Ravinder Pal Singh Lamba vs Satkar Air Cargo Services Pvt. Ltd

(arising out of order dated 21st August, 2018 passed by National Company Law Tribunal, Principal Bench, New Delhi in Company Petition No. (IB)- 361(PB)/2018)

IN THE MATTER OF:

Ravinder Pal Singh Lamba H. No. E. 28, Bali Nagar, New Delhi - 110 015 ...Appellant

Versus

Satkar Air Cargo Services Pvt. Ltd. B-72, 2nd Floor, Rohit House, Vishwakarma Colony, Tughlakabad, M.B. Road, New Delhi - 110 044. ...Respondent

Present: For Appellant : Mr. Pankaj Jain and Ms. Dhriti Sarin, Advocates

For Respondent : Mr. Vaibhav Dabas, Advocate

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

This appeal has been preferred by 'Ravinder Pal Singh Lamba, who claims

to be a 'Financial Creditor' against judgment dated 21st August, 2018 passed by

the Adjudicating Authority (National Company Law Tribunal), Principal Bench,

New Delhi dismissing the application under Section 7 of the 'Insolvency and

Bankruptcy Code, 2016 (for short, 'the I&B Code') filed by the appellant. The

only question that arises for consideration in this appeal is whether the appellant 2

comes within the meaning of 'Financial Creditor' as defined under Section 5(7)

r/w (8) of the 'I&B Code'.

2. Learned counsel for the appellant referring to the amount disbursed by

the Appellant submitted that the same was a 'long term loan' for the

consideration of time value of money.

3. On the other hand, according to the learned counsel for the respondent,

the amount paid by the Appellant does not come within the meaning of 'Financial

Debt' as defined under Section 5(8). Reliance has also been made on certain

decisions of this Appellate Tribunal including "Dr. B.V.S. Lakshmi vs.

Geometrix Laser Solutions Private Limited - Company Appeal (AT)

(Insolvency) No. 38 of 2017" decided on 22nd December, 2017 and "Vishwa

Nath Singh vs. Visa Drugs & Pharmaceuticals Pvt. Ltd. - Company Appeal

(AT) (Insolvency) Nos. 234-235 of 2017" decided on 13th December, 2017

wherein on the basis of the record this Appellate Tribunal held that Appellants

therein do not come within the meaning of 'Financial Creditor'.

4. The case of the appellant is that the Appellant advanced loan of Rs.

80,00,000 (Rupees Eighty Lakhs only) to the 'Corporate Debtor' between 26th

March, 2011 and 16th April, 2013 on the basis of mutual discussion and

arrangement with Mr. Aman Preet Singh Bawa, Promoter/Director of the

'Corporate Debtor'. In spite of repeated demands by the Appellant, the

'Corporate Debtor' failed to pay Rs. 1,77,71,974 i.e. Rs. 80,00,000/- towards

principal loan and Rs.97,71,974/- towards interest @ 18% on the principal loan

amount. In this background, Form 1 was filed by the Appellant.

5. According to respondent, M/s. Satkar Air Cargo Services Pvt. Ltd. is one

of the group companies namely - 'Satkar Air Cargo Services Pvt. Ltd.', 'Satkar

Company Appeal (AT) (Insolvency) No. 592 of 2018 3

Terminals Ltd.', 'Satkar Logistics Pvt. Ltd.' and 'Satkar Container Lines Pvt.

Ltd.'. The said group of companies is engaged in the business of logistics and

freight forwarding throughout the world. According to the respondent, the

Appellant along with his son namely Mr. Gursimran Singh Lamba, who are

related to the Promoter Directors of the said Companies, approached them

with a request to allow the Appellant and his son to enter into the business

of logistics and freight forwarding so that Mr. Gursimran Singh Lamba i.e. the

son of the Appellant can learn and enter into the said business. During the

initial meetings, the Appellant as well as his son namely Mr. Gursimran Singh

Lamba had assured the Promoter Directors of the abovementioned group of

Companies that Mr. Gursimran Singh Lamba was capable of looking after the

day today affairs of the business and accordingly a request was made by the

Appellant to incorporate a new Company to carry on the business of Air Cargo.

