Starlog Enterprises Ltd vs Avil Menezes

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal(AT) (Insolvency) No. 156 of 2021 IN THE MATTER OF: Starlog Enterprises Ltd. 141, Jolly Maker Chambers II, 14th Floor, Nariman Point, Mumbai - 400 021 ...Appellant

Versus Avil Menezes IRP for AMW Motors Ltd. 416, Crystal Paradise Co-OP SOC. Ltd., Dattaji Salvi Marg, Above Pizza Express, Off Veera Dasi Road, Andheri (West) Mumbai- 400 053 ...Respondent

Present: For Appellant : Mr. Amit Pai and Ms. Bhavana Duhoon, Advocates For Respondents : Mr. Bishwajit Dubey, Ms. Srideepa Bhattacharyya and Ms. Neha Shivhare, Advocates.

JUDGMENT

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

1. The present appeal has been filed by the 'Appellant' - 'Starlog Enterprises Ltd'

under Section 61 of the 'Insolvency and Bankruptcy Code, 2016' (in short

'Code') against the impugned order dated 15.12.2020 passed by the

'Adjudicating Authority' (National Company Law Tribunal), Ahmedabad

Bench at Ahmedabad in I.A No. 730 of 2020 Company Petition (IB) No. 184

of 2018.

1 Company Appeal (AT)(Insolvency) No. 156 of 2021

2. The Appellant has prayed to set aside the impugned order dated 15.12.2020

as stated above passed by the 'Adjudicating Authority' apart from related

reliefs to recognize the Appellant as 'Financial Creditor' and also to recognize

Appellant's claim of principal amount alongwith interest etc.

3. The Adjudicating Authority has observed the followings:

a. The Appellant has paid through three cheques dated 25-29th October,

2007 Rs.10 Crore to the Respondent; out of which it reflects that Rs.5

Crore was repaid in the year 2013;

b. That the amount of claim accepted by IRP is Rs.5 Crore;

c. As per the 'Books of the Accounts' of the Corporate Debtor (Respondent)

only Rs. 5 Crore is due to the Appellant and the same has been

considered by the IRP as claimed as other than 'Operational Creditor'

and 'Financial Creditor' in terms of the document available on record

with the Corporate Debtor /IRP;

d. No documents substantiate, the Appellant's claim of Rs.16,35,25,444/-

save and accept Rs.5 Crore claim;

e. Amount paid in 2007 stands time barred as per Section 18 of the

Limitation Act as no acknowledgement is available of the Corporate

Debtor of recent times;

f. There is nothing in writing to substantiate that it is a financial debt.

In view of the above the 'Adjudicating Authority' has rejected the

Application of the Applicant to classify the claim as Financial Creditor

apart from other related prayers and has also asserted that the due of

2 Company Appeal (AT)(Insolvency) No. 156 of 2021 Rs. 5 Crore which is acknowledged by the Corporate Debtor is to be

considered by the IRP as claims other than Operational Creditors and

Financial Creditors.

4. The Learned Counsel for the Appellant has stated the followings:

a. The amount of Rs.10 Crores was disbursed to the Corporate Debtor and

a part of the amount i.e. 5 crores remains unpaid till date. This is a

loan and it is not always possible to have written agreement as the same

is not mandatory for a debt to qualify as a 'Financial Debt'.

b. There is no requirement of a 'Board Resolution' under the Companies

Act to disburse inter corporate loan as per relevant provisions,

particularly, Section 372 A of the 'Companies Act, 1956'.

c. The amount given to the Corporate Debtor is not for a defined period

and was recalled by the Appellant in the year 2018 vide its notice dated

30th November, 2018 and hence the claim submitted in Form -C vide

email dated 16.09.2020 is within the 'limitation period'. This is a case

of intercorporate loan / deposit in business and is carrying an interest

element.

d. The Appellant has also cited the following judgments:

 Swiss Ribbons (P) Ltd. Vs. Union of India, (2019) 4 SCC 17 Para

42

"Para 42 - A perusal of the definition of ―financial creditor‖ and

―financial debt‖ makes it clear that a financial debt is a debt

together with interest, if any, which is disbursed against the

3 Company Appeal (AT)(Insolvency) No. 156 of 2021 consideration for time value of money. It may further be money that

is borrowed or raised in any of the manners prescribed in Section

5(8) or otherwise, as Section 5(8) is an inclusive definition. On the

other hand, an ―operational debt‖ would include a claim in respect

of the provision of goods or services, including employment, or a

debt in respect of payment of dues arising under any law and

payable to the Government or any local authority."  Pioneer Urban Land & Infrastructure Ltd Vs. Union of India,

