National Company Law Appellate Tribunal
Sri Ganapathi Financiers vs Srirangam Priya Promoters Private ... on 27 August, 2021
NATIONAL COMPANY LAW APPELLATE TRIBUNAL AT CHENNAI
(APPELLATE JURISDICTION)
Company Appeal (AT) (CH) (INS) No. 88 of 2021
(Under Section 61 of the Insolvency and Bankruptcy Code, 2016)
Arising out of the Order dated 23.02.2021 in IBA/60/2020 passed by the
Adjudicating Authority, (National Company Law Tribunal,
Division Bench-II, Chennai Bench)
In the matter of:
M/s. Sri Ganapathi Financiers ...Appellant
Represented by its Partner Mr. M. Natesan,
Having office at No:66, MVM Towers, 2nd Floor,
West Pradhakshanam Road, Karur 639 001.
V
M/s. Srirangam Priya Promoters Private Limited
Priya's Sudharasana Melur Road,
Srirangam, Trichy - 620 006. ...Respondent
Present:
For Appellant : Mr. T. Mohan, Advocate
For Respondent No.2 : Mr. Karthik Seshadri, Advocate
For Mr. Abhinav Parthasarathy, Advocate
JUDGMENT
(VIRTUAL MODE) Per: Kanthi Narahari Member(T) The present 'Appeal' is filed by the 'Appellant', challenging the Order passed by the 'Adjudicating Authority' (National Company Law Tribunal, Comp App (AT) (CH) (INS) No. 88 of 2021
1|Page Division Bench - II, Chennai) in IBA/60/2020, dated 23.02.2021, whereby the 'Adjudicating Authority' dismissed the said application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016.
Appellants Submissions': -
1. Sri. T. Mohan, Learned Counsel appearing for the 'Appellant', submitted the brief facts. He submitted that the 'Appellant' is involved in the business of providing financial assistance to its customers based on their requests.
The Respondent herein is involved in the business of Real Estates, Civil Constructions and other allied activities. He submitted that in the year 2015, the Respondent's Company represented by its Directors Mr. A. Francis and Mrs. A. Jean Fleming Rose, approached the Appellant seeking a loan of Rs. 50,00,000/- (Rupees Fifty Lakhs only), to meet its Business commitments and to develop an immovable property situated at Srirangam, standing in the name of its Managing Director, Mr. A. Francis. The Respondent and its Directors had agreed to repay the aforesaid loan amount within a period of 1 (one) year, along with interest at the rate of 18% per annum. A deed of Mortgage/Loan Agreement dated 20.10.2015 was also executed by Mr. A. Francis, the Managing Director of the Respondent pertaining to the above said immovable property at Srirangam in favour of the Appellant and the said document has been registered on the file of Sub-Registrar, Srirangam, vide document No. 3034 of 2015. Comp App (AT) (CH) (INS) No. 88 of 2021
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2. The Appellant had transferred the loan amount to the Bank account of Mr. A. Francis, Managing Director of the Respondent vide RTGS on 20.10.2015. The Learned Counsel Submitted that the Respondent had assured for repayment of the principal amount of Rs. 50,00,000/- received from the Appellant within a period of one year from 20.10.2015, however, it had failed to settle the loan within the agreed time frame. The Respondent paid a sum of Rs. 25,86,250/- towards interest by several instalments.
3. The Learned Counsel further submitted that an MoU was executed by the Respondent in favour of the Appellant and other lenders on 05.07.2019, wherein the Respondent had undertaken to repay the entire outstanding amount within a period of 45 days, i.e. on or before 19.08.2019. It is also submitted that the Respondent had sought further loan of Rs. 50,00,000/- by undertaking to pay interest at the rate of 25.2% per annum. The Appellant had made arrangements from few other entities and the said amount of Rs. 50,00,000/-was also transferred to the Bank Account of Mr. A. Francis, Managing Director of the Respondent vide RTGS on 23.10.2015.
4. While so, the Respondent failed to settle the outstanding amount on or before 19.08.2019, and the Appellant had caused issuance of legal notice dated 28.09.2019 to the Respondent and both of its Directors, calling upon them to pay the sum of Rs. 63,75,500/-. The total outstanding amount payable by the Comp App (AT) (CH) (INS) No. 88 of 2021
3|Page Respondent as on 16.12.2019 stood at Rs. 76,53,969.10/- including the Principal Amount of Rs. 50,00,000/-.