Thus, Satkar Air Cargo Services Private Limited was incorporated with Mr.

Gursimran Singh Lamba as one of the Promoter Shareholder and a Promoter

Director. Also, the Appellant's son Mr. Gursimran Singh Lamba was inducted

as Director and/or shareholders in other group of companies as detailed

herein above.

6. Further, according to the Respondent, the Respondent herein namely

M/s Satkar Air Cargo Services Pvt Ltd was incorporated with Mr. Gursimran

Company Appeal (AT) (Insolvency) No. 592 of 2018 4

Singh Lamba as one of the Promoter Shareholders and a Promoter Director

as per the request of the Appellant. As per the terms of the agreement,

investment was made by the Appellant as well as his son namely Mr.

Gursimran Singh Lamba in the Respondent Company and it was a clear

understanding that whatever money was provided by the Appellant was not

given as a loan "but was an investment on the part of the Appellant as

well as his son namely Mr. Gursimran Singh Lamba for running the

business of Satkar Air Cargo Services Private Limited". Hence, there is

no question of the alleged demand as being made by the Appellant from the

Respondent Company.

7. Further, it was agreed between the Appellant, his son namely Mr.

Gursimran Singh Lamba and other promoters of the abovementioned group

of companies that the air cargo business which was to be run under the name

and style of Satkar Air Cargo Services Pvt. Ltd. shall be jointly run with Mr.

Gursimran Singh Lamba being one of the Promoter Director and shareholder

of the Company. Upon incorporation of the Respondent Company, Mr.

Gursimran Singh Lamba was inducted as one of the director in the company

and was given the responsibility of independently running the business of the

company through the company office situated at Mahipalpur, New Delhi.

However, Mr. Gursimran Singh Lamba mishandled the said business and as

Company Appeal (AT) (Insolvency) No. 592 of 2018 5

a result, the Respondent Company suffered huge losses. In fact, many of the

customers of the Respondent Company refused to pay the outstanding dues

by citing not only negligence and carelessness but also on the ground of poor

services and gross misbehaviour on the part of Mr. Gursimran Singh Lamba,

who was handling the entire business. In view of such poor services, the

Respondent company was constrained to close down its office situated at

Mahipalpur, New Delhi and had carried out the growth of the business of

Satkar Air Cargo Services Pvt. Ltd. from the corporate office of the above-

mentioned group of companies. On account of the losses suffered by the

Respondent Company, the Appellant as well as his son namely Mr. Grusimran

Singh Lamba requested the Promoter Directors of the Group of Companies for

additional responsibilities to look after the affairs of Satkar Terminals Ltd. It

was assured by the Appellant as well as his son namely Mr. Gursimran Singh

Lamba that given a chance, Mr. Gursimran Singh Lamba would show his

administrative and business skills and further assured that Satkar Terminals

Limited would do extremely good business. Upon such assurances, Mr.

Gursimran Singh Lamba was given the responsibility to perform the overall

functions of 'Satkar Terminals Limited' including sale and business,

development, employees' recruitment, statutory compliance, operational

activities, cash and bank accounts handling, payments and recovery etc.

Company Appeal (AT) (Insolvency) No. 592 of 2018 6

Further, on requests made by the Appellant as well as Mr. Gursimran Singh

Lamba, independent responsibility was given to Mr. Gursimran Singh Lamba

to handle Satkar Terminals Limited and the same is also evident from the

various communications which were exchanged between Mr. Gursimran

Singh Lamba exclusively with various clients of the Company, associates,

vendors, employees, land owners etc.