(2019) 8 SCC 416, Para 17

"Para 17- In the present context, it is clear that the expression "disburse" would refer to the payment of instalments by the allottee to the real estate developer for the particular purpose of funding the real estate project in which the allottee is to be allotted a flat/apartment. The expression "disbursed" refers to money which has been paid against consideration for the "time value of money". In short, the "disbursal" must be money and must be against consideration for the "time value of money", meaning thereby, the fact that such money is now no longer with the lender, but is with the borrower, who then utilises the money.

Thus far, it is clear that an allottee "disburses" money in the form of advance payments made towards construction of the real estate project. We were shown the 'Dictionary of Banking Terms' (Second edition) by Thomas P. Fitch in which "time value for money" was defined thus:

"present value: today's value of a payment or a stream of payment amount due and payable at

4 Company Appeal (AT)(Insolvency) No. 156 of 2021 some specified future date, discounted by a compound interest rate of DISCOUNT RATE. Also called the time value of money. Today's value of a stream of cash flows is worth less than the sum of the cash flows to be received or saved over time. Present value accounting is widely used in DISCOUNTED CASH FLOW analysis."

That this is against consideration for the time value of money is also clear as the money that is "disbursed" is no longer with the allottee, but, as has just been stated, is with the real estate developer who is legally obliged to give money's equivalent back to the allottee, having used it in the construction of the project, and being at a discounted value so far as the allottee is concerned (in the sense of the allottee having to pay less by way of instalments than he would if he were to pay for the ultimate price of the flat/apartment)."

 Ludhiana Scrips Pvt. Ltd. Vs. K.C.Land & Finance Ltd, 2019 SCC

Online NCLAT 355.

 M/s. Orator Marketing Pvt. Ltd. Vs. M/s. Samtex Desinz Pvt. Ltd

in Civil Appeal No. 2231 of 2021 held in paragraphs 22-23 and

31

"Para 22 - The NCLT and NCLAT have overlooked the words "if

any" which could not have been intended to be otiose. 'Financial

debt' means outstanding principal due in respect of a loan and

would also include interest thereon, if any interest were payable

thereon. If there is no interest payable on the loan, only the

outstanding principal would qualify as a financial debt. Both

NCLAT and NCLT have failed to notice clause(f) of Section 5(8), in

terms whereof 'financial debt' includes any amount raised under

any other transaction, having the commercial effect of borrowing.

5 Company Appeal (AT)(Insolvency) No. 156 of 2021 Para 23. Furthermore, sub-clauses (a) to (i) of Sub-section 8 of

Section 5 of the IBC are apparently illustrative and not exhaustive.

Legislature has the power to define a word in a statute. Such

definition may either be restrictive or be extensive. Where the word

is defined to include something, the definition is prima facie

extensive.

Para 31. At the cost of repetition, it is reiterated that the trigger

for initiation of the Corporate Insolvency Resolution Process by a

Financial Creditor under Section 7 of the IBC is the occurrence of a

default by the Corporate Debtor. 'Default' means non-payment of

debt in whole or part when the debt has become due and payable

and debt means a liability or obligation in respect of a claim which

is due from any person and includes financial debt and

operational debt. The definition of 'debt' is also expansive and the

same includes inter alia financial debt. The definition of 'Financial

Debt' in Section 5(8) of IBC does not expressly exclude an interest

free loan. 'Financial Debt' would have to be construed to include

interest free loans advanced to finance the business operations of

a corporate body".

e. The List of dates and events as provided by the Appellant in the Appeal

paper book is also extracted hereunder:

24.10.2007: A Rs. 10 crore inter-corporate deposit/loan was disbursed by the Appellant to the Corporate Debtor by way of 3 cheques numbered 001291, 001276 and 001292.

6 Company Appeal (AT)(Insolvency) No. 156 of 2021 16.11.2013: An amount of Rs. 5 crore was paid by the Corporate Debtor to the Appellant by way of RTGS to the Appellant's HDFC Bank Account.

13.03.2015: E-mail of the Corporate Debtor to the Appellant requesting for a balance confirmation alongwith a letter for said balance confirmation as to the amount due on account of the Inter- corporate Deposit (ICD).

