M/S. Bhilwara Spinners Limited & Ors. & ... vs Mr. Prashant Agarwal Liquidator Of M/S. ...

Comp. App. (AT) (Ins) No. 1456 of 2024 & I.A. No. 4971 of 2024

(Arising out of the Order dated 23.04.2024 passed by the National Company Law Tribunal, Jaipur Bench in I.A. 340/JPR/2020 in CP (IB) No. 79/7/JPR/2019).

1. M/s. Bhilwara Spinners Limited, 26, Industrial Area, Gandhinagar, Bhilwara, Rajasthan-311001. ...Appellant No. 1 2. M/s. Ahinsa Infrastructure and Developers Limited, 60, Mulji Jetha Building, 3rd Floor, Princess Street, Mumbai, Maharashtra-400002. ...Appellant No. 2

3. M/s. Barkha Synthetics Private Limited, Bazar No.2, Bhilwara-311001. ...Appellant No. 3 Versus 1. Mr. Prashant Agarwal, Liquidator of M/s. Global Syntex (Bhilwara) Limited, F-106, 1st Floor, Sumer Complex, Behing Bagadia ...Respondent No. 1 Bhawan, Gautam Marg, C-Scheme, Jaipur-302001.

2. M/s Paamvi Consultancy Services Limited, C-501, Remi Bizcourt, Plot No. 9, Shah Industrial Estate off Veera Desai Road, Andheri (W), Mumbai, Maharashtra- 400053. ...Respondent No. 2

Present For Appellants: Mr. Gaurav Mitra, Ms. Neha Agarwal & Ms. Aishwarya Modi, Advocates

For Respondent: Mr. Prakul Khurana, Mr. Abhinav Mathur & Mr. Gaurav Asati, Advocates for R-1 Liquidator Mr. Ankur Goel & Mr. Saket Singh, Advocates for R-2 JUDGEMENT

(21 .01.2026)

NARESH SALECHA, MEMBER (TECHNICAL)

1. The present appeal has been filed by the Appellant No. 1 i.e., M/s Bhilwara

Spinners Limited, Appellant No. i.e. 2 M/s Ahinsa Infrastructure and Developers

Limited, and Appellant No. 3 i.e. M/s Shree Barkha Synthetics Limited, who are

the unsecured Financial Creditors of the Corporate Debtor i.e., M/s. Global

Syntex (Bhilwara) Limited, under Section 61 of the Insolvency and Bankruptcy

Code, 2016 ('Code') against the Impugned Order dated 23.04.2024 passed by the

National Company Law Tribunal, Jaipur Bench ("Adjudicating Authority") in

I.A. 340/JPR/2020 in CP (IB) No. 79/7/JPR/2019.

Mr. Prashant Agarwal, who is the Liquidator of M/s. Global Syntex

(Bhilwara) Limited, is the Respondent No.1 herein.

M/s Pammvi Consultancy Services Ltd., who is the Operational Creditor,

is Respondent No. 2, herein.

2. The Appellants submitted that they are partly aggrieved by the Impugned

Order dated 23.04.2024, which disallowed the entire interest component at 24%

per annum on the principal loan amount advanced by them. This disallowance

has directly prejudiced their recovery from the liquidation proceeds, warranting

intervention by this Appellate Tribunal.

3. The Appellants submitted that they had advanced financial assistance to

the Corporate Debtor to facilitate its business operations and discharge Page 2 of 28 outstanding liabilities, with an understanding to create an equitable mortgage in

favour of Appellant No. 1. Term sheets executed between the parties explicitly

recorded this arrangement, including the creation of a charge to secure the loan,

which was duly acknowledged in the Corporate Debtor's balance sheets.

4. The Appellants submitted that, upon extending the loan facility, the parties

mutually agreed to register a charge in favour of Appellant No. 1 with the

Registrar of Companies (RoC), Jaipur, to safeguard the principal sum and interest

at 24% per annum, as evidenced by the term sheets and addendums. Despite

diligent efforts, the charge registration encountered procedural delays, leading to

a condonation application before the RoC, which remained pending. In the

interim, the Adjudicating Authority admitted the Corporate Insolvency

Resolution Process (CIRP) against the Corporate Debtor on 21.08.2019,

appointing Respondent No. 1, Shri Prashant Agarwal, as Interim Resolution

Professional.

