Shubh Gautam vs Anjani Technoplast Limited

1. This appeal has been filed under section 61 of the Insolvency

and Bankruptcy Code, 2016 (in short 'IBC') by the Appellant

aggrieved by order dated 20.6.2022 passed by the Adjudicating

Company Appeal (AT) (Insolvency) No. 904 of 2022 Page 1 of 16 Authority (National Company Law Tribunal, New Delhi) in CP No.

(IB)-766 (ND)/2021 (hereinafter called the 'Impugned Order') by

which the Adjudicating Authority has dismissed the application

filed under section 7 of the IBC on the ground that a decree holder

does not come within the definition of 'Financial Creditor'. The

Adjudicating Authority has further held that in view of the facts

and circumstances of the instant case, the debt in question which

is included in the section 7 application does not come under the

purview of 'financial debt'.

2. The Appellant's case is that upon a request made by the

Respondent, he disbursed an interest-bearing loan for a sum of

Rs.2,50,00,000 (Rupees Two crores Fifty Lakhs only) for a period of

two months carrying interest @ 12.75% p.a. payable on half yearly

basis vide a loan agreement dated 24.2.2010 to the Respondent.

He has added that Respondent again approached the Appellant

requesting for further financial assistance to meet his working

capital requirements, and consequently another loan agreement

dated 31.3.2010 was executed between the Appellant and

Respondent by which the Respondent borrowed another sum of

Rs. 2,00,00,000 (Rs. Two Crores only) from the Appellant for a

period of 15 days along with an interest @ 3% p.m. payable on half

yearly basis.

Company Appeal (AT) (Insolvency) No. 904 of 2022 Page 2 of 16

3. The Appellant has further stated that he submitted cheques,

meant for repayment issued at the time of execution of the loan

agreement in the bank, for payment, which were dishonoured,

whereafter he initiated proceedings under the Negotiable

Instruments Act against the Respondent. He has further stated

that a Compromise Deed dated 31.8.2013 was executed between

the Appellant and Respondent and a cheque of an amount as per

the Compromise Deed was given to the Appellant which was also

dishonoured upon presentation in the bank. Frustrated at the

non-repayment of the amount given by the Appellant, he preferred

a summary suit being Civil Suit (Original Side) No. 66 of 2016

before the Hon'ble High Court of Delhi for recovery of an amount of

Rs.4,38,00,617 along with an admitted interest @ 24%. Another

Compromise Deed dated 23.12.2016 was executed between the

parties, whereby the Respondent gave two post-dated cheques

bearing nos. 000130 and 000132 dated 31.12.2017 for a total

amount of Rs.2,38,61,907, but these cheques were also

dishonoured upon presentation in the bank. The Appellant has

submitted that the Respondent made a part payment of Rs. 25

lakhs only out of the total due amount of Rs.4,38,00,617/- and

interest which was outstanding on 6.1.2018. In the Civil Appeal

No. 66 of 2016, the Hon'ble High Court of Delhi passed a Company Appeal (AT) (Insolvency) No. 904 of 2022 Page 3 of 16 judgment-decree dated 11.1.2018 for a sum of Rs.4,38,00,617

alongwith an interest @ 24% p.a. from 1.2.2016 alongwith

pendente lite along with future interest till the date of actual

payment, after deducting an amount of Rs. 25 lakhs that was paid

by the Respondent on 6.1.2018. The Respondent filed an appeal

bearing RFA(OS) No. 48 of 2018, aggrieved by the judgment-decree

dated 11.1.2018 before the Hon'ble Delhi High Court, in which the

Hon'ble High Court vide judgment dated 27.11.2018 affirmed the

financial debt and dismissed the said RFA(OS) No. 48/2018 with a

cost of Rs.25,000/-. After obtaining the decree from Hon'ble High

Court of Delhi, and as the default was continuing, the Respondent

filed Company Petition No. IB-766(ND)/2021 as financial creditor

under section 7 of the IBC for initiation of Corporate Insolvency

Resolution Process (in short 'CIRP') of the Respondent, and by the

Impugned Order dated 20.6.2022, the Adjudicating Authority

dismissed the said company petition.