5. The Learned Counsel for the Appellant submitted that the Respondent admitted the liability in the MoU dated 05.07.2019 and the liability has also not been disputed by the Respondent, pursuant to issuance of a demand notice.
6. The Learned Counsel submitted that the Hon'ble Adjudicating Authority failed to note that the liability of the Respondent has arisen pursuant to an MoU dated 05.07.2019 and the Respondent had undertaken to repay the outstanding amount within a period of 45 days i.e. on before 19.08.2019. The Hon'ble Adjudicating Authority failed to note that the said MoU constitutes a "Financial Agreement", within the meaning of Rule 3 (d) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016. The Hon'ble Adjudicating Authority also failed to appreciate that there is "Debt and Default" as defined under Section 3(11) and 3(12) of the Insolvency and Bankruptcy Code, 2016. Further, the MoU dated 05.07.2019 does not create or alter any right or title over any immovable property and as such is not compulsorily registerable under Section 17 of the Registration Act, 1908. Hence, the finding of the Hon'ble Adjudicating Authority in rejecting the MoU dated 05.07.2019 is baseless and unsustainable.
Comp App (AT) (CH) (INS) No. 88 of 2021
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7. The Learned Counsel relied upon the Judgment of the Hon'ble Supreme Court in Laxmi Pat Surana V. Union Bank of India & Anr., in Civil Appeal No. 2734 of 2020 dated 26.03.2021.
Respondents Submissions': -
8. Sri. Karthik Seshadri, Learned Counsel representing Mr. Abhinav Parthasarathy, Counsel for the Respondent, submitted that the Appellant has filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, on the strength of an unregistered MoU dated 05.07.2019. He submitted that the said unregistered MoU is a compulsorily registerable document as per Section 17 of Registration Act, 1908 on the premise that the said unregistered MoU purports to create, declare and assign a right to an immovable property as and when the Respondent herein defaults in settling the loan as agreed. Hence, it is reasonable to comprehend that a charge has been created on a property of the Respondent by the Appellant by way of the unregistered MoU. Hence, on account of the unregistered MoU not being registered as mandated under Section 17 of the Registration Act, the said document cannot be received as evidence regarding the existence of the alleged debt, as contemplated under Section 49(C) of the Registration Act, 1908.
9. The Learned Counsel further submitted that there is no enforceable debt due and realizable from the Respondent herein. In fact, the Managing Director of Comp App (AT) (CH) (INS) No. 88 of 2021
5|Page the Respondent Company in his personal capacity has deposited Title Deeds of his personal properties to the Appellant, as a security towards the loan he had obtained from the Appellant. Further, the Bank statement filed by the Appellant would show that a sum of Rs. 50,00,056/- has been transferred on 21.10.2015 to the personal account of the Managing Director of the Respondent. Further, there is no privity of contract between the Appellant and the Respondent herein. The Appellant agreed to provide Financial assistance to Mr. A. Francis and towards the same he had furnished sufficient security by executing a Mortgage Deed of property at Srirangam to an extent of 15,315 sq. ft., registered as Document No. 3034 of 2015.
10. The Learned Counsel further submitted that the allegation made by the Appellant that the Respondent had sought for further loan of Rs. 50,00,000/- and had undertaken to pay interest at the rate of 25.2% per annum for the outstanding amount is entirely untrue.
11. The Learned Counsel submitted that the unregistered MoU appears to be a fraudulent document concocted mainly for the purpose of maintaining an application under Section 7 of the I&B Code, 2016. The alleged MoU has not been taken in the name of Respondent and there is no assignment of debt in this regard. Further, there is no Financial contract between the Appellant and the Comp App (AT) (CH) (INS) No. 88 of 2021
6|Page Respondent and as stated above the Statement of Accounts filed by the Appellant would go to show that the loan was availed by Mr. A. Francis, as a personal Loan.
