Prarthana Sales Private Limited & Anr vs Burnpur Cement Limited

Prarthana Sales Pvt Ltd 16, Strand Road, 7th Floor, Room No.709A, Kolkata 700001 West Bengal Appellant No.1

Narsingh Mercantile Private Ltd 16, Strand Road, 7th Floor, Room No.709A, Kolkata 700001 West Bengal Appellant No.2

Vs

Burnpur Cement Ltd Village Palashdiha, Panchgachia Road, Kanyanpur, Asansol, West Bengal 713341 Respondent

For Appellant: Mkr Gorav Mitra, Ms Pratiksha Sharma, Mr Ankit Acharya, Mr Mueed Shah and Ms Niharika Singh, Advocates.

For Respondent: Mr. Dhruv Dewan and Mr Dhruv Sethi, Advocates.

JUDGEMENT

(2nd September, 2022)

JUSTICE RAKESH KUMAR, MEMBER (JUDICIAL)

In the present Appeal, filed under Section 61 of the Insolvency &

Bankruptcy Code, 2016 (hereinafter referred to as the 'IB Code'), the Appellants

Company Appeal (AT)(Insolvency) No.940/2022 2

have assailed an order dated 13.06.2022 passed in CP(IB) No.964/KB/2020 by

National Company Law Tribunal, (hereinafter referred to as the 'NCLT'), Kolkata

Bench, Kolkata. By the said order, NCLT has been pleased to reject the

application filed under Section 7 of IB Code which was filed by both the

Appellants herein. The Appellants demanding Corporate Debt against the

Respondent/Corporate Debtor had filed an application under Section 7 of IB

Code which was registered as CP (IB)No.964/KB/2020. On the date of filing of

the application under Section 7 of the IB Code it was admitted position that the

Corporate Debtor/Burnpur Cement Limited's Management had already changed

in a Securitisation and Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002 (hereinafter referred to as 'SARFEASI Proceeding').

With effect from 1.10.2019 the Management of the Company was taken over by

UV Asset Reconstruction Company Ltd. The said knowledge of the appellants is

reflected from the reply given by Corporate Debtor which is at page 64 Volume 1

of the Memo of Appeal. Both the appellants had claimed for alleged corporate

debt after almost four years lapse of a so called claim

2. The facts gathered from the Memo of Appeal and record depicts that on

14.04.2014 Prarthana Sales Pvt Ltd, Appellant No.1 and Narsingh Mercantile Pvt

Ltd, Appellant No.2 had provided Burnpur Cement Ltd, sole respondent Inter

Corporate Deposits in the following terms:

"Prarthana Sales Pvt Ltd, Appellant No1, Rs. 2.7 crores out of which

Rs.2.15 crore was repaid and balance outstanding was Rs.55,00,000/-.

(Agreement dated 14.04.2014.

Company Appeal (AT)(Insolvency) No.940/2022 3

. Active Commercial Pvt Ltd - Rs.50 lakhs (Agreement dated 15.12.2014.

Nikita Vyapaar Pvt Ltd Rs.1.05 Crore (Agreement dated 13.12.2014,"

3. On perusal of the Agreement dated 13.10.2014 and 15.12.2014 entered

in between Burnpur Cement Ltd and Nikita Vyapaar Ltd (13.10.2014) and

Agreement entered in between Burnpur Cement Ltd and Active Commercial Pvt

Ltd (15.12.2014) it is evident that the lender company had filed an application

for amalgamation of its company namely Active Commercial Pvt Ltd into

Narsingh Mercantile Pvt Ltd and application for amalgamation of lenders

company namely Nikita Vyapaar into Narsingh Mercantile Pvt Ltd.

Subsequently, by the order dated 05.01.2016 by Hon'ble Calcutta High Court in

a Company Petition, the amalgamation was allowed.

4. It is further case of the Appellants that in the financial year 2014-15, 2015-

16, Corporate Debtor deducted TDS of Rs.96,061/- on interest of Rs.11,35,615/-

paid to the account of Prarthana Sales Pvt Ltd and a sum of Rs.2,12,209/-being

TDS on interest of Rs.25,09,588/- was paid to the account of Narsingh

Mercantile Pvt Ltd.

