Mr.Nitin Rekhan vs Hightime Marketing Pvt Ltd

Mr. Nitin Rekhan .... Appellant Aged 44 years, S/o S.K. Rekhan, R/0 E-4/23, Model Town-1, New Delhi.

Versus

Hightime Marketing Private Limited .... Respondent 71/5465, Reghar Pura, Karol Bagh, New Delhi -110005.

Present

For Appellant: Mr. Manish Kaushik and Mr. Mishal Johari, Advocates

For Respondent: None

ORDER

(Virtual Mode)

This appeal has been filed by the Appellant aggrieved by the order dated

04.12.2019 of the Adjudicating Authority (NCLT Delhi) in CP (IB) No. 1145

(PB)/2019.

2. It has been held by the Adjudicating Authority in the application of the

Company Appeal (AT) No. 36 of 2020

Page 1 of 8 Appellant under Section 7 of the Insolvency and Bankruptcy Code, 2016 (in

short IBC) for default in payment of interest by the Respondent (Corporate

Debtor), that it is not maintainable as the default in payment of interest is not

covered under the definition of „financial debt‟ and Appellant is not a „financial

creditor‟ under the definition provided in the IBC.

3. The Appellant has claimed that the Corporate Debtor High Time Marketing

Private Limited (Respondent in the appeal) approached the Appellant and

received Rs.40 lakhs on 27.10.2010 from the Appellant for issuing shares to him.

The share application money was paid in an Account No. 5582000100022401 in

Karnataka Bank Limited, Karol Bagh, Delhi. Since no shares could be allotted to

the Appellant, the Respondent refunded the principal amount of Rs. 40 lakhs on

9.2.2018 but no interest was paid on the principal amount as is required under

Rule 17 of the Companies (Acceptance of Deposit)Rules, 2014. The Appellant has

claimed that the interest payable by the Respondent is Rs. 85,35,000 and the

default in payment of this alleged financial debt occurred on 9.2.2018 when the

principal amount was refunded without the interest.

4. The Learned Counsel for Appellant was heard on admission on 21.9.2021.

He was also given an opportunity to file written submissions within seven days,

but no written submissions were filed by the due date.

Company Appeal (AT) No. 36 of 2020

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5. The Learned Counsel for Appellant has claimed that the interest on the

principal amount is a financial debt and is payable to him by the Respondent

under Rule 17 of the Companies (Acceptance of Deposit) Rules, 2014 which

should also be refunded. Since the Respondent has not done so, the Appellant

has filed application under Section 7 of the IBC which should be admitted and

heard.

6. In support of his claim that an interest on the principal amount is payable

and there is a default, the Learned Counsel for Appellant has cited notice by the

Income Tax Department dated 24.9.2018 seeking information under Section 133

(6) of the Income Tax Act, 1961 from Hightime Marketing Private Limited for

assessment year AY 2011-12 (attached at page 40 of the Appeal Paperbook). He

has also referred to letter no. ROC/DL/COME/2019/IITMEL/AG/109 dated

14.5.2019 to show that he has made a complaint against the Appellant regarding

non-payment of interest on the principal amount. In support of his contention

about he has shown bank statement (attached at page 39 of the Appeal

paperbook) wherein the refund of the principal amount is included in entry dated

9.2.2018. He has also shown bank statement and income tax return copies

were sent to the Corporate Debtor by the Appellant through email dated July 22,

2019 (attached at page 41 of the Appeal Paperbook) and the balance sheet of the

Corporate Debtor for FY 2017-18 to show that his claim is due and payable (page

111 of the Appeal Paperbook).

Company Appeal (AT) No. 36 of 2020

Page 3 of 8

7. The Impugned Order holds that the amount deposited by the Appellant is

not covered in the definition of „financial debt‟ as provided in the IBC as there was

no no time value of money attached with the deposit. The Impugned Order also

holds that no financial contract has been produced by the Appellant in

compliance of the provisions of the IBC or the Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules, 2016, either in the original petition

or additional affidavits. Therefore, the Adjudicating Authority has held in the

Impugned Order that the petitioner is not covered under the expression „financial

creditor‟ because it does not answer the description of Section 7 read with

Section 5(7) and 5 (8) of the IBC.

8. We have considered the arguments put forward by the Appellant regarding

admission of the appeal. His claim is that the Respondent was liable to repay

the deposit along with interest under Sections 73 and 74 of the Companies Act,

2013, and interest was to be paid at the rate of 18% as per Rule 17 of the

Companies (Acceptance of Deposits) Rules 2014.