5. The Appellants contended that, post-CIRP initiation, Respondent No. 1

duly constituted the Committee of Creditors (CoC) and invited claims from

stakeholders. The Appellants duly submitted their claims as Financial Creditors,

apprising Respondent No. 1 of the unregistered charge and the pending RoC

application. Notwithstanding this disclosure, Respondent No. 1 classified all

Appellants as unsecured Financial Creditors, treating Appellant No. 1 at par with

Appellants No. 2 and 3 dues to the non-registration of charge. The Appellants

submitted that this classification, while procedurally correct under the

Page 3 of 28 circumstances, did not impugn the underlying validity of the interest component,

which stood acknowledged in the Corporate Debtor's financial records.

6. The Appellants further submitted that the Corporate Debtor's revival

proved unfeasible, with only a solitary Expression of Interest (EOI) received,

yielding no viable resolution plan. Consequently, the CoC, in its meeting dated

18.01.2020, resolved to liquidate the Corporate Debtor. Pursuant to this, the

Adjudicating Authority, vide order dated 24.01.2020, appointed Respondent No.

1 as Liquidator and directed commencement of liquidation proceedings under

Section 33 of the Code.

7. The Appellants contended that, following two aborted public auctions, the

Corporate Debtor's assets were successfully e-auctioned on 31.08.2020 in favour

of Appellant No. 1 for a total sale consideration of Rs. 7,51,56,188.51/-. This

amount was fully remitted by Appellant No. 1 to Respondent No. 1 on

28.09.2020, enabling distribution to eligible stakeholders in accordance with the

waterfall mechanism under Section 53 of the Code. At this juncture, M/s. Paamvi

Consultancy Services Limited (Respondent No. 2) filed Interlocutory Application

No. 340/JPR/2020 in October 2020, manifestly at the fag-end of the liquidation

process, seeking reliefs, namely: (a) setting aside the auction dated 31.08.2020

and ancillary processes as illegal, with directions to issue notices and cancel the

same; (b) quashing the entire CIRP; (c) disallowing related-party transactions.

Notably, the application contained no prayer whatsoever to scrutinize or disallow

the interest component at 24% per annum as extortionate.

Page 4 of 28

8. The Appellants submitted that the Adjudicating Authority, while

upholding the validity of the CIRP and liquidation processes, impermissibly

traversed beyond the Respondent No. 2's pleaded reliefs. In a suo motu exercise,

the Adjudicating Authority declared the interest at 24% per annum "extortionate

and illegal," disallowing it in toto from the Appellants' claims. The Appellants

contended that the application, challenging foundational CIRP elements like

claim admissions (inclusive of interest), was procedurally infirm, warranting

outright dismissal.

9. The Appellants further submitted that the Impugned Order records non-

acknowledgment of interest in the Corporate Debtor's balance sheet which

explicitly reflects the interest liability on the loans for the financial year 2019-

2020. Moreover, without delineating a "reasonable" interest benchmark under the

facts, such as the Corporate Debtor's dire financial distress and the unsecured

nature of the advances, the Adjudicating Authority disallowed the entire 24%

component, assuming an equity jurisdiction alien to the Code's statutory

framework. The Appellants contended that actual distributions to unsecured

Financial Creditors, post-liquidation, yielded less than 6% per annum on

outstanding loans-a paltry recovery far from extortionate, underscoring the

interest's fairness in context.

10. The Appellants submitted that the Adjudicating Authority erred in partly

allowing the Respondent No. 2's IA No. 340/JPR/2020 by disallowing the entire

interest at 24% per annum as "extortionate," thereby violating principles of

Page 5 of 28 natural justice and the Code's debtor-creditor equilibrium under Sections 5(7) and

5(8). This ipso facto reduced the Appellants' admissible claims, skewing Section

53 distributions without evidentiary basis or opportunity to rebut.

11. The Appellants contended that the Adjudicating Authority committed a

grave error of record by overlooking the Corporate Debtor's books, which duly

acknowledged interest liability per the 2019-2020 term sheets and addendums.

