Back
2024 Supreme(Online)(NCLT) 4299
NATIONAL COMPANY LAW TRIBUNAL
K. R. Saji Kumar, Sanjiv Dutt, JJ
ADAMJI INVESTMENTS PRIVATE LIMITED – Appellant
Versus
UNION QUALITY PLASTICS LIMITED – Respondent
C.P. (IB) No.204/MB/2022
For the Appellants/Petitioners: Adv. Pranav Thakkar
For the Respondents: Adv. Divyakant Lahoti
The court emphasized that under the Insolvency and Bankruptcy Code, the financial creditor must prove both existence and disbursement of financial debt; otherwise, the application for insolvency resolution is deemed unmaintainable.
Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 7 - Financial Debt - Corporate Debtor failed to establish financial debt or default, as the Financial Creditor could not demonstrate disbursement according to Section 5(8) - Corporate Debtor's allegation of ultra vires and mismanagement was upheld - Application for initiation of Corporate Insolvency Resolution Process rejected. (Paras 5.6-5.16)
(B) Insolvency proceedings - Jurisdiction of the Adjudicating Authority - Authority must ascertain existence of financial debt and default; mere claim alone is insufficient for admission of application under Section 7. (Paras 5.2 and 5.16)
Facts of the case:
The Financial Creditor filed an application under Section 7 seeking initiation of CIRP against the Corporate Debtor, claiming default on Rs.2.91 crore. The Corporate Debtor contended that the alleged debt was not valid due to lack of proper agreements and statutory violations.
Findings of Court:
The court found the debt unproven, asserting that the Financial Creditor could not provide adequate evidence for disbursement or validate the existence of financial debt.
Issues: Whether the debt constituted a 'financial debt' under the Code, and if the Corporate Debtor defaulted on repayment.
Ratio Decidendi: The court reiterated the necessity of demonstrating both the existence of financial debt and default, stating the agreement lacked requisite compliance under Section 186 of the Companies Act, rendering it unenforceable.
Result: Application for Corporate Insolvency Resolution Process is rejected.
| Table of Content |
|---|
| 1. application filed under the insolvency code. (Para 1) |
ORDER
[PER: SANJIV DUTT, MEMBER (TECHNICAL)]
1. BACKGROUND
1.1 This is an Application bearing C.P. (IB) No.204/MB/2022 filed by Adamji Investments Private Limited, the Financial Creditor, on 30.09.2021 under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “the Code”) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiating Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) in respect of Union Quality Plastics Limited, the Corporate Debtor.
1.2 Pursuant to a Share Purchase Agreement dated 30.03.2017, the Financial Creditor and other related parties who were erstwhile promoters and shareholders of the Corporate Debtor, transferred their entire stake in the Corporate Debtor to Mr. Rajesh Singh Javvari Kapish and his wife, Mrs. Javvari Kapish Praveena Kumari.
1.3 The Financial Creditor had advanced a sum of Rs.4.25 Crore to the Corporate Debtor from time to time. Both the parties entered into an Agreement dated 14.03.2018 under which it was agreed that the said sum of Rs.4.25 Crore owed by the Corporate Debtor to the Financial Creditor would be restructured into two tranches of Rs.3 Crore and Rs.1.25 Crore respectively. The Corporate Debtor also issued 12 post-dated cheques aggregating Rs.1.25 Crore in favour of the Financial Creditor to comply with its 2nd Tranche Obligations under the Agreement. The Corporate Debtor duly honoured its payment obligation in respect of the first two instalments amounting to Rs.20,84,000/- but failed to honour any of its remaining ten payments due to the Financial Creditor.
1.4 Accordingly, the total amount in default as on 21.12.2021 is claimed at Rs.2,91,98,134/- (Two Crore Ninety One Lakh Ninety-Eight Thousand One Hundred Thirty-Four Rupees). As the Corporate Debtor was unable to pay the dues of the Financial Creditor despite repeated follow-up, the latter has preferred the present Application seeking initiation of CIRP in respect of the former under Section 7 of the Code.
2. AVERMENTS OF FINANCIAL CREDITOR
2.1 The Financial Creditor and its other related parties were the erstwhile shareholders and promoters of the Corporate Debtor. Over time, the Financial Creditor had advanced monies to the tune of Rs.4.25 Crore to the Corporate Debtor as unsecured loans.
2.2 Pursuant to a Share Purchase Agreement dated 30.03.2017 (hereinafter referred to as "the SPA"), the Financial Creditor and other related parties transferred their entire stake in the Corporate Debtor to Mr. Rajesh Singh Javvari Kapisha and Mrs. Javvari Kapisha Praveena Kumari.
2.3 As part of the entire transaction of sale of shares to its new and current promoters, it was agreed among the parties that this sum of Rs. 4.25 crores owed by the Corporate Debtor to the Financial Creditor would be restructured into two tranches as follows:
a. Tranche I: Rs. 3 Crore would be converted into a contingency fund to provide for various potential uncrystallised liabilities of the Corporate Debtor on account of certain pending litigations pertaining to payment of central excise duty, (Rs.1.5 Crore), Geo-Membrane replacement cases, Income-tax interest and penalty (Rs.0.80 Crore) and SEBI Takeover Penalty (Rs.0.70 Crore). The Corporate Debtor was liable to pay interest @13% p.a. from 01.06.2019.
b. Tranche II: Rs.1.25 Crore would be treated as a loan payable in 12 equal monthly installments starting from February, 2019. Interest @ 13% p.a. was payable on this sum starting from 01.06.2019. This arrangement between the parties was recorded by way of an Agreement dated 14.03.2018. In accordance with this Agreement, the Corporate Debtor also issued 12 post-dated cheques for a total sum of Rs.1.25 Crore in favour of the Financial Creditor to comply with its Second Tranche obligations.
2.4 The existence of liability was never disputed by the Corporate Debtor who had duly honoured its ob