5. On the record it is evident that though Corporate Debtor had deducted

TDS on interest in the financial year 2014-15 and 2015-16 thereafter there is

nothing on record to suggest whether interest was paid or not by the Corporate

Debtors. Subsequently to the reasons best known to both the Appellants, after

lapse of several years and that too after the change of the management of the

Corporate Debtor in view of orders passed in a SARFEASI Proceeding on

Company Appeal (AT)(Insolvency) No.940/2022 4

23.01.2020 two demand notices were issued demanding the refund of debt

amount to the Corporate Debtor. The Corporate Debtor i.e. changed

management, after receipt of the demand notice immediately vide letter dated

25.02.2020 replied to the Appellant No.1 and by letter dated 25.02.2020 also

replied to the Appellant No.2 herein and denied the demands raised in the

demand notice on a belief that these transactions were done with an intention

to siphoning the funds. It was further intimated that a detailed forensic audit

was being conducted to find out the rationality of the transactions. Only after

completion of audit and due diligence the Management to take adequate legal

steps regarding the same. To reply letters sent on behalf of the corporate debtor,

reminder was also sent by the appellants and without waiting for receipt of

special audit report, it appears that the appellants filed joint application under

Section 7(1) of the IB Code before the NCLT on 10th August, 2020. Before the

NCLT, the appellants asserted that total amount claimed Rs.2,97,82,697/- was

inclusive of Rs.2,10,00,000/- Principal amount (Rs. 55 lakh- Prarthana Sales

Pvt Ltd, Rs. 50 lakhs-Active Commercial Pvt Ltd and Rs.1.5 crore Nikita Vyapar

Ltd and Rs.87,82,687/- being interest charged @ 10% per annum till

31.07.2020. As per the Memo of Appeal on 18.01.2021 the

Respondent/corporate Debtor filed an affidavit in reply which was replied by

filing of rejoinder on 15.02.2021. Further on 09.05.2021 the

Respondent/corporate debtor filed a supplementary affidavit. After hearing the

parties and examining the issue as to whether there was an existence of default

or not the Learned NCLT finally dismissed the application filed by the appellants

Company Appeal (AT)(Insolvency) No.940/2022 5

by its impugned order dated 13.06.2022 which has been assailed in the present

appeal.

6. Learned counsel for the appellants assailing the impugned order has

emphatically argued that the Learned NCLT has dismissed the application filed

by the appellants primarily basing reliance of an assessment order which was

passed by the Income Tax Authority. It has been argued that before the Income

Tax Department the appellants were not party. The assessment order was passed

in respect of accounts of assessee i.e. Corporate Debtor in the present appeal.

Learned Counsel has further argued that the Learned NCLT had not examined

the entire bank statement which was brought on record by the appellants to

establish the good that there was corporate debt lying against the Corporate

Debtor which was legally recoverable by the appellants.

7. In the appeal though it was listed for the first time the Respondent had

entered appearance through its counsel. Learned counsel for the respondent

opposed the appellant submissions that the order passed by the NCLT is a

detailed order which assigns detailed reasons for coming to the conclusion that

the said corporate debt claimed by the appellants were sham transactions and

as such Learned NCLT discussing all the elements and facts has rejected the

petition filed under Section 7 of the IB Code filed by the Appellants.

8. Besides hearing learned counsel for the parties we have minutely perused

material available on record and after going through the same prima facie we are

Company Appeal (AT)(Insolvency) No.940/2022 6

of the opinion that the invoking Appellate jurisdiction of this Tribunal by the

Appellant was simply an abuse of the process of the Court.