12. The Learned Adjudicating Authority has rightly held that no proof has been filed to satisfy that the amount of Rs. 50,00,000/- claimed by the Appellant was paid into the account of the Respondent and rightly held that the unregistered MoU dated 05.07.2019 is rejected. The Learned Adjudicating Authority has further rightly held that there is no privity of contract between the Appellant and the Respondent regarding disbursement of Loan into the accounts of the Respondent and that the said allegation of disbursement is not corroborated by reflection in statement of accounts of the Respondent. Further, the Learned Adjudicating Authority rightly held that the Appellant has not serviced interest from the account of the Respondent and the Appellant has failed to prove the "Debt and Default". In view of the submissions, as made above the Learned Counsel for the Respondent prayed this Bench to dismiss the Appeal as devoid of merits.
Analysis/Appraisal: -
13. Heard the Learned Counsel appeared for the respective parties, perused the pleadings documents and the 'Citation', relied upon by them. The Bone of Contention in this Appeal is whether the MoU Dated 05.07.2019 is admissible and whether the same can be taken into consideration for the purpose of the Loan Comp App (AT) (CH) (INS) No. 88 of 2021
7|Page obtained by Mr. A. Francis, Managing Director of the Respondent Company and whether the Respondent Company is liable for the said loan obtained by Mr. A. Francis.
14. The Learned Adjudicating Authority dismissed the application filed by the Appellant seeking initiation of CIRP against the Respondent Company in the capacity as Financial Creditor and the Respondent as Corporate Debtor.
15. The Appellant filed Mortgage deed executed on 20.10.2015 at page 82 of the Appeal Paper Book. From the perusal of Mortgage deed it is evident that the property measuring 16,295 sq. ft., has been mortgaged to the Appellant by Mr. A. Francis, for securing an amount of Rs. 50,00,000/- for his business requirements as well as his family needs. In the deed of Mortgage, it is also evident from the recital that the principal amount will be repaid within a period of one year from the execution of deed of mortgage. It is also evident from the deed of mortgage that only the individual i.e. Mr. A. Francis, executed the mortgage deed of his personal property.
16. The MoU dated 05.07.2019 entered between the Respondent Company represented by Mr. A. Francis, Director, Mrs. A. Jean Fleming Rose, Director and the Appellant and 4 other entities. The Appellant and the four other lenders have lent an amount of Rupees One Crore to the Respondent Company with revised rate of interest @ 25.2% per annum. Further, in the recital it is stated that the Comp App (AT) (CH) (INS) No. 88 of 2021
8|Page borrowers i.e. the Respondent Company, its two directors have to settle the entire outstanding within a period of 45 days from the date of MoU (dt 05.07.2019).
17. The Appellant itself admitted the fact that the loan amount was released by the Appellant by way of RTGS to the account of the Managing Director of the Respondent Company. The Learned Adjudicating Authority also recorded the fact that the Appellant filed Statement of Account of State Bank of India (SBI) for the period from 01.04.2015 to 01.03.2017. From the said statement of account, a sum of Rs. 50,00,056/- was paid into the account of Mr. A. Francis, on 20.10.2015 through RTGS. From the records it is clear that the loan amount has not come to the account of the Respondent Company. The transaction between the Appellant, a partnership firm and the Director of the Respondent Company in his personal capacity. Further, the Learned Counsel for the Appellant heavily relied upon the MoU dated 05.07.2019 wherefrom the Learned Counsel wanted to submit that the Respondent Company represented by Mr. A. Francis, Director, Mrs. A. Jean Fleming Rose, Director, have signed the MoU, admitting the Loan amount to be repayable with revised rate of interest at the rate of 25.2% per annum within 45 days from the said MoU. However, the Learned Counsel failed to produce any document showing that the Appellant transferred the loan amount in the account of the Respondent Company. From the statement of accounts of the Bank, it is clear that the loan amount was transferred to Mr. A. Francis, Director, Comp App (AT) (CH) (INS) No. 88 of 2021
