Satish Balan vs Mrs. Neeta Navin Nagda & Anr

[Arising out of Order dated 23.03.2023 passed by the Adjudicating Authority/National Company Law Tribunal, Mumbai Bench, Court -V in C.P. 745/IB/MB/2021]

IN THE MATTER OF: Satish Balan Director of Balan and Chheda Developers Pvt. Ltd. Having its Registered Office at: A.F.F. 83/A, N.G. Acharya Marg, Chembur, Mumbai - 400071. ...Appellant

Versus

1. Mrs. Neeta Navin Nagda 13, Vasant Breeze Chambers, Opp. Maheshwari Udyan, Matunga (C.R.) Mumbai - 400019 E-mail :- neetanagda64@gmail.com ...Respondent No. 1

2. Mr. Atul Laxmichand Gala Insolvency Professional, Regd. No. IBBI/IPA-001/IP-P-01974/2020- 2021/13130 1501, Oriana Business Park, Thane, Maharashtra - 400604. E-mail :- atulgala.cirp@gmail.com ...Respondent No. 2

Present: For Appellant : Ms. Anjali Sharma & Ms. Simmi Bhamrah, Advocates.

For Respondent : None.

(04.07.2023)

NARESH SALECHA, MEMBER (TECHNICAL)

1. The present appeal has been filed under Section 61 of the Insolvency

& Bankruptcy Code, 2016 (in short 'Code') against the 'impugned order' Company Appeal (AT) (Insolvency) No. 718 of 2023 Page 1 | 7 dated 23.03.2023 in C.P. 745/IB/MB/2021 passed by the 'Adjudicating

Authority' (National Company Law Tribunal, Mumbai Bench, Court-V),

wherein the Application filed by the 'Respondent' under Section 7 of the

Code was admitted by the 'Adjudicating Authority' and the Corporate

Insolvency Resolution Process (in short 'CIRP') was initiated against the

'Corporate Debtor' i.e. Anusmera Realty and Infra Private Limited .

Aggrieved by the same, the 'Appellant' has preferred the present appeal.

2. Heard the Counsel for Appellant and perused the records made

available including cited judgments.

3. Learned Counsel for the Appellant stated that the 'Corporate Debtor'

was incorporated in the year 2009 and engaged in the business of

development and construction of residential and commercial buildings.

Learned Counsel for the Appellant submitted that the Mr. Navin Shah alias

Mr. Navin Nagda, a Practising Chartered Accountant, is the Husband of

Respondent No. 1- Mrs. Neeta Navin Nagda, and was also the Statutory

Auditor of the 'Corporate Debtor' from 01.04.2010 to 31.03.2013. Learned

Counsel for the Appellant further stated that during this period, the

'Appellant' starting relying heavily on the advice of Mr. Navin Nagda and Mr.

Navin Nagda shown his intention to invest in the 'Corporate Debtor'.

Learned Counsel for the Appellant stated that as per Mr. Navin Nagda as

Practising Chartered Accountant, Mr. Navin Nagda could not invest in his

own name as per Regulations of Institute of Chartered Accountant of India,

hence, Mr. Navin Nagda decided to invest in the 'Corporate Debtor' through

his wife Mrs. Neeta Nagda and their nominees.

Company Appeal (AT) (Insolvency) No. 718 of 2023 Page 2 | 7

4. Learned Counsel for the Appellant submitted that the 'Respondent No.

1' contributed towards funds, holding around one-third of the equity shares

together with their nominees, in the 'Corporate Debtor'. Learned Counsel

for the Appellant stated that as per their understanding each of three

investors i.e., Mr. Satish Balan, Mr. Dungarshi Chheda and Mrs. Neeta

Nagda, were required to infuse funds in the Corporate Debtor as and when

required in accordance with their respective shareholding and were also

made entitled to share profits of the 'Corporate Debtor' accordingly.

5. Learned Counsel for the Appellant stated that the 'Respondent No. 1'

is holding 2463 shares of Rs. 10 each with a total contribution of

Rs. 24,830/- to the 'Corporate Debtor' (holding 24.63% shareholdings) and

together with her nominees, she holds 31.98% of total shareholding in the

Corporate Debtor. Learned Counsel for the Appellant alleged that

Mr. Navin Nagda, the husband of 'Respondent No. 1' continued to get

involved in the management of the 'Corporate Debtor' and Mr. Navin Nagda

structured his investment in the 'Corporate Debtor' through medium of loan

to be provided by the 'Respondent No. 1' and their nominees. Learned

Counsel for the Appellant further alleged that Mr. Navin Nagda planned and

ensured that investment by the Respondent No. 1 and her nominees were

reflected as loans in the books of the 'Corporate Debtor', even though it was

agreed upon informally and intended to be investment through equity

participation in the 'Corporate Debtor'.

6. Learned Counsel for the Appellant submitted that no Loan Agreement

was executed between the 'Respondent No. 1' and the 'Corporate Debtor'

and as such the 'Adjudicating Authority' erred in admitting Section 7 Company Appeal (AT) (Insolvency) No. 718 of 2023 Page 3 | 7 application of the 'Respondent No. 1' treating as financial debt which in fact

was investment in equity of the 'Corporate Debtor' as per informal

understanding between the parties.

7. Learned Counsel for the Appellant summarised his arguments that

the 'Respondent No. 1' is an investor of the 'Corporate Debtor' as equity

contributor and not a 'Financial Creditor' of the 'Corporate Debtor' and

therefore the 'Appeal' deserve to be allowed and the 'impugned order' need to

be set aside.

