J U D G M E N T

(Hybrid Mode)

[Per: Arun Baroka, Member (Technical)]

1.This is an Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (‘Code’) against the order dated 16.01.2025, passed by the ‘Adjudicating Authority’ (National Company Law Tribunal, New Delhi Bench) in C.P. No. (IB) 850/ND/2024, wherein the Adjudicating Authority had rejected the petition filed under Section 7 of the Code filed by the Appellant – Mr. Rajender Prasad Mittal.

Submissions of the Appellant

2. The Appellant-Rajender Prasad Mittal claims to be the Financial Creditor and states that it had advanced all loan of Rs. 6,86,44,042/- to the Corporate Debtor - M/s Jaikrishan Estates Private Limited in the Financial Year 2014-15. This loan was disbursed by the Financial Creditor from his personal bank account maintained with Axis Bank bearing A/c No. 913010031810470.

3. The Corporate Debtor repaid an amount of Rs. 3 Crores. However, an amount of Rs. 6,86,44,042/- against the principal is still outstanding. Appellant claims that it shows in the books of the Corporate Debtor under the head “long term borrowing”. The Corporate Debtor has acknowledged the aforesaid amount in its balance sheet for the Financial Year 2016-17, 2018-2019, 2020-21, and 2022-23.

4. Since the Corporate Debtor did not pay back the money, the Financial Creditor preferred a petition under Section 7 of the Code seeking initiation of CIR Proceedings against the Corporate Debtor for non-payment of outstanding debt of the Financial Creditor. However, the Adjudicating Authority passed the impugned order dated 16.01.2024 rejecting the petition.

5. It is claimed by the Appellant that it was a Director in the Respondent – Corporate Debtor and it had provided interest free loan in the nature of financial debt under Section 5(8) of the Code. The Adjudicating Authority had asked for relevant documents from the Appellant to find out the maintainability of the petition.

6. It is claimed that without even issuing the notice to the Respondent that the Adjudicating Authority came to a conclusion that applicant has not made the conditions laid down in Section 5(8) of the Code and to qualify the debt in question as a financial debt. It argues that even if there is no loan agreement between the parties at the time of advancing of the loan, if the amount was disbursed and established from the bank account statements, then Section 7 application is maintainable. For this purpose, it relies on the judgment of this Tribunal in Mobile Constructions Private Limited vs M/s. Apple Land Development Private Limited in Company Appeal (AT) (Ins.) No. 756/2024

7. Appellant has placed its reliance on various judgments:

a) Pancham Studios Pvt. Ltd Vs. Konark Aquatics & Exports Pvt. Ld. in Company Appeal (AT) (Ins.) No. 406/2024, para 13.

“13. As regards the issue of non-compliance of Section 186(2) of the Act is concerned, it is submitted that the Tribunal has committed an error in holding that the loan advanced in violation of Section 186(2) of the Act is void and unforceable because Section 186(2) of the Act is to protect shareholders / stakeholders of a financial creditor so as to safeguard granting of excessive loans by the management of the FC beyond the capacity of the FC for which such shareholders/ stakeholders can challenge such violation and it is not open for the CD to take shelter under such provision and refuse the repayment of the borrowed sums. It is submitted that the CD being the beneficiary / recipient of the sums advanced has no locus to assail a transaction on account of violation of Section 186(2) of the Act. It is also submitted that for the violation of Section 186(2) of the Act, penal provisions of fine and imprisonment has been provided but it will not invalidate the transaction qua the third party borrower. In this regard, he has referred to a decision in the case of Sarveshwar Creations Pvt. Ltd. Vs. Union Bank of India, CA (AT) (Ins) No. 1003 of 2020 in which it has been held that "L. As far