9. Before dwelling into the matter, at the outset it is necessary to examine

the so called agreement which was the basis for claiming corporate debt by the

appellants against the Respondent/Corporate Debtor. The first agreement for

disbursement of loan starts from running page 46 of the Volume 1 of Memo of

Appeal. It is dated 14.04.2014 in between Burnpur Cement Ltd and Prarthana

Sales Pvt Ltd. Another agreement is dated 13.10.2014 in between Burnnpur

Cement Ltd/corporate debtor and Nikita Vyapaar Pvt Ltd (which was

subsequently amalgamated with M/s Narsingh Mercantile Pvt Ltd, Appellant

No.2) running page 49 to 51 and third agreement is dated 15th December, 2014

in between Burnpur Cement Ltd/corporate debtor and Active Commercial Pvt

Ltd *(which was subsequently amalgamated with Narsingh Mercantile Pvt Ltd

(appellant No.2). The contents of agreement dated 13.10.2014 and 15.12.2014

are in verbatim same except change of names of the second party in the

agreement and their address. Similarly agreement dated 14.04.2014 is also

same. However, this agreement does not contain the facts mentioned in para 5

of aforesaid two agreements. In paragraph 5 of agreement dated 13.10.2014 and

15.12.2014 same fact has been mentioned which is reproduced hereinbelow:-

"The Lender company has filed an application for amalgamation of its

company named 'Active Commercial Pvt Ltd' into Narsingh Mercantile Pvt

Ltd. The re-payment of loan shall be made:

Company Appeal (AT)(Insolvency) No.940/2022 7

a) If the demand is raised by the Lender prior to the order of amalgamation

of the company-the repayment of loan shall be made to respective

companies from which the loan has been disbursed to the borrower.

b) If the demand is raised by the Lender after the order of amalgamation is

passed the payment shall be made to the amalgamated companies bank

account i.e. in the bank account of Narsingh Mercantile Pvt Ltd.

Except contents of only paragraph 5 of aforesaid two agreements is

missing otherwise entire contents of two agreements are mentioned in agreement

dated 14.04.2014. Further we feel appropriate at this juncture to reproduce the

agreement dated 14.04.2014 and 15.12.2014 as under:-

"This Loan Agreement is executed on date 14th Apr8il, 2014 between

BURNPUR CEMENT LIMITED, a Public Limited company incorporated in

India under the Companies Act, 1956 bearing

CIN:L27104WB1986PLC040831, and having its registered office at

Palashdiha, Panchgachia Road, Kanyapur, Asansol, West Bengal 713341,

hereinafter referred to as the "Borrower" which expression unless

repugnant to the context shall mean and include its legal representatives,

assignee, nominee(s) and administrator

AND

PRARTHANA SALES PRIVATE LIMITED, a private Limited company

incorporated in India under the Companies Act, 1956 bearing

CIN:U52190WB2011PTC157333 and having its registered office at 1,

Crooked Lane, 2nd Floor, Room No.205, Kolkata 7000696, West Bengal,

Company Appeal (AT)(Insolvency) No.940/2022 8

hereinafter referred to as the "Lender" which expression unless repugnant

to the context shall mean and include its legal representatives, assignee,

nominee(s) and administrator.

Whereas both the Borrower and the Lender have agreed to execute a Loan

Agreement dated 14th day of April, 2014 for not exceed a sum of

Rs.2,70,00,000 (Rupees Two Crores Seventy Lakhs only) to the Borrower on

terms and conditions enumerated hereinbelow:

1. That the Interest Rate for Loan Disbursement i.e. 10% per annum is

payable calendar quarter to the Lender in arrears subject to adjustment

for tax deduction at source as per Indian Income Tax Act, 1961.

2. That with respect to any matter under this Agreement, the competent

courts within the local limits of whose jurisdiction, the Borrower resides

or ordinarily carries on his business, or personally works for gain, such

courts will have exclusive jurisdiction over this Agreement.

3. That the Lender shall grant INR 2,70,00,000/- through net banking

channel.

4. The amount borrowed by the Borrower shall be construed as Inter

Corporate Deposits.

5. The amount of Rs.2,70,00,000/- shall be repaid on demand from the

Lender. The Borrower will be allowed 10 days time from the date of

receipt the demand letter from the Lender to repay the loan amount along

with interest.

Company Appeal (AT)(Insolvency) No.940/2022 9

6. The mode of transfer of the Loan amount and shall be made either in

NEFT/Net Banking/banking channels or any other mode as mutually

agreed between the Lender and Borrower.

7. Both parties represent covenants and warrant to each other that;

(a) They have read all the terms and conditions of this given agreement.

(b) They unconditionally agree to abide by the terms and conditions

contained in this agreement.

(c) The information and financial details submitted by the Borrower to

the Lender are true, correct and best of his knowledge.

