Orator Marketing Pvt Ltd vs Samtex Desinz Pvt Ltd

[Arising out of Order dated 23.10.2020 passed by National Company Law Tribunal, New Delhi Bench Court - VI in Company Petition No.(IB)- 908(ND)/2020]

IN THE MATTER OF: Before NCLT Before NCLAT

M/s Orator Marketing Applicant/ Appellant Pvt. Ltd. Financial Creditor Shop No.102-103, 1st Floor, Aditya Complex, DDA Community Centre, Sector 8, Rohini New Delhi - 110085

Vs.

M/s Samtex Desinz Pvt. Respondent/ Respondent Ltd., Corporate Debtor 122 Tribhuwan Complex Ishwar Nagar, Mathura Road, New Delhi

For Appellant: Mr. Abhijeet Sinha and Mr. Lzafeer Ahmed, Advocates

For Respondent: Mr. Anirudh Deshmukh, Advocate 2

JUDGEMENT

(08th March, 2021) A.I.S. Cheema, J. :

1. This Appeal is filed by the Appellant - M/s. Orator Marketing Pvt.

Ltd. claiming to be Financial Creditor against Impugned Order dated 23rd

October, 2020 passed by the Adjudicating Authority (National Company

Law Tribunal, New Delhi Bench Court - VI) in Company Petition No.(IB)-

908(ND)/2020. The Application was filed under Section 7 of Insolvency and

Bankruptcy Code, 2016 (IBC - in short) seeking Corporate Insolvency

Resolution Process against Respondent Company - M/s Samtex Desinz

Pvt. Ltd. (Corporate Debtor). The Appellant claimed that there was default

in payment of debt of Rs.1,56,89,740/- on the part of the Corporate

Debtor. The Appellant claimed to be assignee of the original lender to the

Corporate Debtor.

2. The Appeal claims and it is argued that the Respondent - M/s

Samtex Desinz Pvt. Ltd. was incorporated in 2018 consequent to

four individuals - 1) Sameer Bharadwaj, 2) P.K. Bharadwaj, 3) Sumeer

Duggal and 4) Sharad Duggal purchasing the Respondent which was at

that time a sole proprietor. The Respondent was then incorporated as a

Company. To meet the business expenses, Respondent had raised a loan

of Rs.14 Crores from M/s. Tata Capital Financial Services Ltd. That loan

was a secured loan and the Respondent had mortgaged land, building, etc.

in favour of M/s. Tata Capital Financial Services Ltd. Still the Respondent

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- Corporate Debtor required more funds for day to day working and

development of business. Respondent approached open market and

financial lenders but could not get additional debt. It is stated that in such

circumstances, to ensure continued development of the business of

Corporate Debtor, Mr. Sameer Bhardwaj - then Director of the

Respondent, through sister concern - M/s. Sameer Sales Pvt. Ltd.

advanced Rs.1.60 Crores to the Respondent. In this regard, Agreement

dated 20th January, 2019 (Annexure A-2 - Page 32) was executed. The

amount was repayable in two years from date of Agreement i.e. on or after

1st February, 2020 upon demand by the lender. Appellant claims that the

said loan reflected in the Balance Sheet of the Corporate Debtor. The

Corporate Debtor made some payments but still Rs.1.56 Crores were due.

3. The Appeal states that subsequently M/s. Sameer Sales Pvt. Ltd. (the

original lender) assigned the outstanding loan to the Appellant. The

Respondent acknowledged the fact that the loan has been assigned. The

Appellant claims that as the debt was due, Appellant on 3rd February, 2020

sent Notice (Annexure A-9 - Page 51) to the Respondent and demanded

payment of the debt. Yet another Notice was sent on 14 th February, 2020

(Annexure A-10 - Page 52) making demand of the outstanding debt. The

Respondent replied on 18th February, 2020 (Annexure A-11 - Page 53)

referring to market conditions and labour problem and sought time to

make the payment in instalments.

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4. The Appellant subsequently filed Application under Section 7 of

Insolvency and Bankruptcy Code, 2016 (IBC - in short) and the

Adjudicating Authority after hearing Counsel for both sides, rejected the

Application under Section 7 holding that there was a mere grant of loan

and it was not a financial debt. It noted that it was an admitted fact that

the loan was interest free. It also found that there was no evidence that the

amount was disbursed for time value of money. The Adjudicating Authority

thus concluded that the Appellant could not be treated as a Financial

Creditor. The Application thus came to be dismissed.

5. We have heard Counsel for both sides and perused the Appeal and

the Reply filed by the Respondent. The fact that loan was advanced to the

Respondent, is not in dispute. The narrow question involved is whether the

transaction concerned can be treated as a transaction of Financial Debt as

defined in Section 5(8) of IBC. The definition of "Financial Debt" under IBC

Section 5(8) reads as under:-

"(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;

(b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent;

(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;

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(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, 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 sub-clauses (a) to (h) of this clause;"

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IBC separately defines debt under Section 3(11) as under:-

"(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;"

It is apparent that there can be debts which do not necessarily fall

in the definition of financial debt or operational. Money borrowed against

payment of interest comes within the definition financial debt. However, if

the money borrowed is not against payment of interest, under the

definition of financial debt, the core requirement is to find whether there

is "consideration for the time value of money". The facts of the matter

disclose and the Appeal also records that when the Corporate Debtor was

unable to get any further loan from the market after having taken loan

from M/s. Tata Capital Financial Services Ltd., M/s. Sameer Sales which

was related party to the Corporate Debtor, extended interest free

unsecured loan to the Corporate Debtor payable on or after 1st February,

2020 and that too upon demand by the lenders. It would be appropriate to

reproduce the Loan Agreement itself to understand the same. The Loan

Agreement (Annexure A-2) reads as under:-

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Company Appeal (AT) (Ins) No.1064 of 2020 8

Company Appeal (AT) (Ins) No.1064 of 2020 9

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When we read the background as recorded in paragraphs - 1 and 2

of the above Loan Agreement, it is clear that the sister concern while

extending the loan did not record anything other than the problem of the

Corporate Debtor, for granting the loan. It is merely recorded that because

of taking loan from M/s. Tata Capital Financial Services Ltd., no other

institution is willing to extend unsecured loan to the Corporate Debtor

"and therefore", the lender had agreed to extend the loan of

Rs.1,60,00,000/- to the borrower (i.e. Corporate Debtor). Then the above

Agreement refers terms and conditions.

