K. Kesava vs Ajay Gopaldas Samat (Huf) & Ors

[arising out of Order dated 5th January, 2018 by NCLT, Bengaluru Bench, in C.P. No. (IB)-90(BB)/2018]

IN THE MATTER OF :

K. Kesava Appellant

Vs.

Ajay Gopaldas Samat (HUF) & Ors. Respondents

Present: For Appellant: - Mr. Balaji Srinivasan and Ms. Garima Jain, Advocates

For Respondent:- Mr. Nikhil Nayyar and Mr. Divyanshu Rai, Advocates

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

Mr. Kesava, Shareholder and Director of Maxworth Realty India-

(Corporate Debtor) has challenged the order dated 5th January, 2018 passed

by the Adjudicating Authority (National Company Law Tribunal), Bengaluru

Bench, whereby and where under the application preferred by the

Respondents under Section 7 of the Insolvency and Bankruptcy Code, 2016

(hereinafter referred to as "I&B Code") has been admitted, order of moratorium

has been passed and resolution professional has been appointed with certain

directions.

2. The main plea taken by the appellant is that there is a dispute in

existence with the Corporate Debtor about the debt and default, therefore, the

application under Section 7 was not maintainable. Further, according to 2

learned counsel for the appellant, the respondent do not come within the

meaning of 'financial creditor' as defined under section 5(7)&(8) of the I & B

Code.

3. The Adjudicating Authority held that the corporate debtor utterly failed

to show any dispute and/or that the amount as claimed was not due. The

Authority further held that there is an evidence of default.

4. Learned counsel appearing on behalf of the appellant submitted that

the dues of 'Ajay Gopaldas Samat HUF and Mrs. Manisha A. Samat' has

already been paid. In the pleadings details of payment made between August

2015 to July 2016 have been shown giving reference to the bank statements

attached with the appeal.

5. Mr. Ajay Gopaldas Samat was directed to appear in person along with

affidavit to state as to in terms of which agreement he had received the

amounts by cheques on different dates as shown and mentioned at pages 'D'

and 'E' of the appeal. The respondent has filed affidavit and taken plea that

the amount has been paid in terms of other loan agreement and following

stand has been taken: -

"4. I state that I have advanced loan to the 3rd Respondent in

my individual capacity as well as through my HUF. I state

that I maintain separate bank account in my individual

name and a separate bank account for my HUF. It has

always been the understanding between me and the 3rd

Respondent that if I have advanced a loan to the 3rd

Respondent in my individual capacity, then the cheque for

repayment will be issued in my individual name or directly 3

transferred to my individual account through online

transfer. Similarly, in case the loan is advanced by my

HUF, then the cheque for repayment will be issued in the

name of my HUF or directly transferred to my HUF account

through online transfer. I state that the 3rd Respondent

has been acting as per the said understanding and at no

point in time has the payment been made to me in my

individual capacity when the loan has been advanced by

my HUF. Similarly, at no point in time has the payment

been made to me in my HUF when I have advanced the

loan in my individual capacity.

5. I state that in my individual capacity, had advanced an

amount of Rs. 50,00,000/-(Rupees fifty Lakhs Only) to the

3rd Respondent as Loan Agreement dated 19.08.2014. It

was agreed that the 3rd Respondent would repay the loan

as per the repayment schedule agreed under the said

Loan Agreement dated 19.08.2014 along with interest @

18% per annum. It was the understanding between the

3rd Respondent and I, that the interest would be calculated

on the reducing balance method, based on the timelines

agreed under the repayment schedule in the Loan

Agreement dated 19.08.2014 and that the entire interest

amount would be payable in advance. It was further

agreed that the entire loan would be repaid on or before

28.06.2015. A copy of the Loan Agreement dated 4

19.08.2014 is produced herewith as Annexure 'R19'. I

further state that as a security for the aforementioned

loan, the 3rd Respondent had mortgaged the Flats bearing

No. A-201, A-203 and A-404, along with three covered car

parking, in the apartment complex known as 'MAX

SPOORTY', constructed on the residentially converted land

bearing Sy.No. 71/10, measuring 25 Guntas, situated at

Thindlu Village, YelahankaHobli, Bangalore North Taluk.