This acknowledgment, forming the bedrock of the financial debt under Section

5(8), was binding and precluded any post-facto re-characterization.

12. The Appellants contended that the Adjudicating Authority perpetrated a

legal infirmity by disregarding Section 5(8)'s inclusive definition of "financial

debt," which encompasses interest as the time value of money. Declaring it

extortionate sans justification or reference to Section 50's preferential transaction

thresholds (limited to two years pre-CIRP) nullifies contractual autonomy and the

Code's emphasis on commercial wisdom.

13. The Appellants submitted that reliance on Smt. Anamika Singh & Ors. v.

Shinhan Bank (2020 SCC OnLine NCLAT 1041), holding 60% per annum

extortionate, was wholly inapposite, as the instant 24% rate, agreed in 2015 (pre-

dating the two-year look-back under Section 50), reflects arm's-length bargaining

in a high-risk unsecured lending scenario, not usury.

14. The Appellants submitted that the Impugned Order's blanket disallowance,

without quantifying a "just and reasonable" rate (e.g., benchmarked to RBI

guidelines or market equivalents for distressed lending), evinces non-application

Page 6 of 28 of mind and arbitrariness, the Appellants contended that the Authority provided

no reasoned justification-factual, statutory, or precedential, for branding 24%

extortionate, rendering the finding perverse and amenable to interference under

Section 61(3). This lacuna vitiates the order's sustainability.

15. Concluding their arguments, the Appellants prayed this Appellate Tribunal

to set aside the Impugned Order in entirety, restore the interest component at 24%

per annum to their claims, and grant consequential reliefs including re-

distribution of proceeds under Section 53, with costs.

16. The Respondent No. 1 submitted that he does not want to file any reply as

per the order dated 19.03.2025 passed by this Appellate Tribunal and supported

the whole process. The Respondent No. 1 also submitted that, being an officer of

the court, as well as a neutral party, he does not want to oppose the Impugned

Order but reiterated that he carried out the entire CIRP as well as Liquidation

process in accordance with law, keeping in view the then prevailing COVID-19

circumstances and available opportunities.

17. The Respondent No. 2, the main contesting party, denied all averments

made by the Appellants as frivolous.

18. The Respondent No. 2 submitted that the Corporate Insolvency Resolution

Process against the Corporate Debtor was initiated pursuant to the admission of

liability by the Corporate Debtor in a petition filed under Section 7 of the Code.

Upon admission, Respondent No. 1 was appointed as the Resolution Professional.

Thereafter, the Committee of Creditors ("CoC") was constituted by Respondent

Page 7 of 28 No. 1, which comprised only Appellants, who are admittedly related parties of

the CD.

19. The Respondent No. 2 submitted that the Appellants filed grossly inflated

claims by charging extortionate interest. Against a principal amount of only ₹4.66

Crores, claims aggregating to more than ₹15.70 Crores were filed. The

Respondent No. 1 admitted these claims mechanically, without any due diligence

or application of mind, in complete disregard of the statutory duties cast upon

him under the Code.

20. The Respondent No. 2 contended that vide order dated 24.01.2020, the

Corporate Debtor was ordered to be liquidated. The Respondent No. 1 continued

as the Liquidator and recognised only the Appellants as financial creditors of the

Corporate Debtor. Consequently, the Stakeholders' Consultation Committee

("SCC") was constituted solely comprising the Appellants, all of whom are

related parties, thereby vitiating the consultative process.

21. The Corporate Debtor owned two valuable immovable properties located

at prime locations:

a) A land and building situated at Plot No. SPL-1, Industrial Area, Biliya

Extension, Bhilwara, admeasuring 26,800 sq. metres; and

b) A freehold agricultural land bearing Araji No. 1442/135 and Araji No. 135,

adjoining the aforesaid property, admeasuring 1.35 bigha (approximately

2,530 sq. metres).

Page 8 of 28 As per the valuation report obtained by the Liquidator himself, the Fair Market

Value of both properties was ₹15.36 Crores, whereas the Liquidation Value was

assessed at ₹11.13 Crores.

22. The Respondent No. 2 submitted that in the first meeting of the SCC held

on 25.06.2020, the Liquidator was authorised to sell the immovable properties.