Appeal para - 7(d) states as under:-

"d. In these circumstances to ensure continued development of the business of the Corporate Debtor, Mr. Sameer Bharadwaj, the then Director and the Current Authorized Signatory of the Respondent, through the sister concern advanced a sum of Rs.1.60 Crore. It is submitted that in compliance with the law, the aforesaid sum was extended under a loan agreement, however the sum was advanced interest free, since the development of the business was enough consideration for time value of money."

6. Synopsis states and it is argued that it being related party

transaction, the money was to be utilized by the Respondent for day to day

activities and to develop business, and that same was consideration of time

value of money.

7. We are unable to accept this argument because the term "time value

of money" has to be a consideration for the Financial Creditor. How the

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Corporate Debtor will be using the money, cannot be stated to be the

consideration for time value of money for the Financial Creditor.

8. The learned Counsel for the Appellant argued that the Adjudicating

Authority wrongly recorded in Para - 17 of the Impugned Order that the

Applicant has not produced any Loan Agreement nor there are details and

particulars of any applicable interest mutually agreed between the parties.

The learned Counsel referred to the Application filed to say that the Loan

Agreement was on the record of the Adjudicating Authority. It appears that

there is some confusion with regard to the intent of the observation of

Adjudicating Authority as the same para - 17 in very next sentence records

that "The loan agreement and the assignment agreement clearly show that

no interest was charged on the loan amount".

9. It has also been argued by the learned Counsel for the Appellant that

after a period of two years when the loan still remained due, it must be

thereafter treated as financial debt. We are not impressed by this

submission also. A simple debt by default would continue to remain simple

debt and only by default, nature of the debt would not change.

10. The learned Counsel for the Appellant relied on Judgement of this

Tribunal in the matter of "Mack Soft Tech Pvt Ltd. Versus Quinn

Logistics India Ltd." in Company Appeal (AT) (Ins) No.143 of 2017 dated

21st May, 2018 to submit that when there is disbursement and default, it

should be treated as financial debt. It is also argued that in that matter

Company Appeal (AT) (Ins) No.1064 of 2020 12

also, there was loan given to the sister concern and the same was treated

as financial debt. We have gone through the said Judgement, copy of which

has been filed. What appears from that Judgement is that there was no

document in support of the entries in the account and there was absence

of any correspondence (see para - 13 of that Judgement). This Tribunal

had, in the facts of that matter, considered the main object of the company

(Financial Creditor) (see para - 35) and looked into the Memorandum of

Association (which was reproduced) and observed (in para - 37 of the

Judgement) that "Grant of loan and to get benefit of development is object

of the Respondent - (Financial Creditor), as apparent from their

'Memorandum of Association'." With such facts, the provisions of law were

examined for the finding of transaction in that matter to be a financial

debt. Facts of the present matter are different and thus, we do not find

that the Judgement is helpful to the Appellant.

11. Learned Counsel for Appellant further relied on Judgement in the

matter of "Pioneer Urban Land and Infrastructure Ltd. and Another vs.

Union of India and Others" (2019) 8 SCC 416 and referred to para - 71

and picked up portion where it is recorded that "when the money is

disbursed, it is no longer with the allottee" and argued that the Hon'ble

Supreme Court held that when money is disbursed and no longer with the

person giving the money, it must be treated as financial debt. We do not

find that picking up words in isolation would help the Appellant. The

concerned sentence in the said Judgement reads as under:-

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"That this is against consideration for the time value of money is also clear as the money that is "disbursed" is no longer with the allottee, but, as has just been stated, is with the real estate developer who is legally obliged to give money's equivalent back to the allottee, having used it in the construction of the project, and being at a discounted value so far as the allottee is concerned (in the sense of the allottee having to pay less by way of instalments than he would if he were to pay for the ultimate price of the flat/apartment)."

12. It is quite clear that the observations are in the context of allottees

and the portion of the Judgement reproduced above itself makes it clear

that when: allottee disbursed the money and the money was no longer with

the allottee, it was with the object of real estate developer giving back

money's equivalent, to the allottee. THAT is the consideration for the

allottee. The Judgement is not of assistance to the Appellant in the facts

of the matter.

13. It has been then argued that the Appellant after execution of the

Assignment Agreement in its favour, not being related party and having

taken the assignment for consideration, the loan extended would have to

be treated as a Financial Debt. We are unable to accept such argument.

The basic nature of the loan as witnessed from the Loan Agreement

(Annexure A-2) will not change. If it was a simple debt extended to the

sister concern, merely because the original lender has now assigned the

debt to the Appellant will not change the nature of the transaction.

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14. For the above reasons, we do not find any error in the findings

recorded by the Adjudicating Authority where the Adjudicating Authority

found that the transaction is not a transaction of financial debt and thus

declined to admit the Application under Section 7 of IBC.

15. There is no substance in the Appeal. The Appeal is dismissed.

No Orders as to costs.

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

[Mr. V.P. Singh] Member (Technical) rs

Company Appeal (AT) (Ins) No.1064 of 2020