Rajesh Gupta vs Mr. Dinesh Chand Jain

[Arising out of Order dated 13th June, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi in Company Petition No. (IB)37 (PB)/2018]

IN THE MATTER OF:

Rajesh Gupta S/o Late Shri R. K. Gupta Ex-Director of Fantastic Buildcon Private Limited R/o B-393, New Friends Colony, New Delhi - 110065. ...Appellant

Vs

Mr. Dinesh Chand Jain S/o Late Shri P. C. Jain, R/o 10, Palam Marg, Vasant Vihar, New Delhi - 110057.

Ms. Lata Jain W/o Mr. Dinesh Chand Jain, R/o 10, Palam Marg, Vasant Vihar, New Delhi - 110057.

DJ Tradelink Private Limited Having its registered office at 201, Surya Kiran Building, 19, Kasturba Gandhi Marg, New Delhi - 110001. ....Respondents

Present: For Appellant: Mr. Virender Ganda, Senior Advocate with Mr. Ashish Aggarwal, Mr. Ayandeb Mitra, Mr. Gurcharan Singh and Ms. Shreya Jain, Advocates.

For Respondents: Mr. Krishan Kumar and Ms. Srujana Suman Mund, Advocates for Respondent No.1. Mr. Om Prakash Vijay, Resolution Professional. -2-

BANSI LAL BHAT, J.

The sole question that arises for consideration in this appeal is

whether the Respondents - 'Dinesh Chand Jain and two others' come within

the meaning of 'Financial Creditors' as defined under Section 5(7) and (8) of

the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as 'I&B

Code').

2. Factual matrix of the case germane to the disposal of instant appeal

may briefly be noticed. Respondents No. 1 and 2 - the erstwhile Directors of

'M/s Fantastic Buildcon Pvt. Ltd.' (Corporate Debtor) holding a total of 75%

share holding of the Company advanced loan to the Corporate Debtor from

time to time and also through Respondent No.3 Company at an interest @

18% p.a., which after adjustment of some part of the loan amount returned

by the Corporate Debtor stood at Rs.18,67,11,000/-. Respondents herein,

claiming to be 'Financial Creditors' of the Company, through Respondent

Nos. 1 and 2, entered into an agreement with one Mr. Lalit Modi, Director

and Shareholder in the Corporate Debtor and the Company for sale of the

shares of the Respondent Nos. 1 and 2 vide Share Purchase Agreement

executed on 02.02.2015 by virtue whereof Mr. Lalit Modi and the Corporate

Debtor jointly undertook to refund the entire unsecured loan of

Rs.18,67,11,000/- to Respondents 1 and 2 on or before 31.03.2015. Since

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the refund of unsecured loan in entirety was to take effect within a period of

less than two months, the Share Purchase Agreement did not specifically

provide for payment of interest on the unsecured loan. Upon failure of the

Corporate Debtor to make payment of the outstanding amount to

Respondents 1 and 2 in terms of the said Share Purchase Agreement dated

02.02.2015 despite Respondents 1 and 2 having duly complied with the

conditions of Agreement by effecting transfer of their shares, Respondents 1

and 2 filed a petition under Section 7 of the I&B Code before the

Adjudicating Authority for triggering the Corporate Insolvency Resolution

Process against the Corporate Debtor. By virtue of order dated 11.06.2018,

the Adjudicating Authority, upon being satisfied that a default has occurred

and the petition was complete, admitted the petition, appointed Mr. Om

Prakash Vijay as an Interim Resolution Professional and slapped

moratorium imposing the prohibitions in terms of Section 14 of I&B Code.

Aggrieved thereof the Corporate Debtor has filed the instant appeal assailing

the order of admission of petition under Section 7 of the I&B Code passed by

the Adjudicating Authority on the ground urged in appeal.

3. Heard learned counsel for the parties and perused the records. The

sole question for consideration is whether Respondents - 'Dinesh Chand

Jain and two others' come within the meaning of 'Financial Creditors' as

defined under Section 5(7) of the I&B Code. The expression 'Financial

Creditor' is defined as under:

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"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;"

The expression 'Financial Debt' is defined under Section 5(8) of I&B

Code, which reads as under:

"5(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;

(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;

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(f) any amount raised under any other transaction,

including any forward sale or purchase agreement,

having the commercial effect of a borrowing;

(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;"

Respondent's claim of being 'Financial Creditors' rests on the premises

that the Corporate Debtor owes a financial debt to them. In order to

demonstrate that the admitted debt falls within the definition of 'Financial

Debt', Respondents relied upon the admitted factual position that

Respondents No. 1 and 2 holding 75% shareholding of the company besides

being Directors of the Corporate Debtor had lent various amounts to the

Corporate Debtor for a hotel project and the principle amount was to the

tune of Rs.18,67,11,000/-. Initially this amount was treated as a long time

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borrowing at the same was reflected in the Account Books of the Corporate

Debtor as also the balance sheet of the Company. This clearly borne out

from the audited balance sheet of the Company, for the year ending

31.03.2014. Subsequently, Respondents No. 1 and 2 entered into a Share

Purchase Agreement with the Corporate Debtor, which provided for transfer

of entire shareholding of Respondents 1 and 2 by way of sale at par value to

Shri Lalit Modi, Director and Shareholder of the Corporate Debtor.

