each disbursement has

Company Appeal (AT) (Insolvency) No. 318 of 2024 9 of 16 been supported by the Appellant's bank statements which are in

the appeal paper book from pages 155 to 160.

b) Even though there is no written agreement with respect to the

payment of interest @ 12% per annum, yet the material on record

suggest that the Respondent has paid interest amount of

₹14,69,688/- (rupees fourteen lakhs, sixty-nine thousand, six

hundred and eighty-eight only) on 14.02.2017 (page 52 of Appeal

Paper Book).

c) The Respondent has also deducted TDS under Section 194A of the

Income Tax Act. This is noted in the appeal paper book from pages

65 to 73, wherein Form 26AS of the Respondent / M/s Desana

Impex Limited has been placed on record by the Appellant. This is

sufficient material on record to conclude that interest was being

paid by the Appellant.

d) Respondent has acknowledged its liability through confirmation of

accounts for FY 2014-15, 2016-17 and subsequent years as is

noted from pages 54 to 64 of the appeal paper book. This is an

acknowledgement of debt by the Respondent.

26. Under these conditions, when there is sufficient material on record to

suggest that the disbursement has been made and interest is being paid by

the Respondent, and also when there is acknowledgment of its liability

through confirmation of accounts in several financial years, we find that the

Company Appeal (AT) (Insolvency) No. 318 of 2024 10 of 16 loan transaction meets the test of time value of money through the agreed

interest rate and is to be treated as a debt.

27. We also look into the claims of the Respondent on forgery of

confirmation of accounts. The Respondent has claimed that the confirmation

of accounts was forged or issued by unauthorised individuals. It is noticed

that there are repeated emails issued to the Appellant from the accountant,

namely Mr Dilip Mohanty, who is the Chief Accountant of the group

company, namely Supreme and Company Private Limited. In fact, he has

signed the documents in the confirmation of accounts which is material on

record. He has been corresponding with the Appellant on the email address

of dilip.accounts@supreme.in. It is to be noted that Respondent Company is

one of the companies of the Group Company of Supreme. Thus, we find that

claim of forgery of confirmation of accounts of the Respondent is

unsubstantiated and cannot be accepted as an argument of defence.

28. With respect to the issue of limitation, it is noted that the Respondent

has provided an acknowledgement through the confirmation of accounts and

tax on interest with deductions as per Form 26AS, the latest of which being

in FY 2020-21. This provides an acknowledgement of debt and provides a

fresh starting point for the limitation period and extends the limitation. The

demand notice was issued on 12.03.2022 and Section 7 Application was filed

on 02.12.2022, which is well within three years from the date of last

acknowledgment in FY 2020-21. We find that Respondent's argument that

the Petition was barred by limitation is untenable and needs to be rejected.

Company Appeal (AT) (Insolvency) No. 318 of 2024 11 of 16

29. It is noted that the Adjudicating Authority has dismissed the Section 7

Petition, primarily due to the absence of formal written loan agreement as

noted below in its order:

"......

10. As per the RBI guidelines on Fair Practices Code for NBFCs, dated 18 February 2013, the NBFCs should convey in writing to the borrower in the vernacular language as understood by the borrower by means of sanction letter or otherwise, the amount of loan sanctioned along with the terms and conditions including annualized rate of interest and method of application thereof and keep the acceptance of these terms and conditions by the borrower on its record. The RBI's circulars have statutory force, and this is well recognised in law. Hence, it is mandatory on the part of Financial Creditor, being a NBFCs to keep the terms and conditions recorded in writing."

Basis the master circular of RBI dated 01.07.2015 which held that RBI

guidelines have statutory force and that provides an explicit written

agreement of loan, which is mandatory for NBFC to substantiate the nature

of its transactions and due to the absence of a written loan agreement, it

cannot be determined in this case whether the amount advanced was a

financial debt nor could the interest and tenure of the loan be ascertained to

arrive of the date of default. Adjudicating Authority has placed great reliance

on RBI Master circular on Fair Practices Code, which makes written

agreement mandatory. It is to be noted that this was issued on 01.07.2015.

However, Corporate Debtor had approached the Financial Creditor in the

year, 2013 and there was an oral agreement and furthermore three

disbursements of the loan amount were made on 24.05.2013 and 28.06.2014

i.e. prior to RBI Circular, therefore making it inapplicable in the present case.