8. In case of death of the Lender/Borrower, the Loan amount shall be

receivable/payable by his legal heir as per the terms and conditions as

given in this Loan Agreement.

9. If any provision of this agreement is illegal, invalid or unenforceable for

any reason, it will be severed from the remaining provisions which will

remain unaffected.

IN WITNESS WHEREOF the parties hereto have hereunder set and

subscribed their signatures with their respective hands, on the 14th day of

April, 2014 year first hereinabove witness, both at Kolkata.

1 Signed by the Borrower

Sd/- for Burnpur Cement Ltd

Company Appeal (AT)(Insolvency) No.940/2022 10

2. Signed by the Lender

For Prarthana Sales Pvt Ltd

Sd/- for Prarthana Sales Private Limited"

"This Loan Agreement is executed on date 15th December, 2014 between

BURNPUR CEMENT LIMITED, a Public Limited company incorporated in

India under the Companies Act, 1956 bearing

CIN:L27104WB1986PLC040831, and having its registered office at

Palashdiha, Panchgachia Road, Kanyapur, Asansol, West Bengal 713341,

hereinafter referred to as the "Borrower" which expression unless

repugnant to the context shall mean and include its legal representatives,

assignee, nominee(s) and administrator

AND

ACTIVE COMMERCIAL PRIVATE LIMITED, a private Limited company

incorporated in India under the Companies Act, 1956 bearing

CIN:U51909WB2008PTC131123 and having its registered office at 1,

Crooked Lane, 2nd Floor, Room No.205, Kolkata 7000696, West Bengal,

hereinafter referred to as the "Lender" which expression unless repugnant

to the context shall mean and include its legal representatives, assignee,

nominee(s) and administrator.

Whereas both the Borrower and the Lender have agreed to execute a Loan

Agreement dated 15th day of December, 2014 for not exceed a sum of

Company Appeal (AT)(Insolvency) No.940/2022 11

Rs.50,00,000 (Rupees Fifty Lakhs only) to the Borrower on terms and

conditions enumerated hereinbelow:

1. That the Interest Rate for Loan Disbursement i.e. 10% per annum is payable

calendar quarter to the Lender in arrears subject to adjustment for tax

deduction at source as per Indian Income Tax Act, 1961.

2. That with respect to any matter under this Agreement, the competent courts

within the local limits of whose jurisdiction, the Borrower resides or

ordinarily carries on his business, or personally works for gain, such courts

will have exclusive jurisdiction over this Agreement.

3. That the Lender shall grant INR 50,00,000/- through net banking channel.

4. The amount borrowed by the Borrower shall be construed as Inter Corporate

Deposits.

5. The Lender company has filed an application for amalgamation of its

company named 'Active Commercial Private Limited' into 'Narsingh

Mercantile Private Ltd'. The re-payment of loan shall be made:

a) If the demand is raised by the Lender prior to the order of amalgamation

of the company-the repayment of loan shall be made to respective

companies from which the loan has been disbursed to the borrower.

b) If the demand is raised by the Lender after the order of amalgamation is

passed the payment shall be made to the amalgamated companies bank

account i.e. in the bank account of Narsingh Mercantile Pvt Ltd.

Company Appeal (AT)(Insolvency) No.940/2022 12

6. The amount of Rs.50,00,000/- shall be repaid on demand from the Lender

in the manner specified in para 5 of this Agreement. The Borrower will be

allowed 10 days time from the date of receipt the demand letter from the

Lender to repay the loan amount along with interest.

7. The mode of transfer of the Loan amount and shall be made either in

NEFT/Net Banking/banking channels or any other mode as mutually

agreed between the Lender and Borrower.

8. Both parties represent covenants and warrant to each other that;

(a) They have read all the terms and conditions of this given agreement.

(b) They unconditionally agree to abide by the terms and conditions

contained in this agreement.

(c) The information and financial details submitted by the Borrower to

the Lender are true, correct and best of his knowledge.

9. In case of death of the Lender/Borrower, the Loan amount shall be

receivable/payable by his legal heir as per the terms and conditions as

given in this Loan Agreement.

10. If any provision of this agreement is illegal, invalid or unenforceable

for any reason, it will be severed from the remaining provisions which will

remain unaffected.