4. It is the Appellant's case that he had provided loan through

two separate loan agreements dated 24.2.2010 and 31.3.2010 for

amounts of Rs. 2.50 crores and Rs. 2 crores respectively, with both

loans carrying an interest and a time period for repayment, and

therefore, he is a 'financial creditor' under the IBC. He has further

claimed that the Impugned Order does not consider the decree Company Appeal (AT) (Insolvency) No. 904 of 2022 Page 4 of 16 passed by the Hon'ble Delhi High Court as a result of default of

repayment of loan amounts, which provides a fresh cause of action

for the financial debt owed by the Respondent to the Appellant.

5. We heard the arguments of Learned Counsels for both the

parties and perused the record.

6. The Learned Sr. Counsel for Appellant has referred to the

two loan agreements, namely, the first one dated 24.2.2010, which

is for an amount of Rs.2,50,00,000 (Rupees Two Crores and Fifty

Lakhs only) carrying an interest @ 12.5% p.a. payable on half

yearly basis for a period of 2 months and in the case of delay or

default in payment of either principal or interest or in part thereof,

the borrower shall be liable to pay a penal interest @ 10% per

month over and above the interest mentioned in loan agreement,

and the second loan agreement dated 31.3.2010 for an amount of

Rs.2,00,00,000 (Rupees Two Crores only) for a period of 15 days

carrying an interest rate of 3% p.m. payable on half yearly basis,

with a penal interest @ 10% per month over and above the interest

on the loan in case of delay or default in payment, and has argued

that both the loan agreements, established a jural relationship of

financial creditor-corporate debtor between the Appellant and the

Respondent. He has further argued that the loans are for time Company Appeal (AT) (Insolvency) No. 904 of 2022 Page 5 of 16 value of money and are, therefore, financial debts under the

definition of 'financial debt' in the IBC.

7. The Learned Senior Counsel for Appellant has further

argued that cheques were provided for repayment, which were

dishonoured on presentation in the bank and even after a

Compromise Deed was signed between the parties on 31.8.2013

consequent to proceedings under the Negotiable Instrumental Act,

the cheque given in response to the Compromise Deed, was

dishonoured on presentation in the bank and the Appellant was

forced to prefer a Civil Suit bearing No. Civil Suit (Original_Side_66

of 2016) before the Hon'ble High Court of Delhi on 1.2.2016 for

recovery of overdue amount along with interest, and a decree was

passed in favour of the Appellant for an amount of Rs.4,38,00,617

along with interest @ 24% from 1.2.2016, and pendente lite

alongwith interest till the date of actual payment of full amount.

He has pointed out that this judgment-decree passed vide

judgment dated 11.1.2018 was confirmed by the Division Bench of

Hon'ble High Court of Delhi in RFA (OS) No. 48/2018. He has

argued that the decree dated 11.1.2018 of the Hon'ble High Court

of Delhi has provided a fresh cause of action under section 7 of the

IBC and therefore the petition is within limitation.

Company Appeal (AT) (Insolvency) No. 904 of 2022 Page 6 of 16

8. The Learned Senior Counsel for Appellant has further

argued that the Impugned Order has mis-interpreted the judgment

passed by Hon'ble Supreme Court in the case of Dena Bank (now

Bank of Baroda) vs. C. Shivakumar Reddy in Civil Appeal No.

1650 of 2020 by stating that the ratio does not apply in the

instant matter since no dispute was raised on the status of the

applicant bank as financial creditor in the Dena Bank case,

whereas in the present case the status of Appellant as financial

creditor is not established. He has also pointed out that

paragraph 10 of the Impugned Order is not factually correct in

stating that 'the component of interest comes into existence only on

adjudication of the claimed amount by the High Court and the initial

alleged claimed amount of Rs.2,50,00,000 for a period of two

months vide loan agreement dated 24.2.2010 and another sum of

Rs.2,00,00,000 for a period of 15 days vide loan agreement

executed on 31.3.2010 does not have interest component", whereas

the fact is that both the loan agreements are interest bearing loans

as is clear from clause 2 of both the loan agreement dated

24.2.2010 loan agreement dated 31.3.2010 respectively.