8. From the aforesaid statement of the 'Corporate Debtor', we find that the

plea has been taken that the appellant and his son Mr. Gursimran Singh Lamba

were provided with the amount not as a loan but as an investment on the part

of the appellant as well as his son namely - Mr. Gursimran Singh Lamba for

running the business of 'Satkar Air Cargo Service Pvt. Ltd.' This is evident from

the statement made in the reply as made at paragraph 4 and highlighted above.

9. The appellant has also produced the record of 'M/s. Satkar Air Cargo

Services Pvt. Ltd.' for the financial year 2015-16 wherein at "Note No. 4 - Long -

Term Borrowings" the name of Mr. Ravinder Pal Singh Lamba is shown as

unsecured lender of Rs. 65 Lakhs, relevant of which reads as follows:

(F.Y. 2015-16)

Note No. 4 Long-term borrowings ₹ in rupees As at 31st March, 2016 As at 31st March, 2015 Particulars Non-Current Current Total Non- Current Total Maturities Current Maturities Term Loan 61,539.00 76,443.00 1,37,982.00 1,34,107.00 3,71,928.00 5,06,035.00 From Banks-

ICICI Bank Ltd. secured 61,539.00 76,443.00 1,37,982.00 1,34,107.00 3,71,928.00 5,06,036.00

Company Appeal (AT) (Insolvency) No. 592 of 2018 7

Loans and advances from related parties 0.00 0.00 50,00,000.00 50,00,000.00 50,00,000.00 50,00,000.00

Harmandeep Singh 0.00 0.00 Khurana 65,00,000.00 65,00,000.00 65,00,000.00 65,00,000.00 Unsecured

Ravinder Pal Singh Lamba Unsecured 1,15,00,000.00 0.00 1,15,00,000.0 1,15,00,000. 1,15,00,000.0 0 00 0 The above Amount includes

3,71,928.00 Secured 61,539.00 76,443.00 1,37,982.00 1,34,107.00 5,06,035.00 Borrowings 0.00 1,15,00,000.00 0.00 1,15,00,000.00 1,15,00,000.0 1,15,00,000.00 Unsecured 0 Borrowings

(76,443.00) (3,71,928.00) (3,71,928.00) Amount (76,443.00) Disclosed under the Head "Other Current Liabilities (Note No. 8) 1,15,61,539.00 0 1,15,61,539.00 1,16,34,107.0 0 1,16,34,107.00 Net Amount 0

10. Section 5(7) defines 'Financial Creditors' and Section 5(8) defines

'Financial Debt' as follows:

"(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;

(8) "financial debt" means a debt alongwith interest,

if any, which is disbursed against the

Company Appeal (AT) (Insolvency) No. 592 of 2018 8

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 nonrecourse basis;

(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

Company Appeal (AT) (Insolvency) No. 592 of 2018 9

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;"

11. In the present case, it is admitted that the appellant Mr. Ravinder Pal

Singh Lamba has invested the money for running the business of 'M/s. Satkar

Air Cargo Services Pvt. Ltd.' ('Corporate Debtor'), as accepted in the pleadings of

the respondent. The record also shows that it is a 'long term borrowing'.

Therefore, it is clear that the amount was disbursed by the appellant against the

consideration for time value of money and the 'Corporate Debtor' is shown as

'long-term borrowings' for running the company. For the reason aforesaid, we

hold that the appellant comes within the meaning of 'Financial Creditor', as the

amount disbursed comes within the meaning of 'Financial Debt'. The Hon'ble

Supreme Court in "Innoventive Industries Ltd. v. ICICI Bank - (2018) 1 SCC 407

held that Section 3(b) which defines 'claim' to mean a right of payment even if it

is disputed. The Hon'ble Supreme Court further held that Section 7 stands in

contrast with the scheme under Section 8 where an 'Operational Creditor', on

the occurrence of default, has right to show the existing dispute. On the other

hand, in the case of 'Corporate Debtor' who commits a default of 'financial debt',