Accordingly:

a) An e-auction was conducted on 31.07.2020 at a reserve price of

₹11,13,42,501.50, which failed.

b) Immediately thereafter, a second auction was conducted on 14.08.2020

after reducing the reserve price by 25%, which also failed.

c) Without any justification, a third auction was conducted on 31.08.2020

with a further reduction of 10%, pursuant to which Appellant (Bhilwara

Spinners Ltd.), being the sole bidder, purchased both properties for a paltry

sum of ₹7.51 Crores.

23. It is submitted by Respondent No. 2 that the conduct of Respondent No. 1

in conducting back-to-back auctions within a span of one month, during the first

wave of the COVID-19 pandemic, is ex facie arbitrary and contrary to the object

of the Code, which mandates maximisation of value of assets. The assets were

neither perishable nor likely to deteriorate if the sale had been deferred. Despite

this, the properties were sold at nearly half of their fair market value.

Page 9 of 28

24. The Respondent No. 2 submitted that the sale proceeds paid by the

Appellant No. 1 ultimately flowed back to Appellant Nos. 2 and 3, being its

related entities and financial creditors of the Corporate Debtor. Consequently, the

Appellant No. 1 became the owner of the valuable immovable properties without

any real outflow of funds, rendering the transaction illusory and fraudulent.

25. The Respondent No. 2 contended that this Appellate Tribunal in Bhavik

Bhimkyani v. Uday Vinodchandra Shah & Ors. [MANU/INL/0443/2025] has

categorically held that conducting auctions during the COVID-19 pandemic,

despite relaxations in timelines and where assets are not perishable, is

impermissible. The Tribunal deprecated undue haste in asset sale and set aside

such transactions as being contrary to statutory provisions.

26. The Respondent No. 2 further submitted that a bare perusal of all three

auction notices reveals that critical details such as plot number, exact plot size

and other identifying particulars were conspicuously absent. In the absence of

such material information, no third-party bidder could meaningfully participate

in the auction. The Liquidator has also failed to place on record any screenshot

or documentary evidence to substantiate the claim that complete asset details

were uploaded on the website.

27. The Respondent No. 2 submitted that the Appellants charged exorbitant

and unconscionable interest, inflating the principal amount of ₹4.66 Crores to

₹15.70 Crores. Such conduct renders the transaction extortionate and illegal. The

claims were admitted by Respondent No. 1 without scrutiny.

Page 10 of 28

28. The Respondent No. 2 submitted that this Appellate Tribunal in Anamika

Singh & Ors. v. Shinhan Bank [2020 SCC OnLine NCLAT 1401] has held that

even if a transaction does not technically fall under Section 50 of the Code,

exorbitant interest can still be treated as extortionate, disentitling the creditor

from claiming any interest and restricting the claim only to the principal amount

as unsecured debt.

29. The Respondent No. 2 submitted that the Appellants' contention that they

are entitled to 6% interest is wholly misconceived. Once interest is held to be

extortionate, no interest whatsoever can be claimed. The plea for "reasonable

interest" is legally untenable.

30. The Respondent No. 2 contended that the Appellant No. 1 is a subsidiary

of Appellant No. 2, and the directors of Appellant No. 3 are interested in

Appellant No. 2. Further, the balance sheet of Appellant No. 3 categorically

records the Corporate Debtor as an entity in which its directors are interested,

clearly establishing that the Appellants are related parties of the Corporate

Debtors.

31. The Respondent No. 2 submitted that the Corporate Debtor had been non-

operational since 2002. It is inconceivable that unsecured loans were advanced

on an unstamped term sheet to a dormant entity. No interest was ever paid, nor

was any interest reflected in the books of accounts of Appellants. The CIRP was

initiated solely on the basis of acknowledgment of liability, thereby raising

serious doubts regarding fraud in obtaining the CIRP and liquidation orders.

Page 11 of 28

32. The Respondent No. 2 submitted that it is a settled principle of law that any

order obtained by fraud is non-est in the eyes of law. The Hon'ble Supreme Court

in A.V. Papayya Sastry & Ors. v. Govt. of A.P. & Ors. [(2007) 4 SCC 221] has

categorically held that such orders are nullities and cannot be allowed to stand.