A copy of the Mortgage Deed dated 19.08.2014 is

produced herewith as Annexure 'R20'. The 3rd

Respondent has also executed a hundi in my favour which

is produced as Annexure 'R21'.

6. I state that as per the above understanding, the interest

amount for the entire loan amount, calculated on the

reducing balance method, would amount to Rs. 4,12,500/-

(Rupees Four Lakhs Twelve Thousand Five Hundred Only)

which had to be paid up-front, before the repayment

starts. I state that, pursuant to the above, as per the terms

of the Loan Agreement dated 19.08.2014 and the

understanding, the 3rd Respondent paid the interest of Rs.

4,12,500/- (Rupees Four Lakhs Twelve Thousand Five

Hundred Only) up-front, which was credited in my account

on 20.08.2014. Thereafter, the 3rd Respondent has repaid

an amount of Rs. 35,00,000/- (Rupees Thirty-Five Lakhs

Only) towards principal as per the repayment schedule 5

and the remaining amount of Rs. 15,00,000/- (rupees

Fifteen Lakhs Only) is currently outstanding. These

payments are reflected in the table at page 'D' of the

appeal under the caption "List of Payments made to Ajay

G.Samat" and have no connection whatsoever with the

Loan Agreement dated 17.07.2014, out of which the

present proceedings arise. I state that I am entitled to

interest @ 18% per annum, as agreed, on the outstanding

amount of Rs. 15,00,000/- (rupees fifteen Lakhs Only). A

table showing the dates and the amount repaid till date

and the amount outstanding is produced as Annexure

'R22'.

7. It is further submitted that the payments mentioned in the

other two tables at pages 'D' and 'E' of the appeal under

the caption "List of Payments made to Ajay G.Samat(HUF)"

and under the caption "List of Payments made to Manisha

A.Samat" pertain to payments made with respect to the

Loan Agreement dated 17.7.2014, out of which the present

proceedings arise. I further state that on Page D of the

appeal memorandum, under the caption "List of Payments

made to Ajay G.Samat (HUF", an amount of Rs. 5,00,000/-

(rupees Five Lakhs Only) allegedly paid on 18.12.2014,

was not paid and has been incorrectly shown as paid to

the 1st Respondent. I state that the cheque for the said

amount of Rs. 5,00,000/- was returned for the reason 6

'insufficient funds' and the cheque was returned to the 3rd

Respondent and the said amount is still outstanding. The

sum total of the payments made to the HUF and to

Manisha A.Samat clearly shows that there is a default and

that the 3rd Respondent Company owed a sum of Rs.

15,00,000/- (Rupees Fifteen Lakhs Only) (principal) to

both the HUF as well as Manisha A.Samat."

6. The appellant has disputed the aforesaid stand taken by the

respondents and brought to the notice of this Appellate Tribunal the following

facts: -

"4. It is submitted that Ajay Samat, Manisha Samat and Ajay

G.Samat(HUF) herein have entered into a total of eight

Agreements whereby amounts have been lent to

Respondent No. 3 Company. It would be pertinent to note

that some agreements have been entered into individually

by Manisha Samat; Ajay Samat; Ajay Samat (HUF).

Similarly there are some Agreements wherein amounts

have been lent collectively by the aforesaid parties. Further

there are some Agreements whereby loan amount has been

extended by the aforesaid parties with a third person,

namely Geeta Khubani. It would be pertinent to note all the

Agreements entered were essentially entered at the behest

of Ajay Samat.

5. It is submitted the re-payment of all the aforesaid amounts

were being done by the Respondent No. 3 simultaneously 7

since 2013. For each of the Agreements entered into the

Respondent No. 3 company executed Promissory Notes and

mortgaged its property as a security for the Loan extended.