IN WITNESS WHEREOF the parties hereto have hereunder set and

subscribed their signatures with their respective hands, on the 15th day of

December, 2014 year first hereinabove witness, both at Kolkata.

Company Appeal (AT)(Insolvency) No.940/2022 13

1 Signed by the Borrower

Sd/- for Burnpur Cement Ltd

2. Signed by the Lender

For Active Commercial Pvt Ltd

Sd/- for Active Commercial Pvt Ltd "

On perusal of contents of the agreements it is evident that same and similar

words/sentences were used in both the agreements. Besides aforesaid glaring

facts of similarity, address of Prarthana Sales Pvt Ltd (Appellant No.1) and

address of Active Commercial Pvrt Ltd (subsequently amalgamated with

Narsingh Mercantile Pvt Ltd) is the same. The registered of both the companies

as per agreements is Crooked Lane, 2nd Floor, Room No.205, Kolkata, West

Bengal

10. It is also peculiar that though the aforesaid agreements were mainly

entered for disbursement of loan, no fix period has been mentioned regarding

repayment of the loan amount. On the contrary it has simply been indicated in

paragraph 5 of agreement dated 14.04.2014 and paragraph 6 in agreements

dated 13.10.2014 and 15.12.2014 that the amounts shall be repaid on demand

from the lenders. "The 'borrowers' will be allowed 10 days time from the date of

receipt of demand notice from the lenders to repay the loan amount alongwith

interest." As per paragraph 1 of the aforesaid agreements the interest rate for

Company Appeal (AT)(Insolvency) No.940/2022 14

loan disbursement i.e. 10% p.a. is payable calendar quarter to lender in arrears

subject to adjustment for tax deduction at source as per Income Tax Act, 1961.

In the paragraph 7(b) of the Memo of Appeal it has been stated by the Appellants

that in the financial year 2014-15 and 2015-16, Corporate Debtor deducted TDS

of Rs.96,061/- on interest of Rs.11,35,615/- paid to the account of Prathana

Sales Pvt Ltd and a sum of Rs. 2,12,209/- being TDS on interest of

Rs.25,09,588/- has been paid to the account of Narsingh Mercantile Pvt Ltd.

There is no assertion or pleading by the Appellants as to whether after financial

years 2014-2016 any interest was paid or TDS was deducted. Obviously

financial year 2015-16 ended on 31st March, 2016. Subsequently, suddenly after

lapse of about four years the Appellants came out of their slumber and issued

demand notice in the year 2020. Obviously the said claim was barred by law of

limitation. It is not only a case that after 4 years the appellants started claiming

their dues but it is also a fact that in the month of October, 2019 the

Management of Burnpur Cement Ltd (Corporate Debtor) was taken over by UV

Asset Reconstruction Co Ltd under a SARFEASI Proceeding. From the said

conduct of the Appellants many things can be inferred, particularly serious

doubt regarding the so called lending by the appellants to the corporate debtor

can be raised. Besides aforesaid facts which creates serious doubts in respect

of the claim raised by the appellants, in the minds of this Tribunal, on going

through the impugned order the Court is of the considered opinion that the

Learned NCLT has examined several aspects and has reasonably observed that

Company Appeal (AT)(Insolvency) No.940/2022 15

in exercise of summary jurisdiction under the Code it is difficult to conclude that

a bona fide financial debt exists.

11. For initiating Corporate Insolvency Resolution Process (CIRP) under

Section 7 (4) of the IB Code a duty is cast on the Adjudicating Authority to

ascertain the existence of default from the records. Meaning thereby that if there

is any difficulty in coming to the conclusion regarding the existence of default

the Adjudicating Authority has got no option but to reject the petition filed under