Company Appeal (AT) (Insolvency) No. 592 of 2018 10

the Adjudicating Authority has merely to see the records of information utility or

other evidence produced by the 'Financial Creditor' to satisfy itself that a default

had occurred. This is evident from the relevant portion of the judgment, which

is as follows:

"27. The scheme of the Code is to ensure that when

a default takes place, in the sense that a debt

becomes due and is not paid, the insolvency

resolution process begins. Default is defined in

Section 3(12) in very wide terms as meaning

non-payment of a debt once it becomes due and

payable, which includes non-payment of even

part thereof or an instalment amount. For the

meaning of "debt", we have to go to Section

3(11), which in turn tells us that a debt means a

liability of obligation in respect of a "claim" and

for the meaning of "claim", we have to go back

to Section 3(6) which defines "claim" to mean a

right to payment even if it is disputed. The Code

gets triggered the moment default is of rupees

one lakh or more (Section 4). The corporate

insolvency resolution process may be triggered

by the corporate debtor itself or a financial

creditor or operational creditor. A distinction is

made by the Code between debts owed to

financial creditors and operational creditors. A

Company Appeal (AT) (Insolvency) No. 592 of 2018 11

financial creditor has been defined under

Section 5(7) as a person to whom a financial

debt is owed and a financial debt is defined in

Section 5(8) to mean a debt which is disbursed

against consideration for the time value of

money. As opposed to this, an operational

creditor means a person to whom an operational

debt is owed and an operational debt under

Section 5(21) means a claim in respect of

provision of goods or services.

xx xxx xxx

29. The scheme of Section 7 stands in contrast with

the scheme under Section 8 where an

operational creditor is, on the occurrence of a

default, to first deliver a demand notice of the

unpaid debt to the operational debtor in the

manner provided in Section 8(1) of the Code.

Under Section 8(2), the corporate debtor can,

within a period of 10 days of receipt of the

demand notice or copy of the invoice mentioned

in sub-section (1), bring to the notice of the

operational creditor the existence of a dispute or

the record of the pendency of a suit or arbitration

proceedings, which is pre-existing--i.e. before

such notice or invoice was received by the

Company Appeal (AT) (Insolvency) No. 592 of 2018 12

corporate debtor. The moment there is existence

of such a dispute, the operational creditor gets

out of the clutches of the Code.

30. On the other hand, as we have seen, in the case

of a corporate debtor who commits a default of a

financial debt, the adjudicating authority has

merely to see the records of the information

utility or other evidence produced by the

financial creditor to satisfy itself that a default

has occurred. It is of no matter that the debt is

disputed so long as the debt is "due" i.e. payable

unless interdicted by some law or has not yet

become due in the sense that it is payable at

some future date. It is only when this is proved

to the satisfaction of the adjudicating authority

that the adjudicating authority may reject an

application and not otherwise."

12. In the present case, it is not in dispute that the 'Corporate Debtor' has

defaulted in making payment and record shows that the appellant has disbursed

the amount and therefore has right to claim. Having held that the appellant

comes within the definition of 'Corporate Debtor', we are of the view that the

application filed by the appellant under Section 7 was required to be admitted

by the Adjudicating Authority, but the Adjudicating Authority having failed to

consider the matter in proper perspective, we set aside the impugned order dated

21st August, 2018 and remit the case to the Adjudicating Authority (National

Company Appeal (AT) (Insolvency) No. 592 of 2018 13

Company Law Tribunal), Principal Bench, New Delhi to admit the application

under Section 7 after notice to the 'Corporate Debtor', who in the meantime, may

settle the claim. The appeal is allowed with aforesaid observations and

directions. No cost.

[Justice S.J. Mukhopadhaya] Chairperson

[ Justice Bansi Lal Bhat ] Member (Judicial)

New Delhi

23rd April, 2019.

//ns//

Company Appeal (AT) (Insolvency) No. 592 of 2018