The same has also been admitted by the Respondent at

Para 4 of its Affidavit in Reply dated 14.02.2013. Thus it

is clear that the loans that have been advanced have been

adequately secured. It would also be pertinent to note that

on demand there were blank letter heads and Open

Cheques; that were handed over by the Appellant to Ajay

Samat.

A Copy of Eight Agreements dated 21.01.2013; 26.08.2013;

11.12.2013; 13.03.2013; 17.07.2014; 19.08.2014;

10.11.2014 and 29.01.2015 is attached herewith as

Annexure A1(Colly).

6. That in pursuance of the aforesaid Agreements; Manisha

Samat; Ajay Samat (HUF) have extended loan amount of Rs.

5,11,00,000 (Rupees Five Crores Eleven Lakhs) to

Respondent No. 3 company. A detailed breakup of the

aforesaid is reproduced herein below: -

SL NO. NAME LOAN AMOUNT

1. AJAY G SAMAT 3,66,00,000=00

2. MANISHA A SAMAT 95,00,000=00

3. AJAY GOPALDAS 50,00,000=00 SAMAT (HUF) 8

TOTAL Rs. 5,11,00,000=00

SL NO. Date Cheque NO. Bank Name Amount

1. 21.01.2013 000051 Kotak 7,500,00 Mahindra Bank 2. 26.08.2013 000115 Kotak 7,000,000 Mahindra Bank 3. 27.08.2013 000116 Kotak 2,000,000 Mahindra Bank 4. 13.03.2014 RTGS ICICI Bank 7,400,000

5. 20.08.2014 000192 Kotak 5,000000 Mahindra Bank 6. 10.11.2014 RTGS ICICI Bank 7,700,000

TOTAL RECEIVED 36,600,00

Amount loaned by Manisha Samat

SL NO. Date Cheque NO. Bank Name Amount

1. 12.12.2013 000044 Kotak 4,500,00 Mahindra Bank 2. 17.07.2014 000137 Kotak 5,000,000 Mahindra Bank TOTAL RECEIVED 9,500,000

Amount loaned by Ajay Gopaldas Samat-HUF

SL NO. Date Cheque NO. Bank Name Amount

1. 17.07.2014 00067 Kotak 5,000,00 Mahindra 9

Bank TOTAL RECEIVED 5,000,000

7. It is submitted that the Respondent No.3 Company has

repaid the entire amount of Rs. 5,11,00,000 (Five Crores Eleven

Lakhs) to Ajay Samt; Manisha Samar and Ajay Gopaldas Samat

(HUF) along with an additional amount of Rs. 36,77,625 (Rupees

Thirty Six Lakhs Seventy Seven Thousand Six Hundred Twenty

Five). Therefore the Respondent No. 3 Company has repaid an

amount of Rs. 54,777,625 (Rupees Five Crores Fourthy Seven

Lakhs Seventy Seven Thousand Six Hundred Twenty Five) to Ajay

Samat; Manisha Samat and Ajay Gopaldas Samat (HUF). It is re-

iterated that the aforesaid repayment took place over a period of

2013-2015 simultaneously for the eight Loan Agreements entered

into between the parties. As there were multiple Agreements

entered into by different entities, the repayment was being done

on account as per verbal instructions issued by Ajay Samat from

time to time."

8. Copies of the agreements and details of payments have been

enclosed with the affidavit.