Whereas, Shri Lalik Modi and the Corporate Debtor jointly undertook to

refund the entire unsecured loan of Rs.18,67,11,000/- to Respondents on or

before 31.03.2015. Admittedly, the Share Purchase Agreement did not

specifically provide for payment of interest on the said borrowings. This is

primarily attributed to proximity between the execution date of said Share

Purchase Agreement dated 02.02.2015 and the stipulated date of refund of

the loan amount before 31.03.2015. That apart, it cannot be disputed that

in terms of the Share Purchase Agreement, Respondents No. 1 and 2

transferred their entire shareholding being 7500 number of shares in favour

of Shri Lalit Modi, who alongwith the Corporate Debtor undertook to refund

the unsecured loan of Rs.18,67,11,000/- to them before 31.03.2015. It is

also not in controversy that Respondents No. 1 and 2 performed their part of

the contract envisaged under the Share Purchase Agreement by effecting

transfer of shares in favour of Shri Lalit Modi. Respondents No. 1 and 2

also resigned from the Board of Directors of the Company paving way for

induction of the nominee of Shri Lalit Modi to be inducted as Director in the

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Company. It is manifestly clear that Respondents No. 1 and 2 abided by the

terms of Share Purchase Agreement and expected the Corporate Debtor to

refund the amount of Rs.18,67,11,000/- mutually agreed as outstanding

unsecured loan amount before 31.03.2015, which had become payable.

This is clearly borne out from the later portion of clause (2) of the Share

Purchase Agreement, which reads as under:

"The second party and third party jointly undertake to

outgoing shareholders to refund the unsecured loan of

Rs.18,67,11,000/- to them or their nominee before

31.03.2015."

It has already been noticed elsewhere in this judgment that the

amount of loan was advanced by Respondents No. 1 and 2 to Corporate

Debtor subject to payment of interest @ 18% p.a. and the amount of

Rs.18,67,11,000/- stood outstanding as unsecured loan against the

Corporate Debtor after adjusting the amount repaid to Respondents No. 1

and 2. It is in this factual background emerging from record that it can be

said without any amount of ambiguity that the unsecured loan aforestated

represented the money borrowed against the payment of interest and in

terms of clause (a) sub-section (8) of Section 5 of the I&B Code same

tantamount to a debt disbursed against the consideration for the time value

of money, which falls within the ambit of 'Financial Debt'. It is apt to notice

that the expression 'debt' defined under Section 3(11) means a liability or

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obligation in respect of a claim which is due from any person and includes a

financial debt and operational debt. Non-payment of such debt which has

become due and payable and is not repaid by the Debtor or Corporate

Debtor falls within the mischief of 'default' defined under Section 3(12) of

I&B Code. It would therefore be futile on the part of learned counsel for the

Appellant to contend that the unsecured loan aforestated did not fall within

the definition of 'Financial Debt'. The manner and circumstances in which

the amount of loan was borrowed by the Corporate Debtor from

Respondents No. 1 and 2 from time to time with stipulation of interest,

leaving an outstanding liability of Rs.18,67,11,000/- coupled with the fact

that the Corporate Debtor jointly undertook to refund such unsecured loan

to Respondents No. 1 and 2 in terms of clause (2) of the Share Purchase

Agreement leaves no room for doubt that the outstanding unsecured debt

had all the trappings of a 'Financial Debt'. Admittedly, Respondent No. 1

and 2 were treated as unsecured creditors and in terms of the Share

Purchase Agreement they transferred their entire shareholding of 7500

shares in favour of Shri Lalit Modi. They were acknowledged as investors as

regards the financial debt qua Shri Lalit Modi and the Corporate Debtor, the

money having been borrowed initially and such investment having been

made for earning interest. Refund of the investment was linked with the

transfer of shareholding by the Respondents. Viewed thus, the Respondents

can safely be held to be 'Financial Creditors'. Contention raised to the

contrary being devoid of merit is repelled.

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4. In view of the foregoing discussion, we are of the firm view that the

impugned order does not suffer from any legal infirmity or factual fraility.

There being no merit in this appeal, the same is dismissed.

[Justice S. J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

NEW DELHI

9th August, 2018

AM

Company Appeal (AT) (Insolvency) No. 317 of 2018