9. In support of his contentions, the Learned Senior Counsel

for Appellant has again referred to the judgment of Hon'ble

Supreme Court in the matter of Dena Bank (now Bank of Baroda) Company Appeal (AT) (Insolvency) No. 904 of 2022 Page 7 of 16 (supra) wherein in paragraph 141, the Hon'ble Apex Court has

very clearly held that judgment/or decree for money in favour of

financial creditor passed by the DRT or any tribunal or court

would give rise to a fresh cause of action for the financial creditor,

to initiate proceedings under section 7 of the IBC for initiation of

CIRP within 3 years from the date of such judgment and/or

decree. He has also referred to Hon'ble Apex Court's judgment in

the matter of Kotak Mahindra Bank Limited vs. A. Balakrishnan

& Anr. (2022 SCC OnLine SC 706), wherein it is held that a

liability in respect of claim arising out of recovery certificate would

be a "financial debt" within the meaning of clause (8) of section 5 of

IBC and this judgment has also upheld the judgment of two-Judge

Bench in the case of Dena Bank (supra) as being correct in law.

He has, therefore, claimed that on account of the two loan

agreements cited by him earlier, a clear jural relationship that of a

financial creditor and debtor is established between the Appellant

and Respondent and the debt advanced by the Appellant qua the

two loan agreements are financial debts which are in default and

further section 7 application which has been filed within limitation

should have been admitted by the Adjudicating Authority.

10. The Learned Counsel for Respondent has argued that the

alleged loans have been shown as interest-bearing loans by the Company Appeal (AT) (Insolvency) No. 904 of 2022 Page 8 of 16 Appellant by manipulation of books of accounts and falsification of

the component of interest therein qua the amounts lent to the

Respondent company in 2010 and therefore by misrepresentation

of facts before the Hon'ble High Court of Delhi, the Appellant was

able to obtain a judgment-decree in his favour. He has also

claimed that the calculation of the debt amount of

Rs.3,22,02,660/- is prima facie incorrect and that the Appellant

never showed the interest in his books of accounts and hence the

interest portion as calculated by the Appellant for the amount

claimed before Hon'ble High Court of Delhi in CS (OS) No. 66 of

2016 becomes disputed or false. The Learned Counsel for

Respondent has claimed that thus the decree is non-est in law and

should be set aside and any action based on such a decree cannot

provide cause of action to the Appellant to file an application under

section 7 of IBC for initiation of CIRP. He has finally contended

that the Adjudicating Authority has interpreted the facts and the

citations relating to Dena Bank (supra) correctly and not admitted

the section 7 application. The Learned Counsel for Respondent

has finally argued that the corporate debtor is a solvent company

which should not be pushed into insolvency due to a fraud played

by the operational creditor.

Company Appeal (AT) (Insolvency) No. 904 of 2022 Page 9 of 16

11. We note that the Impugned Order in para 13 observes as

follows:-

"The Applicant has failed to provide any supporting documents/evidence to establish that the alleged amount advanced by the Applicant vide loan agreements dated 24.2.2010 and 31.3.2010 involves time value of money or have commercial effect of borrowing to bring the alleged loan advances within the ambit of definition of financial debt."

12. Further, in para 14 of the Impugned Order, the Adjudicating

Authority again observes as hereunder: -

"in the case before us, the Appellant has not disbursed any debt against the consideration for the time value to the corporate debtor, consequently the corporate debtor does not own any 'financial debt' to the Applicant and further goes on to say that the transactions in question do not fall within the brackets of 'financial debt' only for the reason that the Hon'ble High Court of Delhi in CS(OS) 66 of 2016 preferred by the Applicant vide judgment dated 11.1.2018 decreed in favour of the Applicant a sum of Rs.4,38,00,617/- along with interest @ 24% p.a. from the corporate debtor".