Section 7(1) of the IB Code. On examination of the impugned order it is clear

that through Learned Adjudicating Authority has taken note of assessment order

dated 31.12.2018 passed by the Income Tax Department against the corporate

debtor, the said assessment order has been referred in furtherance of other

cogent materials which were brought on record before the Adjudicating

Authority. The Adjudicating Authority while deciding the petition filed by the

Appellants had also examined the MCA records which has been dealt with in

paragraphs 30 of the impugned order and the same is reproduced hereinbelow:-

"As per the MCA Records filed by the Corporate Debtor, both the Financial

Creditors have a common registered address i.e. 16 Strand Road, 7 th floor,

Room No.709A, Kolkata, WB 700001. The Corporate debtor has also placed

on record the Forensic Audit report dated 14.01.2021 which mentions in

paragraph 16.1.1.1 that the analysis of Financial statements of the

corporate debtor reveals that it had repaid/adjusted unsecured

loans/operational debts during FY 2015-16 and 2016-17 amounting to

preferential transactions as belows:

Company Appeal (AT)(Insolvency) No.940/2022 16

S.No. Party Name Amount repaid

1 Nikita Vyapaar Pvt Ltd 1.12 crore

2 Narsingh Mercantile Pvt Ltd 0.07 crore

3 Prarthana Sales Pvt Ltd 0.05 crore

4 Active Commercial Pvt Ltd 0.53 crore

12. Learned Adjudicating Authority has minutely examined the issue relating

to lending loan by Appellant No.1, Prarthana Sales Pvt Ltd, loan given by Active

Commercial Pvt Ltd (subsequently amalgamated with Narsingh Mercantile Pvt

Ltd, loan given by Nikita Vyapaar Pvt Ltd (amalgamated with Narsingh Mercantile

Pvt Ltd and loan given by Narsingh Mercantile Pvt Ltd to the corporate debtor.

13. At this juncture it would be appropriate to reproduce the observation of

Adjudicating Authority in respect of aforesaid loans which have been discussed

in internal page 10, 11,12, 13 and 14 of the impugned order, running page 35

to 39 of Memo of Appeal Volume 1. The Learned NCLT besides noting other facts,

for coming to the correct decision has also by reference has taken note of the

assessment order passed by the Income Tax Department. Those facts have been

elaborately discussed in paragraph 26 to 28 of the impugned order which are

reproduced hereinbelow:-

"26. The above analysis takes us to the Assessment Order dated

31.12.2018 passed by the Income Tax department against the Corporate

Company Appeal (AT)(Insolvency) No.940/2022 17

Debtor. As detailed above, the income tax department had carried out a raid

in the premises of Corporate Debtor which led to seizure of material which

showed the assessee i.e., Corporate Debtor had inter alia received an

unsecured loan of Rs 2,70,00,000from Prarthna. The assessment order

further records that the assessee was asked to produce all details of the

loan taken from Prarthana however, the assessee had failed to provide any

information. The income tax department on its own investigation unearthed

that the directors of Prarthana were Mr. Anand Prakash Kejriwal and Ms

Jyoti Kejriwal. Mr. Anand Prakash Kejriwal and Ms. Jyoti Kejriwal were

also the directors of Narsingh, Active and Nikita. After noting the above

details, the assessment order in para 6.3 (b) notes as under:-

It will be appropriate to take notice of the commonly known notorious

facts about the modus operandi of converting the unaccounted funds

by different companies by taking unsecured loan from willing dubious

entities. These entities are mere paper/shell companies having no

real business activity and incorporated for the purpose of providing

unsecured loan to different beneficiary companies in the form of share

capital, unsecured loan, etc in lieu of commission. Further an analysis

of bank statement of such companies revealed that every single credit

to the account was correspondingly followed by a debit either on the

same day or near about dates. This pattern is repeated in the entire

period. Hence, the real and actual source of all such credits is not

Company Appeal (AT)(Insolvency) No.940/2022 18

readily ascertainable in view of layering of money. In the present case

of the assessee, same modus operandi was followed.

(emphasis supplied)

27. The Income Tax department further found that Prarthana was a paper/

shell company of one Mr. Sandeep Surekha who is referred to as an entry

operator / accommodation entry provider. The subsequent relevant

observations from the Income Tax order are as below:-

"6.3.d. During the course of this proceeding notice u/s 133(6) of the

Act was issued to Divya J Electronics Pvt Ltd, M/s NGPS Solution Pvt

Ltd, M/s Prarthana Sales Pvt Ltd & M/s Ranbhumi Marketing Pvt Ltd

production of evidences related to transaction in form of unsecured

loan. But no plausible explanation has been received from the parties.