16.03.2015: Follow up e-mail by the Corporate Debtor to the Appellant for the balance confirmation on account of ICD. 30.11.2018: Letter of Appellant to the Corporate Debtor recalling the loan with interest @ 18% per annum.

2018: CP (IB) No. 184 of 2018 filed by Indian Overseas Bank against

the Corporate Debtor under S. 7 of the Insolvency and Bankruptcy

Code (IBC).

01.09.2020 : Order of the Hon'ble NCLT Ahmedabad Bench

admitting the petition under Section 7 of the IBC for and appointing

the Respondent as the IRP.

3.09.2020 : Public notice issued by the Respondent calling for claims

from interested parties.

16.09.2020: Appellant submitted its claim for Rs. 16,35,25,444

which included the principal amount of Rs. 5 Crores alongwith

interest @ 12% in Form C to the Respondent IRP

24.09.2020 : Email of the Respondent IRP while accepting the

principal amount of Rs. 5 Crores as debt which is owed by the

Corporate debtor denied the status of Financial Creditor to the

Appellant without assigning any reasons.

7 Company Appeal (AT)(Insolvency) No. 156 of 2021 24.09.2020 : Response of the Appellant to the Respondent stating

that it is an admitted position that the loan was an ICD and thus a

financial debt under Section 5(8) of the IBC.

29.09.2020: Notice issued by the Appellant to the Respondent

objecting to the constitution of the CoC

30.09.2020: IA No. 730 of 2020 filed by the Appellant in Company

Petition *(IB) No. 184 od 2018 seeking direction against Respondent

to classify the Appellant as a Financial Creditor.

15.12.2020: Impugned order passed by the NCLT rejecting the IA

filed by the Appellant without providing any reason for the same.

12.02.2021: Hence the present appeal under section 61(1) of the IBC.

5. The Learned counsel for the Respondent has submitted the followings and

the same are chronologically stated hereunder:

a. It is submitted that the limited issue arising in the present appeal is

not whether the amount claimed (Rs. 5 Crore) by the Appellant is owed

to it by the Respondent Corporate Debtor, but is to the legal issue of

whether such amount as claimed by the Appellant is a Financial Debt

as defined under the IBC or as debt other than Financial Debt as held

by the Adjudicating Authority in the impugned order.

b. It is stated that the Appellant has claimed that the amount is to be

classified as a "Financial Debt" under the Code, it has failed to produce

any agreement, or even specified pleadings or argued the specific clause

8 Company Appeal (AT)(Insolvency) No. 156 of 2021 under section 5(8) of the Code under which the amount can be

classified as a Financial Debt. In fact, the Appellant has in its ledger

account stated that the amount disbursed was towards purchase of

trucks, therefore, there was admittedly no element of 'disbursal against

the consideration for time value of money'. Secondly, the Appellant has

been using the term "loan and deposit" interchangeably in its pleadings

to bring it within the ambit of Section 5(8) of the Code. It is pertinent to

note that the Appellant has used different terms to define the amount

in different correspondence. In this regard, it is pertinent to highlight

that Appellant has used "advance for purchased of truck" in response

to the Corporate Debtor's Balance confirmation letter dated 13.03.2015

used the term "Inter Corporate Advance". Secondly in the form C filed

by the Appellant, the Appellant referred to the amount is referred to as

"Inter Corporate Deposit". Therefore, it is clear that the Appellant itself

is not sure of the nature of the transaction. The Appeal will not stand

on this count itself.

c. It is also stated that the Appellant's argument that they are covered by

the Hon'ble Supreme Court's judgment in the matter of Orator

Marketing Applicant Pvt. Ltd. v. Samtex Desinz Pvt. Ltd. 2021 SCC

OnLine SC 513 ("Orator"), is incorrect, as in Orator, the only point of

contention was whether a person who bases a written agreement gives

a term loan to a corporate person, free of interest, on account of its

working capital requirements is a Financial Creditor. It was in this

9 Company Appeal (AT)(Insolvency) No. 156 of 2021 context that the Hon'ble Supreme Court held that the term "if any" used

in section 5(8) W qualifies that interest is not a necessary for a debt

to be considered a financial debt, provided the debt falls within the sub-

clauses of section 5(8). However, the facts of the present case make it

very clear that the amount transferred herein does not fall within

Section 5(8), as in the present case there was no underlying written

agreement itself (which was not the case in Orator) to substantiate the

Appellant's contention.