33. Thus, the Respondent No. 2 requested this Appellate Tribunal to: -

I. Allow Appeal No. 1641 of 2024 filed by Pammvi and set aside the

auction dated 31.08.2020 and direct re-auction of the assets of the

Corporate Debtor;

II. Dismiss Appeal No. 1456 of 2024 filed by Appellants and;

III. Set aside the CIRP admission order and the subsequent liquidation

order as having been obtained by fraud

Findings

34. At the outset we note that an application under Section 7 was filed by Shree

Bharkha Synthetics Limited i.e., Respondent No. 3 herein against the Corporate

Debtor which was admitted and CIRP was initiated on 21.08.2019 and

Respondent No. 1 was appointed as Resolution Professional.

35. We further take into consideration the fact that Respondent No. 1

constituted the CoC consisting of Appellants No. 1, 2 & 3 herein and further

Respondent No. 1, invited EoI. However, in absence of suitable response for

resolution of the Corporate Debtor, based on an application filed by Respondent

Page 12 of 28 No. 1 the Adjudicating Authority passed order for imitation of liquidation of

Corporate Debtor vide order dated 24.01.2014 appointing Respondent No. 1 as

Liquidator.

36. We also note that the claims were collated by the Resolution Professional

earlier and position of Admitted claims reads as under:-

37. We would also like to take into account the Asset Memorandum of the

Corporate Debtor prepared by liquidator in terms of Regulation 34 of Liquidation

Regulation and the assets of the Corporate debtor mentioned are as under :-

Page 13 of 28

38. It will be pertinent to note that the E-auction was conducted on 31.072020

at reserve price of 11,13,42,501/- which failed and subsequent to which the

reserve price was reduced by 25% to Rs. 8,35,06,876/- which also failed and the

reserve price was further reduced by 10% to Rs. 7,51,56,188/-. We note that M/s

Bhilwara Spinners Limited, the Appellant No. 1 herein, itself submitted its bid at

reserve price and was declared successful by the CoC and approved by the

Adjudicating Authority. Subsequent to this, M/s Bhilwara Spinners Limited,

Appellant No. 1 herein, paid complete consideration and the sale proceedings

were distributed among the creditors of the Corporate Debtor as per Waterfall

Mechanism in the following manner: -

39. We take into consideration that Respondent No. 2 herein, in capacity of an

Operational Creditor challenged the auction proceedings as well as CIRP

Page 14 of 28 proceedings before the Adjudicating Authority in IA No. 340/JPR/2020. M/s

Pammvi Consultancy Services raised the issue regarding fraudulent action of the

Corporate Debtor and Shree Bharkha Synthetics Limited who initiated Section 7

application on the ground that Director of Shree Bharkha Synthetics Limited were

interested and related party of the Corporate Debtor. Similarly, the Applicant also

raised several other issues, which were discussed and finalised by the

Adjudicating Authority in the Impugned Order. The Adjudicating Authority

considered the contentions of the Applicant i.e., M/s Pammvi Consultancy

Services along with the response of other Stakeholders including Liquidator and

came to conclusion that Applicant has failed to prove any relationship between

Shree Bharkha Synthetics Limited and the Corporate Debtor in terms of Section

5 (24) of the Code. The Adjudicating Authority concluded in Para 18 of the

Impugned Order that there was no flaw in the conduct of CIRP or the liquidation

proceedings and the application of M/s Pammvi Consultancy Services was

rejected in the Impugned Order. We are dealing the appeal of M/s Pammvi

Consultancy Services in connected matters in Comp. App. (AT) (Ins.) No. 1641

of 2024 and shall pronounce the judgement in that case simultaneously.

40. We should now deal with the present appeal filed by the 3 Appellants in

Comp. App. (AT) (Ins.) No. 1456 of 2024.

41. At this stage, we note that three Financial Creditor's, who was the

Appellants herein, have made the following claims before the Resolution

Professional :-

Page 15 of 28

42. It is noted that all these three Financial Creditors' disbursed total loan of

Rs. 4.66 Crores i.e., Shree Bharkha Synthetics Limited Rs. 40 Lakhs, M/s

Bhilwara Spinners Limited Rs. 4.09 Crores and Ahinsa Infrastructure and

Developers Rs. 17 Lakhs. It is noted that interest chargeable was @18% p.a for

first year and thereafter the interest rate was enhanced to 24% compounded

monthly. Thus, the principal advance of Rs. 4.66 Crores became Rs.