The assessee was, thereafter, asked to substantiate its claim of

unsecured loan by producing the said party along with supporting

documents and evidences but no compliance was made from the

assessee end. As per seized material, the assessee company received

unsecured loan of Rs. 3,30,00,000/- from the above mentioned

companies.

....

7.a On overall consideration of facts and circumstances of the case

and as per above discussion, the amounts claimed to be received by

the assessee are not in any way genuine unsecured loans. They are

nothing but arranged affairs being pre-ordained series of transactions

Company Appeal (AT)(Insolvency) No.940/2022 19

and tax evasion device where money laundering transactions have

been camouflaged as unsecured loan.

7.b The agreement about real transactions takes place in secret and

direct evidence about such discreet transaction/agreement would be

not available to the department in the normal circumstances during

assessment proceedings. The result of these transactions was

designed in such a way that in this transaction unaccounted money

was to be brought in the business by the assessee. The Legislature

cannot take care of every device and scheme misused to evade

taxation. It is for the implementing authorities to investigate the nature

of the sophisticated legal devices adopted by the taxpayer to evade

or avoid tax and consider whether the situation created by the devices

could be related to the avoidance of the payment of taxes. The modus

operandi adopted by the assesse has been found to be a method of

evading taxes being non-genuine transactions without being

verifiable.

7.c These are, by nature 'make believe transactions which do not

deserve to be accepted as genuine. The truth or genuineness of such

transactions must prevail over the smoke screen, created by way pre-

meditated series of steps taken by the assessee, with a view to

imparting a colour of genuineness and character of commercial

nature, to such unsecured loan transactions.

Company Appeal (AT)(Insolvency) No.940/2022 20

7.d The unsecured loan was taken by the assessee from companies

who did not have own fund, any business and physical asset. If we

look behind these transactions then it is clear that the sole purpose

for which the transactions were done was to generate capital in the

business and in that event the assessee has to be made liable to pay

taxes which it would have paid but for the arrangement of these

transactions.

7.g The assessee has not deliberately produced the lenders who gave

unsecured loans to the assessee to stop the further investigation

which may result in examination of the bank accounts and book of

accounts of the three lender companies which are basically

shell/paper/khokha companies. There has been a mushrooming

growth of professional entry operators in the country but more

particularly in Kolkata, who provide such unsecured loan for a

commission. Assessee's non- cooperation and evasive tactics proves

its conduct.

(emphasis supplied)

28. Ultimately, the Income Tax department held that the Corporate Debtor

(assessee) had failed to establish the genuineness of the transactions and

in exercise of its power u/s 68 of the Income Tax Act, added Rs 3,30,00,000

as income of the assessee.

Company Appeal (AT)(Insolvency) No.940/2022 21

14. Finally before coming to the conclusion that there was not existence of

bona fide financial debt and rejecting the petition filed under Section 7(1) of the

IB Code as not maintainable the NCLT has examined several instances which

have been noted in paragraph 31 and 32

"31. In addition to the above, there are other circumstances which prompt

and compel us to conclude that there is something more than what meets

the eye. These circumstances are:-

(i) All loan agreements are of the year 2014. They are almost

identically worded except with respect to details of the lenders

and the quantum of amounts to be disbursed.

(ii) All loan agreements postulate giving of unsecured loans. It is

also unusual that there is no tenure for repayment of the loans

and all of them are repayable on demand.

(iii) Nothing is forthcoming from the Financial Creditors(except a

bare statement that the loans were given as inter corporate

deposits) about the purpose for which the loans were

disbursed. This is despite a pointed objection taken by the

Corporate Debtor that the Financial Creditors are not registered

as NBFC's or registered under the Bengal Money Lenders Act,

1940, nor their Memorandum permits granting such loans, and

as such could not have provided the loans. No explanation on

this count has also come forth from the Financial Creditors.

Company Appeal (AT)(Insolvency) No.940/2022 22

(iv) The Financial Creditors have also not provided any details of

their operations, business and other relevant credentials

despite adverse observations made against Prarthana in the

Income tax assessment order to the effect that it is a

shell/paper company involved in giving of collusive loans as

accommodation entries.

(v) All four companies involved namely Prarthana, Active, Nikita

and Narsingh had common directors at the relevant point of

time. The registered office of both financial creditors is also the

same.

