M/S Devi Enterprises Lit vs M/s Gurudev Infra Projects Ltd

Virendra Kumar Gupta., Member (Technical)

This application has been filed under section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 by M/s Devi Enterprises Limited (hereinafter referred as the Financial Creditor) through its counsel seeking initiation of Corporate Insolvency Resolution Process in respect of the M/s Gurudev Infra Projects Limited. (hereinafter referred as the Corporate Debtor).

Facts of the case:

The facts, in brief are that the financial creditor disbursed the loan of ₹1 crore into two tranches of ₹50,00,000 each on 01.02.2018 and 05.03.2018. The said unsecured loan carried an interest @ 18% per annum. The amount of this loan was to be returned within the next financial year. A cheque bearing no.607035 dated 02.01.2019 had also been given to fulfill this commitment. However, the said cheque, when presented by the financial creditor, was not encashed. Consequently, this application u/s 7 of IBC, 2016 has been filed.

The Ld. Counsel for the financial creditor appeared and narrated these basic facts. Our attention was also drawn to the financial statement i.e. balance sheet as on 31.03.2018 of both the parties i.e. financial creditor as well as corporate debtor. Based upon such balance sheet, it was claimed that the amount of loan so given had been shown as an asset in the balance sheet of financial creditor and as a liability in the balance sheet of the corporate debtor.

The Ld. Counsel further contended that since there was a debt which was due and payable and a default had occurred, hence, the application filed u/s 7 of IBC, 2016 was liable to be admitted.

Reply on Behalf Of The Corporate Debtor

The Ld. Counsel for the corporate debtor submitted that both financial creditor as well as corporate debtor belonged to the same family and the main persons Mr. Devi Dayal Gupta and Mr. Upendra Kumar Gupta are father and son. It was claimed that both the companies were having the registered office at the same address. It was also claimed that the financial creditor holds 38.5% of shareholding in the respondent company.

It is also claimed that one contract which was awarded by NHAI to the financial creditor, in which as stated earlier, Mr. Upendra Kumar Gupta (Director of the corporate debtor) who was also a Director and Shareholder in the petitioner company, put his personal / assets to keep the project execution in place. It is also stated that he also gave his personal guarantee for the credit facility availed by the financial creditor for the execution of said project.

It is further pointed out that, subsequently, the said contract was terminated by NHAI and resulted into financial burden on the financial creditor. It is claimed that the Director of the corporate debtor also gave his personal land as collateral security to keep the bank account of financial creditor with PNB in good health. It is alleged that the said land was sold by Mr. Devi Dayal Gupta and the sale consideration was utilized by him in personal capacity instead of same being utilized for repayment of loan.

It is also claimed that subsequently settlement with NHAI happened and the Director of the corporate debtor claimed that the amount which lawfully belonged to Mr. Upendra Kumar Gupta should have been given back. It was further claimed that after a lot of persuasion a meagre percentage of 7% of the total settled claim amount was allocated to Mr. Upendra Kumar Gupta. In this background, it was alleged that due to family dispute, this application u/s 7 of IBC, 2016 has been filed.

It is further claimed that FIR no.0051 dated 24.01.2019 has also been lodged by the Director of the corporate debtor. It is further claimed that a fictitious letter dated 01.02.2018 has been created to justify the loan transaction wherein fake signatures of the said person have been made. Another fact on which a lot of emphasis has been made is that a non-CTS cheque have been issued by and on behalf of corporate debtor, whereas the fact is that non-CTS cheque had been out of practice and not being issued after 2010. It was also claimed that the bank account in respect of which such cheque was issued was opened in financial year 2011-12 in connection of some other project and for smooth execution of that project, few blank signed cheques without mentioning the date were lying with the financial creditor which have been now utilized for ulterior motive.

It was also stated that in the balance sheet, the amount was shown under the head “long term loans and advances” whereas the said cheque was of the date which was after 11 months from the date of signing of alleged letter dated 01.02.2018. In this regard, it is also claimed that why a cheque of Rs.1 Crore would be given against the first tranche of Rs. 50,00,000/- only. Another plea which has been taken that provisions of Section 186 of Companies Act, 2013 were not complied with. It was also claimed that an unsigned balance sheet of the corporate debtor had been relied on and, therefore, no cognizance of this balance sheet can be taken.

One legal claim is also made that no tax at source on interest income which could accrue to the financial creditor has been made and this fact also shows that no interest was in fact payable. Another legal claim, which has been made is that, this application has been filed with malicious intentions and for purposes other than the insolvency resolution of the corporate debtor which is a commercially solvent company. Hence, appropriate penalty be imposed on the financial creditor in addition to dismissal of this application.

Rejoinder On Behalf Of Financial Creditor

In the rejoinder, it is claimed that all the legal compliances as required under the provisions of Companies Act, 2013 had been made. It is also claimed that the amount has been shown as unsecured loan in the balance sheet of the corporate debtor which establishes the fact that a loan existed in reality. Hence, all other contentions made in this regard are of no significance.

Findings & Conclusion

We have considered the submissions made by both the sides and material on record. It is an undisputed fact that both the companies i.e. financial creditor and corporate debtor belong to the same family. These companies are closely held. There are cross holdings and also management of affairs of both the companies is on shared basis.

In our view, the controversies have arisen because of failure of a project awarded by the NHAI to the financial creditor, wherein the personal assets of the Director of the corporate debtor have been disposed of and such person has been deprived of his legal entitlements.

In the rejoinder, the financial creditor has not controverted such claims made on behalf of the corporate debtor. The main focus of the financial creditor is on the presentation of such loan transaction in the financial statements of both financial creditor as well as corporate debtor, whereas the fact remains that the financial creditor has not been able to controvert the claims made by the corporate debtor as regard to issue of non CTS cheque in the year 2019 as well as the fact of forgery in the letter dated 01.02.2018.

Further, if the claim of the financial creditor that when there is a debt which is due and payable both in law and fact and a default occurs, then the Adjudicating Authority must admit this application subject to other conditions i.e. the amount of default should be more than the threshold limit and not barred by limitation. In our view, if this plea is accepted then the provisions of Section 65 of IBC, 2016 would become redundant as an empty provision in the statute. We are of the view that this is certainly not the purpose of legislature. The provisions of Section 65 of IBC, 2016 have been brought on statute particularly to check and prevent misuse of the provisions of law, when application u/s 7 is found to have been filed for some ulterior motive other than the resolution of insolvency of a corporate debtor. The twin conditions for that is the application u/s 7 of IBC, 2016 should have been filed with malicious intent and for any purposes other than the resolution of insolvency.

In our view, this application has been filed for such extraneous considerations and to settle personal scores, which most unfortunately, is happening between a father and son.

Accordingly, we hold that this application is liable to be rejected being an instance of malicious initiation for purposes other than the insolvency resolution of the corporate debtor particularly when corporate debtor is a solvent company.

Since, this application is found of this nature, we have no hesitation in imposing a cost of ₹5,00,000/- (Rupees Five Lakh Only) on the financial creditor which needs to be deposited with the Prime Minister’s National Relief Fund within 15 days from the receipt of this order. Proof of compliance of this direction by way of bank records as well as acknowledgment issued by the Prime Minister’s National Relief Fund be filed with the registry of this Bench, who shall bring the same on the case records. In case of failure to comply our such direction, contempt proceedings u/s 425 of the Companies Act, 2013 would be initiated.

In the result, application filed u/s 7 of IBC, 2016 shall stands dismissed and disposed of in terms indicated above.

A certified copy of this order may be issued, if applied for, upon compliance with all requisite formalities.