15,70,37,909/- as seen from the above table mentioned in the Adjudicating

Authority.

43. The Adjudicating Authority considered all facts and treated the interest

rates as exorbitant and found in nature of extortionate and illegal for reasons

contained in para 22 and 23 of the impugned order. These two paragraphs reads

as under :-

Page 16 of 28

"22.A perusal of the records of the Corporate Debtor would reveal that the Financial Creditors advanced loans to the Corporate Debtor which ceased to be an operational entity since April 2002. The aforesaid loans were advanced on the term sheets that were not duly stamped. Further, there is no evidence on record to show that the Corporate Debtor was in need of the loans disbursed by the Financial Creditors. Moreover, there is no document to prove that the Board of the Corporate Debtor resolved to take the loans with an interest of 18% P.A. for the first year and 24% P.A. compounded monthly for the remaining duration.

23. Due to the exorbitant interest charged by the Financial Creditors on the total principal amount of Rs. 4,66,00,000/- (Rupees Four Crore Sixty-Six Lakh Only) advanced by the Financial Creditors i.e., Respondent No.2, 3, and 4, the due amount has compounded into a humongous sum of Rs. 15,70,37,909 (Rupees Fifteen Crore Seventy Lakh Thirty- Seven Thousand Nine Hundred and Nine Only). The interest component has become more than double of the principal amount. Further, the amount of interest has not been shown in the Books of Accounts of either the Corporate Debtor or any of the Financial Creditors."

(Emphasis Supplied)

44. We have already noted the contentions of the Appellants. It is the case of

the Appellant that these transactions were purely commercial transactions and the

Adjudicating Authority should not have interfered. The Appellants submitted

Page 17 of 28 before us that they have filed the appeal to the limited extent of challenging the

Impugned Order where the interest in entirety as claimed by the Appellants, being

Financial Creditors', has been disallowed on the pretext of extortionate in nature.

45. The Appellants also pleaded that on paper the interest rate could have been

mentioned as 24% however, in effect the annual intent over and above principals

debt work out to be only 6% p.a.

46. The Appellants also assailed the observations made by the Adjudicating

Authority in Para 40.2, 22 & 23 of the Impugned Order. We take into

consideration these paras, which reads under :-

"40.2 In so far as the amount claimed by Financial Creditors i.e., Respondent No. 2, 3, and 4 is concerned, the Financial Debt granted by them is beyond the purview of the look-back period as provided under Section 50(1) of the IBC. However, keeping in view the rates of interest charged on the loan and its compounding on delays, we are of the opinion that the interest charged on the loans is extortionate in nature and thus illegal for the reasons mentioned in Para 22 and 23. However, Respondent No. 2, 3, and 4 are entitled to the Principal Amount as shown in the balance sheet of the Corporate Debtor.

22.A perusal of the records of the Corporate Debtor would reveal that the Financial Creditors advanced loans to the Corporate Debtor which ceased to be an operational entity since April 2002. The aforesaid loans were advanced on the term sheets that were not duly stamped. Further, there is no

Page 18 of 28 evidence on record to show that the Corporate Debtor was in need of the loans disbursed by the Financial Creditors. Moreover, there is no document to prove that the Board of the Corporate Debtor resolved to take the loans with an interest of 18% P.A. for the first year and 24% P.A. compounded monthly for the remaining duration.

23. Due to the exorbitant interest charged by the Financial Creditors on the total principal amount of Rs. 4,66,00,000/- (Rupees Four Crore Sixty-Six Lakh Only) advanced by the Financial Creditors i.e., Respondent No.2, 3, and 4, the due amount has compounded into a humongous sum of Rs. 15,70,37,909 (Rupees Fifteen Crore Seventy Lakh Thirty- Seven Thousand Nine Hundred and Nine Only). The interest component has become more than double of the principal amount. Further, the amount of interest has not been shown in the Books of Accounts of either the Corporate Debtor or any of the Financial Creditors."