Distinguishing Hon'ble Supreme Court's Judgment in Orator from the present case

 The Respondent seeks to highlight the material differences between the present case and Orator to establish that the present case is not covered by the Hon'ble Supreme Court's holdings in Orator.

SL Particulars Orator Starlog No.

1. Underlying On analysis of the facts of In the present case, the Appellant written Orator, it is clear that grant has failed to produce any written agreement of Term Loan in Orator was agreement to establish that the based on a written amount was disbursed against the agreement between the time value of money. The Appellant parties and the terms of the did not annex it either in response loan specifically stated that to the Respondent's letter dated the loan agreement shall 19.09.2020 seeking written bear NIL interest documents in this regard.

2. Communication The interest component The documents on record do not of Interest (being NIL) mentioned in recognize the interest component component the section 7 application claimed by the Appellant. In fact, between the was intimated to the the Corporate Debtor in the Balance parties in Respondent. The loan Confirmation letter dated mandatory agreement clearly stated 13.03.2015 had only recognized (NCLAT in that there was no interest that the balance payable as on Swastik to be charged on the loan. 31.03.2012 is INR 10,00,00,000 Gammon case) only and did not mention the interest payable on the same. Further in the same Balance 10

Company Appeal (AT)(Insolvency) No. 156 of 2021 Confirmation Letter the Appellant (erstwhile ABG Heavy Industries Limited having changed in the from ABG Infralogistics Limited) did not mention applicability of interest. It was only in the demand notice dated 30.11.2018 that the Appellant, for the first time, demanded an interest of 18% pa payable on the amount, which was not agreed to or communicated between the parties earlier.

3. Fulfilling The underlying amount The amounts disbursed do not fulfill requirements of disbursed otherwise the requirements of any of the sub-

Financial Debt fulfilled the requirements of clauses of debts specified u/s 5(8) of u/s 5(8) of the being amount disbursed the Code to qualify as a Financial case against the consideration of Debt. The amounts are admittedly time value of money and in the form of advance towards only deals with the limited purchase of trucks. The legislature issue of whether Financial has consciously amended the Code Debt includes interest free on 06.06.2018 to bring within its loan in its ambit ambit, any amount raised from an allottee under a real estate project to be deemed an amount having the commercial effect of a borrowing.

However, S. 5(8) otherwise does not include advances particularly without an underlying agreement and without consideration of time value of money, as one of the sub-

clauses under the definition of Financial Debt.

d. To classify as a Financial Creditor under the Code, the Debt owed must be

Financial Debt" which has commercial effect of borrowing and is "disbursed

against the consideration for the time value of money and there must be

documents to substantiate the same. This has been upheld time and again in

several judgments. For instance, in the matter of the Sanaya Tea Pvt. Ltd Vs.

Vinergy International Pvt. Ltd., CP 3006/IB/NCLT/MB/MAH/2018, by an

order dated 08.02.2019, the Adjudicating Authority denied admission of a

petition filed by the Petitioner who had given a private loan to the Corporate

Debtor (without a written agreement) and was claiming to be a Financial

Creditor under Section 7 of the Code, on the following ground - 11 Company Appeal (AT)(Insolvency) No. 156 of 2021 "Para -12 The Petitioner has not filed any document to

substantiate its claim of being a Financial Creditor and debt

as Financial Debt. Petitioner's claim is totally based on the

oral submission that he has given a credit to the CD, which is

evidentfom the statement of account of Financial Creditor,

from which amount has been transferred to the Operational

Creditor's account. It is pertinent to mention that only by

transferring amount to the account of Corporate Debtor, a

person cannot claim to be a Financial Creditor. There are no

documents to prove a financial debt".

It is stated that the Appellant wrongfully contends that the

aforementioned order is not applicable to the first case as the

Hon'ble Adjudicating Authority held that a financial debt has

to be proved by way of documents and not specifically

agreement. It is pertinent to note that the Hon'ble

Adjudicating Authority in this case Specifically mentioned

that the documents have to be inter-se parties reflecting the

purported loan and that a person cannot claim to be a

financial creditor by merely transferring the amount to the

Corporate Debtor.

