Narendram Promtoers & Pvt. Ltd. vs Vinline Engineering Pvt. Ltd

Rajasekhar V.K., Member (Judicial)

This court convened via video conferencing.

This is a Company Petition filed under section 7 of the Insolvency and Bankruptcy Code, 2016 (‘the Code’) read with rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 by Narendra Promtoers & Fincon Private Limited (‘Financial Creditor’), a Company incorporated under the Companies Act, 1956, by Mr. Shashi Bhusan Lodha, Director, duly authorised vide board resolution dated 15 February, 2020 for initiation of Corporate Insolvency Resolution Process (‘CIRP’) againstVinline Engineering Private Limited (‘Corporate Debtor’), a Company incorporated under the Companies Act, 1956.

The case of the Financial Creditor

The present Petition was filed on 18 March, 2020 before this Adjudicating Authority on the ground that a sum of ₹10,00,000/- (Rupees Ten Lakh only)as Short Term Loan (‘Loan’), carrying interest @ 16% per annum,was advanced by the Financial Creditor to the Corporate Debtoron 08 September, 2015. RTGS No.HDFCR5201509086775381 The total amount claimed in default by the Financial Creditor is ₹11,46,850/- (Rupees Eleven Lakh Forty Six Thousand Eight Hundred Fifty only) including interest. The date of default is 01 April, 2019.

It is submitted in the Petition, Part – II that the authorised share capital of the Corporate Debtor is ₹2,45,00,000/- (RupeesTwo Crore Forty Five Lakh only) with paid-up capital as ₹2,40,19,500/- (Rupees Two Crore Forty Lakh Nineteen Thousand Five Hundred only).

Mr. Sankarsan Sarkar, Ld. Counsel appearing for the Financial Creditor submits that:

(a) The Financial Creditor carries on the business of Non Banking Financial Company and the Corporate Debtor carries on the business of trading in Computer and Software items.

(b) The Corporate Debtor had approached the Financial Creditor for some financial assistance because the Corporate Debtor was experiencing financial stringency.

(c) Subsequently,  an  oral  agreement  was  entered  into  between  the  parties, where it was agreed that the Financial Creditor will provide a sum of ₹10,00,000/- (Rupees Ten Lakh only) as a loan, along with 16% interest per annum from the date of disbursal of the loan. On 08 September, 2015 the principle amount was accordingly transferred by the Financial Creditor. Annexure A-5 of the Petition. The Financial Creditor on the request of Corporate Debtor kept renewing the loan for a sum of ₹11,00,000/- (Rupees Eleven Lakh only).

(d) A sum of ₹5,82,136/- (Rupees Five Lakh Eighty Two Thousand One Hundred Thirty Six Lakh only) has been paid as interest from 08 September, 2015 to 31 March, 2019, on the principle amount.

(e) Despite several oral demands, the Corporate Debtor failed to pay the total debt due and payable to the Financial Creditor.

(f) The Corporate Debtor has also deposited TDS on interest with Income Tax Department upto March, 2019 and the same is reflected in Form No.26AS obtained from TRACES of the Income Tax Department. Annexure A-7 of the Petition.

(g) Accordingly, the amount of default is ₹11,46,850/-(Rupees Eleven Lakh Forty Six Thousand Eight Hundred Fifty only) including interest.

(h) On 07 January, 2019, a demand notice dated 01 January, 2019 was sent by the Financial Creditor to the Corporate Debtor for the payment of the loan amount along with interest and the same was delivered on 09 January, 2019. Annexure A-9 of the Petition.

On 23 July, 2021, Ld. Counsel Mr. Shubhrasan Trivedi appearing on behalf of the Corporate Debtor sought time to file vakalatnama along with Board Resolution and reply affidavit. However, no representations were made on behalf of the Corporate Debtor after 23 July, 2021.

Analysis and Findings

We have heard Mr. Sankarsan Sarkar, Ld. Counsel appearing for the Financial Creditor and perused the records. However, no reply has been filed by the Corporate Debtor.

As envisaged under section 5(7), section 5(8) read with section 7 of the Code. A debt falling within the ambit of a ‘Financial Debt’ needs to satisfy the following essential conditions:

(i) Disbursement of loan must be there;

(ii) Disbursement has been made for a consideration for time value of money; and

(iii) The debt, wholly or partly, has become due and payable and is not paid by the Corporate Debtor means committed default.

On perusal of the bank statement submitted by the Financial Creditor, it can be corroborated that a sum of ₹10,00,000/- (Rupees Ten Lakh only) was disbursed

by the Financial Creditor to the Corporate Debtor on 08 September, 2015. However, the disbursal by itself cannot be construed as the existence of financial debt since the written terms and conditions between the parties are not before us. There is nothing on record to show that such disbursement was a loan.

As per the RBI guidelines on Fair Practices Code for NBFCs, dated 18 February 2013 DNBS.CC.PD.No.320/03.10.01/2012-13, the NBFCs should convey in writing to the borrower in the vernacular language as understood by the borrower by means of sanction letter or otherwise, the amount of loan sanctioned along with the terms and conditions including annualized rate of interest and method of application thereof and keep the acceptance of these terms and conditions by the borrower on its record. The RBI’s circulars have statutory force, and this is well recognised in law. Hence, it is mandatory on the part of Financial Creditor, being a NBFCs to keep the terms and conditions recorded in writing.

Further, as opined by the Hon’ble Supreme Court in Phoenix Arc Pvt. Ltd. Vs. Spade Financial Services Ltd. &Ors. Civil Appeal No. 2842 of 2020 decided on 01 February, 2021, for the implementation of a successful insolvency regime and to impede any person from taking undue benefit, the real nature of the transactions has to be unearthed, as per the Code.(Para 48).

In the light of the above noted facts and circumstances, we are of the view that the Financial Creditor has failed to establish the nature of transaction between the parties. Further, it is a settled law that the deduction of TDS is not sufficient to conclude that the transaction in question is a Financial Debt Prayag Polytech Pvt. Ltd. vs. Gem Batteries Pvt. Ltd. [CA (AT) (Ins) No. 713 of 2019]. Hence, the petition bearing CP (IB) No.749/KB/2020 is rejected. The Petitioner is, however, at liberty to pursue other available remedies under law.

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

File be consigned to record.