(Emphasis Supplied)

47. The Appellants submitted that as against observations of the Adjudicating

Authority that the interest was not shown in the books of account of the Corporate

Debtor, the real position is that in the Corporate Debtor's financial statement for

the year 2018-19, the Corporate Debtor dully recorded and acknowledged

Corporate Debtor's interest liability of the payments towards Appellants,

however has not provided the exact intent in the financial statement.

Page 19 of 28

48. The Appellants also submitted that although, the charge were on the loans

not registered with Registrar of Companies ('RoC'), the same was being getting

registered with the RoC.

49. It is the case of the Appellants that the Adjudicating Authority has wrongly

relied on the judgement of this Appellate Tribunal passed in the matter of Smt.

Anamika Singh & Ors. vs. Shinhan Bank [(2020) SCC Online NCLAT 1041]

as facts of the case of both the cases are different and in case of Smt. Anamika

Singh (Supra) the interest rate was @60% p.a. as against @24% interest rate

were being charged by the Appellants in the instant case.

50. The Appellants empathetically argued that in terms of the Code, once

financial debt is established and term sheet is finalized between the Financial

Creditor's (Appellant herein) and the Corporate Debtor, the same should have

been respected and should not have been interfered by the Adjudicating

Authority in the Impugned Order.

51. Since, the present appeal is limited only regarding disallowing the interest

by the Adjudicating Authority and asking the Appellants to return the same to the

Liquidator, we shall examine this limited issue. At this stage, we also note that

the Adjudicating Authority in para 40.3 of the Impugned Order asked the

following amount to be returned by the Appellants to the Liquidator of the

Corporate Debtor :-

Page 20 of 28

52. We note that the Corporate Debtor ceased to be as operational units since

April 2002, whereas these loans were given to Financial Creditor's in 2014.

53. We put a direct query to the Appellants on this issue, as to what prompted

them to advance financial advances to the Corporate Debtor who was not

operating since last more than one decade before loans were granted. The reply

of the Appellants was that it was their commercial decision and no fraud/

extortionate acts could have been attributed towards them.

We also put query to the Appellants as to why they had charged two different

interest rates i.e., 18% for the first year and 24% per annum compounded monthly

for remaining duration. The answer of the Appellants again was that it was

commercial decision. The Appellants further stated that although the term sheet

provided interest rate @24%, reasonable amount over and above principals' debt

could be only 6% p.a. We are not convinced with the reply of the Appellants.

We do not find any logic for Appellant/ Financial Creditor (who allegedly related

Page 21 of 28 to each other/ to give loan to an entity which has shut doors more than one decade

ago. Any prudent corporate bodies like the Appellants will always like to secure

its money before considering any financial facilities to others. Here is the case

when the Appellants have chosen to advance money to the Corporate Debtor

without even getting it registered with RoC as charge. We do not buy argument

of the Appellant that the Corporate Debtor was contemplating to register the

charge with RoC but could not do so. We will not go into further details as fact

remains that the Appellant gave money to the Corporate Debtor, with whatsoever

interest, it might have been.

54. We note that the Impugned Order also discussed about loan not being

stamped or registered with RoC. We also note that there was no documentation

to establish that any board resolution was passed by the Corporate debtor to obtain

such financial facilities from the Appellants. Nor it has been brought out as to

what was the need for Corporate Debtor to take loan at that stage.

55. We note that the Adjudicating Authority had also relied upon the

judgement of this Appellate Tribunal in case of Smt. Anamika Singh (Supra)

and would like to take into consideration the rational of disallowing exorbitant

interest by this Appellate Tribunal in our earlier decision. The rational has been

contained in the following para which have also been used by the Adjudicating

Authority which reads as under:-

Page 22 of 28

"21 . .... The transactions of the Appellants No. 1, 5 & 8 which are prior to two years preceding the insolvency commencement date ....