13. Thus, it is clear that the Adjudicating Authority has not

considered the amount advanced by the Appellant to the

Respondent as financial debt particularly because in its opinion

the advanced amounts do not involve a time value of money.

14. We look at two loan agreements wherein the relevant clauses

regarding the amount, period and interest rates are mentioned,

which are reproduced below for reference:-

Company Appeal (AT) (Insolvency) No. 904 of 2022 Page 10 of 16 Loan Agreement dated 24.2.2010 at pp.59-61 of the appeal paper book.

1. At the request of the Borrower, the Lender lends and advances to the Borrower a loan of Rs. 2,50,00,000/-

(Rupees Two Crores and Fifty Lakhs only) for a period of 2 months.

2. The said loan shall carry interest at the rate of 12.75% p.a. payable on half-yearly basis. In case of delay or default in payment, either of the principal or of the interest or any part thereof, the Lender shall be entitled and the Borrower liable to pay a penal interest @ 10% per month over and above the interest mentioned hereinabove.

Loan Agreement dated 31.3.2010 attached at pp. 62-64 of the appeal paperbook.

1. At the request of the Borrower, the Lender lends and advances to the Borrower a loan of Rs. 2,00,00,000/- (Rupees Two Crores only) for a period of 15 days.

2. The said loan shall carry interest at the rate of 3% per month, payable on half-yearly basis. In case of delay or default in payment, either of the principal or of the interest or any part thereof, the Lender shall be entitled and the Borrower liable to pay a penal interest @ 10% per month over and above the interest mentioned hereinabove.

15. The above extracts from the two loans agreements in

question make it clear that the loans are interest bearing and the

interest rate is also clearly specified in the respective loan

agreements. The time period of the loans are also specified in the

loan agreements and security towards timely repayment of loan

has also been specified in clause 3 of both the loan agreements.

Further clause 5 of both the loan agreements make it clear that Company Appeal (AT) (Insolvency) No. 904 of 2022 Page 11 of 16 the borrower shall execute post-dated cheques for repayment in

favour of lenders. All these features of the two loan agreements

very clearly show that the amounts advanced by the Appellant to

Respondent are in the nature of financial debt which carry time

value of money.

16. We also peruse the judgment-decree of Hon'ble High Court of

Delhi dated 11.1.2011 (attached at pp.65-69 of the appeal

paperbook), wherein the relevant portion is as follows:-

"13. Accordingly, the present suit is decreed against the defendant jointly and severally for a sum of Rs.4,38,00,617/- along with interest @ 24% per annum from 01st February, 2016 (date of filing of suit) along with pendente lite and future interest till the date of actual payment of the full amount after deducting payment of Rs. 25 lacs paid by the defendants to the plaintiff on 06th January, 2018."

17. This judgment-decree of Single Judge of Hon'ble Delhi High

court was confirmed by the Division Bench through order dated

27.7.2018 (attached at pp.70-82 of the appeal paperbook) wherein

in paragraph 17, the Hon'ble Division Bench has held as follows:-

"17. We find no infirmity with the view taken by the Single Judge that in the absence of leave to defend objection, with regard to the jurisdiction and the plaintiff being the money lender, could not have been considered. Additionally, we are of the view that once the appellant had entered into a settlement with the plaintiff and no plea of jurisdiction was raised at that point of time, the appellant cannot be allowed to

Company Appeal (AT) (Insolvency) No. 904 of 2022 Page 12 of 16 raise the same at this stage. There is no merit in the appeal, the same is dismissed with costs of Rs.25,000."