(vi) No explanation has come forward from the Financial Creditors

about the disbursements made by Prarthana on 16.04.2014

and 17.10.2014 which were immediately paid back by

Corporate Debtor in a day or two. This factum of receipt and

immediate payback has been taken notice by income tax

department as "commonly known modus operandi of

converting the unaccounted funds by different companies by

taking unsecured loan from willing dubious entities".

(vii) Another unexplained fact is that even though as per the

Financial Creditors' own case, the Corporate Debtor had

stopped paying interest from 2015-16 and 2016-17, there is not

a single correspondence on record from Financial Creditors

alleging default, seeking repayment of their monies back or

Company Appeal (AT)(Insolvency) No.940/2022 23

even checking on status of their outstanding amounts. In other

words, even though the default had taken place as far back as

2016-2017, no steps appear to have been taken by Financial

Creditors who suddenly took action to seek repayment in the

year 2020. This unexplained slumber by the Financial

Creditors for over four years does not inspire confidence and is

inconsistent with the normal conduct expected of a bona fide

lender.

32. The aforesaid facts do really cast serious doubts on the genuineness of

the transactions alleged to be financial debt by the Financial Creditors. The

facts regarding existence of Financial Debt, disbursement and default do

not reconcile with the documents placed on record. On top of this, as stated

above the Assessment Order passed in respect of the Corporate Debtor and

the Forensic Audit Report further strengthen the suspicion in respect of the

authenticity and bona fides of the transactions in question. The Financial

Creditor has argued that the Assessment Order is only applicable with

regards to assessee and does not bind the Financial Creditors. It is further

contended that the same only speaks of Prarthna. This objection is

unwarranted. We have not held that the Income tax Assessment Order is

binding on this Tribunal. We are of the view that the entire gamut of facts,

the interrelationship between the Financial Creditors (and Nikita and Active

which merged into Narsingh), the forensic Audit Report and the analysis of

Company Appeal (AT)(Insolvency) No.940/2022 24

the facts that we have done above, leave us unpersuaded to commence CIRP

against the Corporate Debtor.

15. On examination of the impugned order and material available on record

there is serious doubt on the actual entity of the appellants as company

incorporated for doing legal business. There is serious doubt on the so called

companies lending to the corporate debtor. The appellants are under the serious

cloud of shell/fictitious companies. Of course without proper detailed enquiry or

investigation we may not record a specific finding on the issue but facts remain

that there was lack of existence of financial debt. Accordingly, it is difficult to

find any defect in the impugned order. The impugned order assigns detailed

reasons and discussing every fact the Learned Adjudicating Authority has rightly

rejected the application filed by the Appellants under Section 7 of the IB Code.

16. In view of facts and circumstances we are of the opinion that simply

rejection of this Appeal may not serve the purpose. Instead we intend to dismiss

the present appeal with imposing heavy cost. There are many circumstances

which have been discussed hereinabove suggests that either lending loan by the

appellants were only paper transaction/sham transaction or said loans were

shown to be repaid within one or two days from the date of lending. In case of

Appellant No.1, this fact has already been established and noticed hereinabove.

Apart from aforesaid sham transaction, at least registered office of Appellant

No.1- Prarthana Sales Pvt Ltd and Active Commercial Pvt Ltd (subsequently

merged with Narsingh Mercantile Pvt Ltd) has been noticed as the same.

Accordingly, we consider that the appellants have abused the process of the

Company Appeal (AT)(Insolvency) No.940/2022 25

Court and as such it is a fit case which can be dismissed with imposition of a

cost of Rs.1 lakh.

17. The Appeal stands dismissed with cost of Rs.1 lakh on the Appellants. The

Appellants are directed to deposit the cost of Rs.1 lakh in the account of Prime

Minister's National Relief Fund within one month from the date of this order.

The Appellants are further directed to submit the proof of depositing the cost

within 10 days thereafter with the Registrar of this Tribunal.

(Justice Ashok Bhushan) Chairperson

(Justice Rakesh Kumar) Member (Judicial)

(Dr. Ashok Kumar Mishra) Member (Technical) Bm

Company Appeal (AT)(Insolvency) No.940/2022