9. The Hon'ble Supreme Court in "Innoventive Industries Ltd. v. ICICI

Bank in 2017 SCC SC 1025." while dealing with such issue held as follows:

"28. When it comes to a financial creditor triggering the

process, Section 7 becomes relevant. Under the

Explanation to Section 7(1), a default is in respect of a

financial debt owed to any financial creditor of the 10

corporate debtor -- it need not be a debt owed to the

applicant financial creditor. Under Section 7(2), an

application is to be made under sub-section (1) in such

form and manner as is prescribed, which takes us to the

Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules, 2016. Under Rule 4, the application is

made by a financial creditor in Form 1 accompanied by

documents and records required therein. Form 1 is a

detailed form in 5 parts, which requires particulars of the

applicant in Part I, particulars of the corporate debtor in

Part II, particulars of the proposed interim resolution

professional in Part III, particulars of the financial debt in

Part IV and documents, records and evidence of default in

Part V. Under Rule 4(3), the applicant is to dispatch a copy

of the application filed with the adjudicating authority by

registered post or speed post to the registered office of the

corporate debtor. The speed, within which the

adjudicating authority is to ascertain the existence of a

default from the records of the information utility or on the

basis of evidence furnished by the financial creditor, is

important. This it must do within 14 days of the receipt of

the application. It is at the stage of Section 7(5), where the

adjudicating authority is to be satisfied that a default has

occurred, that the corporate debtor is entitled to point out

that a default has not occurred in the sense that the 11

"debt", which may also include a disputed claim, is not

due. A debt may not be due if it is not payable in law or in

fact. The moment the adjudicating authority is satisfied

that a default has occurred, the application must be

admitted unless it is incomplete, in which case it may give

notice to the applicant to rectify the defect within 7 days of

receipt of a notice from the adjudicating authority. Under

sub-section (7), the adjudicating authority shall then

communicate the order passed to the financial creditor and

corporate debtor within 7 days of admission or rejection of

such application, as the case may be.

10. Therefore, Adjudicating Authority while dealing with such application

under Section 7 is required to ascertain the 'existence of a default' from the

records of the information utility or on the basis of evidence furnished by

financial creditor. The corporate debtor is entitled to point out to the

Adjudicating Authority that a default has not occurred; in the sense that a

debt, which may also include a disputed claim, is not due i.e. it is not payable

in law or in fact.

11. In the present case, we find that there are eight agreements reached

between the respondents 'financial creditors' and the appellant. Detail of

payments made by appellant from time to time has been mentioned in the

affidavit and noticed above has not been disputed by the respondents. There

appears to be a dispute about claim made by the respondents. While

according to respondents the amount pursuant to a particular agreement (Say

Agreement-A) has not been paid, according to corporate debtor, the amount 12

detailed above is paid against such agreement (Agreement-A). The dates on

which payment of more than Rupees Five crore has been made in favour of

one or other respondent from time to time is not in dispute. What is in dispute

is the debt as claimed, which is not clear as to whether such amount is

payable pursuant to such agreement. Thus, there being a dispute about the

claim arising out of a particular agreement, and as the respondents have not

made it clear that as to against which agreement Rupees Five Crore has been

adjusted, we are of the view that it was not a fit case for initiation of corporate

insolvency resolution process under section 7, and parties should have been

allowed to move before a Court of competent jurisdiction for appropriate relief.

12. For the reasons aforesaid we have no other option but to set aside the

impugned order dated 5th January, 2018.

13. In effect, order (s), passed by the Adjudicating Authority appointing

'Resolution Professional', declaring moratorium, freezing of account, and all

other order (s) passed by the Adjudicating Authority pursuant to impugned

order and action taken by the 'Resolution Professional', including the

advertisement published in the newspaper calling for applications all such

orders and actions are declared illegal and are set aside. The application

preferred by Respondent under Section 7 of the I&B Code, 2016 is dismissed.

Learned Adjudicating Authority will now close the proceeding. The 'Corporate

Debtor' (company) is released from all the rigour of law and is allowed to

function independently through its Board of Directors from immediate effect.

14. The Adjudicating Authority will fix the fee of the 'Resolution

Professional', and the 'Corporate Debtor' will pay the fees for the period he 13

has functioned. The appeal is allowed with aforesaid observation. However,

in the facts and circumstances of the case, there shall be no order as to cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial) New Delhi

Dated: 18th July 2018.

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