Further, Insolvency and Bankruptcy Code ('IBC') does not prescribe/mandate

that there should be a written agreement to establish financial debt. RBI

Company Appeal (AT) (Insolvency) No. 318 of 2024 12 of 16 Circular is dated July, 2015 whereas the IBC was enacted in the year 2016

and therefore, IBC holds supremacy over the RBI Circular. In fact, Section

238 of the IBC has an over-riding effect on anything contained in any other

law in force or any instrument having effect by virtue of such law.

Notwithstanding non-maintenance of written records, it cannot be concluded

that the debt and default cannot be established under the IBC. In any case,

as per Section 238 of the Code, provisions of the IBC override other laws.

30. The Appellant also relies upon the judgment of this Tribunal, in

'Narendra Kumar Aggarwal & Anr. v. Monotrone Leasing Pvt. Ltd.

(supra)'. Even though the Adjudicating Authority has concluded that this

would not come to the rescue of the Financial Creditor, yet it has been relied

by the Appellant. The relevant extracts are as follows:

"...

11. Thus, the contention of Financial Creditor is fully authenticated from the Money Receipt and bank transaction statement. The Appellant contends that the transaction may be treated as the 'Inter-Corporate Deposit', but it cannot be treated as the Financial Debt. In case the Inter-Corporate Deposit is made for a certain period, which was to be paid back with interest then such transaction will also fall in the definition of 'Financial Debt'. The interest is the product of instant transaction, which is undoubtedly the time value of money. Thus, such transaction of the inter-corporate deposit is fully covered by the definition of Financial debt as provided under Section 5(8) of the I&B Code. The written contract cannot be treated as an essential element to prove the Financial Debt if the transaction's nature is proved otherwise."

Contrary to the conclusions of the Adjudicating Authority in the impugned

order basis Narendra Kumar Aggarwal (supra), we find that this Company Appeal (AT) (Insolvency) No. 318 of 2024 13 of 16 judgement comes to the support of the Appellant. In fact, this Tribunal has

upheld that an oral agreement for inter-corporate loans could be considered

valid for the purposes of the IBC, if the nature of the transaction is otherwise

evident from the party's dealings. And in the facts of the case we notice that

there is sufficient material otherwise which helps us to come to a conclusion

that the Appellant had disbursed ₹1,50,00,000/- (rupees one crore and fifty

lakhs only) and the interest is also paid by the Respondent and there is also

acknowledgement.

31. The Appellant has also relied upon the judgment of this Tribunal in

'Agarwal Polysacks (supra)'. The relevant extracts are:

".....

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.

.....

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 preconditions for establishing financial debt are proved by the Financial Creditor and the order of the Adjudicating Authority rejecting Section 7 application is not sustainable."

Company Appeal (AT) (Insolvency) No. 318 of 2024 14 of 16 This Tribunal has categorically held in that case that a written financial

contract is not a mandatory requirement to prove financial debt under the

IBC and it is sufficient to establish the debt through other relevant

documents. This judgment also supports the case of the Appellant.

32. The Appellant has also relied upon another judgment of this Tribunal

in 'Satish Balan (supra). The relevant extracts are:

"....

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."

Herein this Tribunal had clarified that a written agreement is not a condition

precedent to proving the existence of a financial debt. Acknowledgments by

the Corporate Debtor and supporting documents like ledger accounts can be

sufficient to prove the debt. This also supports the case of the Appellant.

33. It is to be noted that the loan is also recorded in the balance sheet of

the Appellant even though as "other liabilities" instead of "loan" and this does

not negate the existence of a financial debt and therefore the conclusion of

the Adjudicating Authority that this is not a financial debt cannot be

sustained. Even if we don't rely on this material on record, there is sufficient

other material on record to establish debt and default.

Company Appeal (AT) (Insolvency) No. 318 of 2024 15 of 16 Conclusion and Order:

34. After going through the submissions and also materials on record, we

find that the debt and default is established in the matter. In fact, the

Respondent has not even bothered to appear before this Tribunal to defend

its case. Under these conditions when the Appellant has been able to

establish the debt and default, the finding of the Adjudicating Authority

dismissing the Section 7 Petition cannot be sustained. Accordingly, the order

of the Adjudicating Authority dated 21.11.2023 is set aside. The Corporate

Debtor, namely Brick and Mortar Realty Private Limited, is ordered to be

proceeded under Section 7 of the Code. The NCLT, Kolkata Bench, is to issue

necessary order in this regard within 30 days of its presentation before the

NCLT, Kolkata Bench.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical) New Delhi.

December 18, 2024.

pawan

Company Appeal (AT) (Insolvency) No. 318 of 2024 16 of 16