22. In so far as the stand of the Appellant that for seeking appropriate direction with respect to make an Application for avoidance of such transaction to the Adjudicating Authority, either liquidator or the RP may make an Application is concerned, in this context we are of the view that as per Section 60(5) of IBC, the Adjudicating Authority has jurisdiction to entertain or dispose of any Application or proceedings by or against the Corporate Debtor or Corporate Persons. For beneficial reference Section 60 Sub Section 5 IBC is reproduced below:

60. Adjudicating Authority for corporate persons.

(5) Notwithstanding anything to the contra1y contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of

(a) any application or proceeding by or against the corporate debtor or corporate person;

(b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and

(c) any question of priorities or any question of law or facts, arising of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this code. "

23. In the present case, Respondent No. 1 herein made an Application to the Adjudicating Authority by invoking Section

Page 23 of 28 60 Sub-Section 5 read with Section 22 of the IBC (Annexure R-8, page 90 of Reply) which in our opinion is in accordance with law and the Respondent No. 1 rightly invoked the jurisdiction. 26. In so far Appellants No. 1, 5 & 8 are concerned, though technically they may not be covered under Section 50(1) of the IBC. However, keeping in view that the rates of interest which they charged are exorbitant, we are of the view that claim of exorbitant rates of interest is extortionate regarding interest and thus illegal. However, Appellants No. 1, 5 & 8 can make their claims for Principal Amount as Unsecured Creditors. "

(Emphasis Supplied)

56. We find lot of similarities between above quoted case and present appeal.

The argument of the Appellants is that in case of the Smt. Anamika Singh

(Supra) there was 60% interest rate whereas in the present case it is only 24%

hence the ratio of Anamika (Supra) could not have been applied. We are not

impressed with the logic of the Appellants. Whether it is 60% or 24%

compounded monthly does not make any difference, if the other facts are

established which has been successfully done by the Adjudicating Authority in

the Impugned Order. We note that the Adjudicating Authority has clearly

established that the Corporate Debtor shut its operation more than a decade ago

and there was no rhyme and reason for the Appellants to advance at higher interest

rate of 24% p.a compounded monthly, thus Adjudicating Authority found interest

as extortionate.

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57. We also note that the Corporate Debtor has not passed any board resolution

before accepting such advances. There is no evidence of suitable documentation

or creating charge with the RoC of these loans and such attributes do not help the

cause of the Appellants.

58. We are also bound to go with this Appellate Tribunal's own earlier

judgement in the case of Anamika (Supra) as judicial propriety require us to do

so. We note that the same has been confirmed by the Hon'ble Supreme Court of

India vide order dated 07.08.2023 in the matter of Anamika Singh Vs. Shinhan

Bank & Ors. [2020 CC OnLine NCLAT 1041]. The order passed by Apex Court

reads as under :-

"We do not find any good ground and reason to interfere with

the impugned judgment in view of the peculiar facts of the

present cases. We are also informed that the order for

liquidation has already been passed.

Recording the aforesaid, the appeals are dismissed.

Pending application(s), if any, shall stand disposed of."

(Emphasis Supplied)

59. We also take into consideration to financial statements of the Corporate

Debtor as on 31.03.2018 particularly note no. C which reads as under :-

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Above clearly state that loan of the Appellant i.e., M/s Bhilwara Spinners

Limited was not treated as Secured as charge could not be registered. Note C also

stipulates that no interest has been provided in the books of the Corporate Debtor.

Interestingly, Corporate Debtor candidly acknowledged the fact that the terms of

repayment is NIL. It means that repayment terms neither finalized nor repayment

seems contemplated. Thus, the interest of loan especially interest rate which

stood enhanced to 24% p.a. compounded monthly seems not appropriate in given

circumstances. In this background, we tend to agree with the finding of the

Adjudicating Authority as contained in the Impugned Order. We do not find any

rational for Corporate Debtor for acknowledging interest liability but not account

for same in its own financial statements, which is against the established

accounting norms and standards.

60. Incidentally, we take into account the term-sheet annexed as Annexure 4

in the appeal paper book and find that not even the place has been mentioned,

where the term sheet was signed and kept as blank. This is also does not augur

well for the cause of the Appellants.

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61. Based on above detailed analysis, we do not find any error in the Impugned

Order. The Appeal devoid of any merits stands rejected. No Cost. I.A., if any,

are closed.

[Justice Mohammad Faiz Alam Khan] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

Sim

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