18. A plain reading of the judgment of Single Judge of Hon'ble

High Court of Delhi of 11.1.2018 makes it clear that the Hon'ble

High Court has passed a decree against the defendants (Anjali

Technoplast Limited & Ors.) for an amount of Rs.4,38,00617

alongwith interest @ 24% p.a. from 1.2.2016 alongwith pendente

lite till the date of actual payment of the full amount after

deducting Rs.25 lakhs paid by the plaintiff. It appears that the

interest rates mentioned in loan agreements have not been noticed

by the Adjudicating Authority and the interest rate of 24% p.a.,

which is included in the decree by Hon'ble Delhi High Court, has

been taken as the first instance when interest was levied on the

amount of debt. We do not think this the correct reading of the

loan agreements as loan amounts have associated interest rates

and time periods. The jural relationship between the parties is

also clearly established in the loan agreements and thus the

amounts advanced by the Appellant are covered in the definition of

'financial debt' under sub-section (8) of section 5 of the IBC. We

are also of the clear opinion that no fraud has been played by the

operational creditor on obtaining the decree from Hon'ble High

Court of Delhi. Moreover, the corporate debtor has not taken any

Company Appeal (AT) (Insolvency) No. 904 of 2022 Page 13 of 16 action on the order of Division Bench of Hon'ble Delhi High Court

claiming that the decree was obtained by fraud.

19. We also peruse the judgment in the matter of Dena Bank

(supra), which has been cited by both Learned Counsels in

support of their respective contentions. We reproduce paragraph

141 of the judgment below:-

"141. Moreover, a judgment and/or decree for money in favour of the financial creditor, passed by the DRT, or any other tribunal or court, or the issuance of a certificate of recovery in favour of thee financial creditor, would give rise to a fresh cause of action for the financial creditor, to initiate proceedings under Section 7 IBC for initiation of the corporate insolvency resolution process, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the certificate of recovery, if the dues of the corporate debtor to the financial debtor, under the judgment and/or decree and/or in terms of the certificate of recovery, or any part thereof remain unpaid."

20. The ratio cited above of the Dena Bank (supra) judgment

makes it clear that the judgment or decree of money in favour of

the financial creditor passed by DRT or any other tribunal or court

would give rise to a fresh cause of action for the financial creditor,

to initiate proceedings under section of the IBC. In the present

case, the judgment-decree dated 11.1.2018 of the Hon'ble High

Court of Delhi in favour of Appellant thus provides a fresh cause of

action to the Appellant to move application under section7 of IBC. Company Appeal (AT) (Insolvency) No. 904 of 2022 Page 14 of 16 The loan agreements also establish the jural relationship between

the Appellant and Respondent.

21. The Learned Senior counsel for Appellant has argued that

the Respondent cannot at this stage of appeal raise frivolous

issues to fill up gaps and remove any lacunae in their case in

Appeal. He has cited following two judgments in support of his

arguments:-

(i) Mr. Shankar Sundaram Vs. M/s. Amalgamations

Limited and Ors. - TA No. 18 of 2021 - NCLAT Para

- 12-14.

(ii) Union of India Vs. Ibrahim Uddin and Anr. (2012) 8

SCC 148 Para - 37-43.

22. We also note the judgment of Three Judge Bench of Hon'ble

Apex Court in the matter of Kotak Mahindra Bank Limited vs. A.

Balakrishnan & Anr. (supra) wherein the wherein it is held that

the view taken by Two Judges' Bench of the Supreme Court in case

of Dena Bank (supra) is correct in law.

23. In the light of detailed discussion in the aforesaid

paragraphs, we hold the view that the Adjudicating Authority has

erred grossly by not considering that the two loan agreements and Company Appeal (AT) (Insolvency) No. 904 of 2022 Page 15 of 16 the features therein are in fact relating to financial debts which are

due and payable to the Appellant by the Respondent. As a result,

we set aside the Impugned Order and direct admission of the

section 7 application. The matter is sent to the Adjudicating

Authority for passing necessary orders under the IBC consequent

to the admission of section 7 application. The Adjudicating

Authority shall pass such orders within a period of 4 weeks from

the date of passing of this order.

24. There is no order as to costs.

(Justice Ashok Bhushan) Chairperson

(Dr. Alok Srivastava) Member (Technical)

(Mr. Barun Mitra) Member (Technical)

New Delhi 1st November, 2022

/aks/

Company Appeal (AT) (Insolvency) No. 904 of 2022 Page 16 of 16