9. The notice seeking information sent by the income tax department dated

24.9.2018 (supra),notice issued by the ROC on complaint made dated 14.5.2019

(attached at pg. 51 of Appeal paperbook), bank statement and income tax return Company Appeal (AT) No. 36 of 2020

Page 4 of 8 copies sent vide email dated July 22, 2019 and the balance sheet for the year FY

2017-2018 all only go to show that the Appellant is expecting an interest on his

deposit, but no financial contract or agreement has been submitted by the

Appellant to show that this interest is covered under the definition of „financial

debt‟ under Section 5(8) and that the Appellant is a „financial creditor‟ under

Section 5(7) of the IBC. The definition of „financial debt‟ and „financial creditor‟

provided in IBC is reproduced below: -

"5. Definitions.-

xxxxxxxxxx

5(7). "financial creditor" means any person to whom a financial debt is

owed and includes a person to whom such debt has been legally assigned

or transferred to.

5(8) "financial debt" means a debt along with interest, if any, which is

disbursed against consideration for the time value of money and includes -

(a money borrowed against the payment of interest;

(b) any amount raise d by acceptance under any acceptance credit

facility or its de-materialized equivalent;

(c) any amount raised pursuant to any note purchase facility or the

issue of bonds, notes, debentures, loan stock or any similar instrument;

Company Appeal (AT) No. 36 of 2020

Page 5 of 8

(d) the amount of any liability in respect of any lease or hire purchase

contract which is deemed as a finance or capital lease under the Indian

Accounting Standards or such other accounting standards as may be

prescribed;

(e) receivables sold or discounted other than any receivables sold on

non-recourse basis;

(f) any amount raised under any other transaction, including any

forward sale or purchase agreement, having the commercial effect of a

borrowing.

[Explanation, - For the purposes of this sub-clause, -

(i) any amount raised from an allottee under a real estate project shall

be deemed to be an amount having the commercial effect of a borrowing;

and

(ii) the expressions, "allottee" and "real estate project" shall have the

meanings respectively assigned to them in clauses (d) and (zn) of section 2

of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016;]

(g) any derivative transaction entered into in connection with

protection against or benefit from fluctuation in any rate or price and for

calculating the value of any derivative transaction, only the market value of

such transaction shall be taken into account;

(h) any counter-indemnity obligation in respect of a guarantee

Company Appeal (AT) No. 36 of 2020

Page 6 of 8 indemnity; bond documentary letter of credit or any other instrument issued

by a bank or financial institution;

(i) the amount of any liability in respect of any of the guarantee or

indemnity for any of the items referred to in cub-clauses (a) to (h) of this

clause;

Under Section 3(11) of IBC, „debt‟ is defined as follows: -

"3(11) "debt" means a liability or obligation in respect of a claim which is

due from any person and includes a financial debt and operational

debt."

10. It is clear from definition given in Section 3(11) that debt is a much bigger

set of financial liabilities, whereas "financial debt" is only a subset of the overall

set of debt. Moreover, Section 5(8) defines „financial debt‟ to mean a debt along

with interest which is disbursed against the consideration for the time value of

money, where money should necessarily be borrowed against the condition of

time value of money. Under Section 5(7), „financial creditor‟ is a person to whom

„financial debt‟ is owed or to whom such debt has been legally assigned or

transferred to.

11. The Appellant has nowhere been able to show any document that there

Company Appeal (AT) No. 36 of 2020

Page 7 of 8 was a financial contract to borrow by the Corporate Debtor by the Respondent -

Corporate Debtor, in which refund of principal amount alongwith interest was

included explicitly. We are, therefore, not persuaded by the contention of the

Appellant that there was a time value of money attached with the deposited

which was established through a prior contract before the principal amount was

deposited for purchasing of shares by the Appellant with the Respondent.

Moreover, the amount deposited should be a credit to be used by the

Respondent-Corporate Debtor for the growth of his enterprise. The Appellant

has not given any document or argument to show that the amount deposited by

him was to be used by the Respondent for establishing or running his business.

12. We, therefore, do not think that the impugned order needs any

intervention. The appeal, therefore, does not need consideration and is

dismissed at the stage of admission. No order as to costs.

(Justice Jarat Kumar Jain) Member (Judicial)

Dr. Alok Srivastava) Member (Technical)

New Delhi 1st October, 2021

/aks/ Company Appeal (AT) No. 36 of 2020

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