9|Page in his personal capacity and from the deed of mortgage it is evident that the loan is required for his business as well as family needs. On the other hand, the Learned Counsel for the Respondent objected to the MoU dated 05.07.2019 on the ground that the said MoU is not a registered document as observed by the Learned Adjudicating Authority. Further the Learned Counsel also submitted that "The Appellant and four other entities have not signed the other pages of the MoU, therefore, the Learned Counsel expressed the genuineness of this document. This 'Tribunal' is of the view that the said document cannot be taken into consideration for the purpose of initiation of Section 7 of the Insolvency and Bankruptcy Code, 2016, by the Appellant. When the application filed before the Adjudicating Authority, the Respondent filed their Counter Affidavit to the application and have clearly stated in Para 3 of the Counter that the unregistered MoU appears to be fraudulent document and concocted mainly for the purpose of maintaining the application before the Hon'ble Adjudicating Authority". Further, at Para 7 of the Counter Affidavit before the Adjudicating Authority, it is also stated that "The loan obtained by the Managing Director of the Corporate Debtor for business related activities and are totally alien to the Corporate Debtor. Further, it is also evident from the mortgage deed that the amount of Rs. 50,00,000/- has been received into the personal account of Mr. A. Francis, with an undertaking to pay an interest @ 18% per annum and the principal amount Comp App (AT) (CH) (INS) No. 88 of 2021 10 | P a g e would be paid within period of one year from 20.10.2015. From bare perusal of pleadings, it is apparent that the Respondent consistently taking the stand that the loan was taken by Mr. A. Francis, in his individual capacity and not for the Corporate Debtor. Moreover, the amounts have been transferred in the name of Mr. A. Francis. Further, the Respondents raised Question of genuineness of document. Therefore, the said document cannot be taken as admissible evidence for the purpose of initiation of CIRP in a summary Jurisdiction by the Adjudicating Authority more particularly entertaining the Jurisdiction Under Sec:
7,9,10 of the I&B Code, 2016. For the reason that there is no signatures of the other lenders on other pages of 'MoU', the Learned Adjudicating Authority rightly observed that the Appellant has not filed any proof to show that the amount of Rs. 50,00,000/- was paid into the account of Corporate Debtor and observed that the unregistered MoU dated 05.07.2019 is rejected. Further, it is also observed by the Adjudicating Authority that the registered deed of mortgage dated 20.10.2015, Mr. A. Francis has mortgaged his individual property as a security to the loan availed by him from the Appellant/Applicant. Further, it is also observed by the Adjudicating Authority that there is no privity of contract between the Appellant/Applicant and the Corporate Debtor.
18. The Learned Counsel for the Appellant relied upon the Judgment of the Hon'ble Supreme Court, in Laxmi Pat Surana V. Union Bank of India & Anr., in Comp App (AT) (CH) (INS) No. 88 of 2021
11 | P a g e Civil Appeal No. 2734 of 2020 dated 26.03.2021. In the present case there is a suspicious with regard to the MoU dated 05.07.2019 for the reason that there are no Signatures of all the lenders; on Each Page, therefore, the very fact that if the legality of the document in question, the said Judgment of the Hon'ble Supreme Court cannot be pressed into service, in the instant/present case.
19. The Learned Counsel for the Appellant submitted that Rule 3(d) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016, the MoU dated 05.07.2019 constitutes a "Financial Agreement". The said Clause/Rules reads as under: -
"financial contract" means a contract between a corporate debtor and a financial creditor setting out the terms of the financial debt, including the tenure of the debt, interest payable and date of repayment;"
20. There is no doubt that the Financial contract means, a contract between a Corporate Debtor and Financial Creditor. However, the MoU dated 05.07.2019 does not fit in this clause, in view of its genuineness, as Questioned by the Respondent.
Findings: -
For the reasons as stated above, this 'Tribunal' does not find any illegality in the Order passed by the "Adjudicating Authority", dated 23.02.2021 in IBA 60 Comp App (AT) (CH) (INS) No. 88 of 2021 12 | P a g e of 2020. Accordingly, the 'Appeal' is devoid of merits and liable to be dismissed.
Hence, the same is Dismissed. No Orders as to Costs.
However, the 'Appellant' can avail the alternate remedy as available to them under Law.
[Justice M. Venugopal] Member (Judicial) [Kanthi Narahari] Member (Technical) 27.08.2021 VA Comp App (AT) (CH) (INS) No. 88 of 2021 13 | P a g e