6. We have carefully perused the pleadings of the parties and extant provisions

of the Code and the law on the issue and we have the following observations:

12

Company Appeal (AT)(Insolvency) No. 156 of 2021 a. It is not in dispute that Rs.10 Crore was paid by the Appellant to the

Corporate Debtor and it is also not in dispute that the Appellant has

not received Rs. 5 Crore.

b. It is also not in dispute that as on 1st April, 2020 Rs. 5 Crore is due

from the Corporate Debtor.

c. The dispute is limited to the fact that Rs.5 Crore is to be considered as

Financial Debt or otherwise.

d. At page 21 of the Appeal Paper book i.e. Annexure A-2 it is stated

as follows:

This reflects that the Corporate Debtor was paid by Appellant towards

on account payment for the purchases of AMW Truck. 13 Company Appeal (AT)(Insolvency) No. 156 of 2021 e. As per page 25 of the Appeal Paper Book confirmation of balance for

the year 31st March, 2012 is given as follows:

f. At Page 62 of the Appeal paper book is given below:

14 Company Appeal (AT)(Insolvency) No. 156 of 2021 g. We have also gone through the Annual Report of the Appellant

Company for the year 2015, 2016 & 2021 through their website and is

observing as follows:

15 Company Appeal (AT)(Insolvency) No. 156 of 2021 16 Company Appeal (AT)(Insolvency) No. 156 of 2021 17 Company Appeal (AT)(Insolvency) No. 156 of 2021 18 Company Appeal (AT)(Insolvency) No. 156 of 2021 h. Ongoing through the balance sheet as on 31st march, 2011 from the

website of the Appellant current assets, Loans and Advances reflects

as follows:

19 Company Appeal (AT)(Insolvency) No. 156 of 2021 This does not reflect that the Company has given any loan to any

outsider. If anything has been given it is only advance which is

recoverable in cash or in time or for value to receipt.

i. The various provisions of the Code related to the applicability of the

case are stated below:

Section 3(6) "claim" means--

(a) a right to payment, whether or not such right is reduced to judgment,

fixed, disputed, undisputed, legal, equitable, secured or unsecured;

20 Company Appeal (AT)(Insolvency) No. 156 of 2021

(b) right to remedy for breach of contract under any law for the time being

in force, if such breach gives rise to a right to payment, whether or not

such right is reduced to judgment, fixed, matured, unmatured, disputed,

undisputed, secured or unsecured;

Section 3(10) - "creditor" means any person to whom a debt is owed and

includes a financial creditor, an operational creditor, a secured creditor,

an unsecured creditor and a decree holder;

Section 3(11) "debt" means a liability or obligation in respect of a claim

which is due from any person and includes a financial debt and

operational debt;

Section 3 (12) "default" means non-payment of debt when whole or any

part or instalment of the amount of debt has become due and payable

and is not repaid by the debtor or the corporate debtor, as the case may

be.

Section 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;

Section 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;

21 Company Appeal (AT)(Insolvency) No. 156 of 2021

(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 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;

Section 5 (20) "operational creditor" means a person to whom an

operational debt is owed and includes any person to whom such debt

has been legally assigned or transferred;

22 Company Appeal (AT)(Insolvency) No. 156 of 2021 Section 5 (21) "operational debt" means a claim in respect of the provision

of goods or services including employment or a debt in respect of the

repayment of dues arising under any law for the time being in force and

payable to the Central Government, any State Government or any local

authority;

7. All these as stated lead us to believe the followings:

a. It is not a 'Financial Debt' as the 'Debt' is not disbursed against the

consideration for the time value of the money and does not meet any of

the criteria as stated under the Code, the various provisions as stated

above.

b. The Appellant is not in the business of providing any banking or

financial services rather it is engaged in crane rental and in

infrastructure solutions providers. Even assuming everything in favour

of the Appellant it can be maximum be considered as 'operational

creditor' and in no way it can come under 'Financial Debt'.

c. All the citations have furnished by both the sides also lead us to the

conclusion that it is not a 'Financial Debt'. Hence, we do not find any

legal infirmity in the impugned order dated 15.12.2020 of the

Adjudicating Authority (National Company Law Tribunal), Ahmedabad

Bench at Ahmedabad in I.A No. 730 of 2020 Company Petition (IB) No.

184 of 2018, which had not considered the Appellant as 'Financial

Creditor'.

23

Company Appeal (AT)(Insolvency) No. 156 of 2021 Hence, the Appeal is devoid of merits and is accordingly dismissed.

No order as to costs.

All pending connected IAs are closed.

[Justice M.Venugopal] Acting Chairperson

(Dr. Ashok Kumar Mishra) Member(Technical)

07th October, 2021 New Delhi

Raushan.K

24 Company Appeal (AT)(Insolvency) No. 156 of 2021