8. From the above facts, the only issue which has been raised and need

to be decided by this 'Appellate Tribunal' is that whether money contributed

by the 'Respondent No. 1' along with her nominees was in nature of financial

debt or investment by way of equity in the 'Corporate Debtor'.

9. From the perusal of the record especially part IV of the application

filed by the 'Respondent No. 1' before the 'Adjudicating Authority', it is seen

that Rs. 4,41,25,000/- was disbursed to the 'Corporate Debtor' from time to

time starting from 05.12.2012 to 03.12.2018 and total amount claimed to be

in default as on 30.06.2021 was Rs. 7,57,56,215/-, which included the

interest from 01.04.2016 @ 12% p.a. We also note that the 'Respondent No.

1' is a shareholder of the 'Corporate Debtor' holding 24.63% of equity

capital.

10. We also observe that admittedly by the 'Appellant' and evidently from

the records made available before us, the 'Corporate Debtor' paid interest @

9% to the 'Respondent No. 1' for the Financial Year 2016-17 and for the

Financial Year 2017-18 the 'Corporate Debtor' paid interest @ 12% to the

Respondent No. 1 and a statement of confirmation of account was also Company Appeal (AT) (Insolvency) No. 718 of 2023 Page 4 | 7 issued accordingly by the 'Corporate Debtor' to the 'Respondent No. 1'. It is

evident that on failure to receive due money on time, the Respondent No. 1

wrote a letter on 19.09.2020 to the 'Corporate Debtor' calling upon to return

the outstanding principal amount along with interest and the same was

replied by the 'Corporate Debtor' on 27.10.2020 denying the liability and

stating that payment was made towards share premium.

11. On a pointed query, by this 'Appellate Tribunal', the 'Appellant' could

not present any details regarding share application money along with

premium towards the alleged investment deemed to have been made by the

'Respondent No. 1' in the 'Corporate Debtor', which does not substantiate

the claims of the Appellant that money invested by the 'Respondent No. 1'

was not a financial debt and was merely equity infusion along with share

premium.

12. This 'Appellate Tribunal' observe that the Corporate Debtor has paid

interest to the 'Respondent No. 1' and also deducted TDS for two financial

years as discussed earlier. The plea taken by the 'Appellant' that since no

Loan Agreement was entered into between the parties, the said loan cannot

be treated as financial debt in terms of Section 5 (7) and 5(8) of the Code.

However, on further query put by this 'Appellate Tribunal' to the 'Appellant',

the 'Appellant' could not give any reason as to why interest was paid to the

'Respondent No. 1' for two financial years and why TDS was deducted along

with confirmation letter to the Respondent No. l. The only feeble submission

was that Mr. Navin Nagda, persuaded the 'Appellant' to structure the

financial investments as loan in the books of the 'Corporate Debtor' with the

informal understanding that all three investors will participate in the profits Company Appeal (AT) (Insolvency) No. 718 of 2023 Page 5 | 7 of the 'Corporate Debtor' in equal ratio of one-third each. The averments

made by the 'Appellant' is not convincing at all.

13. It is observed that a 'Financial Creditor' may file an application under

Section 7 for initiating CIRP against the 'Corporate Debtor' when the default

has occurred. It is for the 'Financial Creditor' to file an application along

with the proof of default. If there is a financial debt, which is more than the

prescribed amount of Rs. 1 Crore and there is a default and if the

application is complete, the application is required to be admitted by the

'Adjudicating Authority'. It is for the 'Adjudicating Authority' to look into the

various documents, records and evidence of default as furnished in part V of

Form 1 of the application filed under Section 7 of the Code.

14. This 'Appellate Tribunal' observe that the Code no where prescribes

that there should be a written agreement between the parties to prove the

loan and its disbursement to be treated as financial debts. It is also

observed that if there are acknowledgments by the 'Corporate Debtor' and

where the statements of accounts of the 'Corporate Debtor' are in position to

proof disbursement of loan and payment of interest, the absence of formal

written agreement would not bar the 'Financial Creditor' (the Respondent

No. 1 herein) from initiating the CIRP.

15. We take note from the record made available that there have been

clear acknowledgments which have been issued by the 'Corporate Debtor' for

the money received from the Respondent No. 1 which also mentioned the

quantum of interest payment to be made by the 'Corporate Debtor' to the

Respondent No. 1. Similarly, we also take into account the fact that TDS

was deducted regarding interest paid and the name of the Appellant as Company Appeal (AT) (Insolvency) No. 718 of 2023 Page 6 | 7 'dedutor' and the name of the Respondent No. 1 as 'deductee' is clearly

evident. This does not give any scope for benefits of the 'Appellant'.

16. We are therefore convinced that there was clear financial debt in form

of loan given by the 'Respondent No. 1' to the 'Corporate Debtor' and this

could not have been treated in any way as equity infusion/ share premium

in 'Corporate Debtor'.

17. After careful consideration of all the facts, averments made, by all

parties cited judgments, we do not find any error in the 'impugned order'.

The 'Appeal' being devoid of any merit is dismissed. No costs. Interlocutory

Applications, if any, are closed.

[Justice Ashok Bhushan] Chairperson

[Naresh Salecha] Member (Technical)

Simran

Company Appeal (AT) (Insolvency) No. 718 of 2023 Page 7 | 7