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NCLT Chennai dismisses insolvency plea against Veremax Technologie over loan to director
A loan directly transferred to a director's personal bank account cannot be treated as a of the company in the absence of proof that the borrowing was undertaken by the corporate entity itself , the has ruled.
The Division Bench comprising Judicial Member Jyoti Kumar Tripathi and Technical Member Ravichandran Ramasamy dismissed a Section 7 petition filed by Rajesh Kumar Saraf HUF against Veremax Technologie Services Ltd, holding that the petitioner failed to establish that the alleged debt was disbursed to the .
When a Loan to a Director is Not a Company Debt
The case arose from a short-term loan of ₹5 crore that the claimed was extended to Veremax Technologie Services Ltd for working capital needs. According to the petition, the loan was disbursed via RTGS on to the personal bank account of director TRM Venkatesh, with a issued in favour of the petitioner. The loan carried interest at 36% per annum and was repayable within one month.
When the company failed to repay the principal and accrued interest—totalling ₹5,01,84,250 as per the petitioner—the approached the NCLT under , seeking initiation of .
The , however, disputed the liability entirely, pointing out that the funds were never credited to any account held by Veremax Technologie. It further relied on the from the portal, which identified TRM Venkatesh as the “Debtor” and Veremax only as a “”. The respondent argued that the proceedings had not been invoked against it in the capacity of a .
The for
The Tribunal undertook a detailed examination of what constitutes a valid “” under the IBC. Drawing from the definition in Black’s Law Dictionary, the bench held that for the purposes of the Code must be to the and for its utilisation in furtherance of its business.
To determine whether the alleged loan qualified as a , the NCLT formulated a :
- – Whether the debt amount was credited to the account of the .
- – Whether the amount was disbursed to meet the working capital, investment, repayment of an earlier debt, or other business requirements of the .
- – Whether the amount was actually appropriated for and used by the .
Applying this test, the bench found that all three limbs remained unsatisfied. The funds were not credited to any account held by Veremax Technologie, no contemporaneous evidence was produced to show the loan was intended for the company’s business, and no material was placed on record to demonstrate that the amount was actually used by the .
Prevails
Emphasising the fundamental principle of company law, the Tribunal observed:
“A corporate entity registered under the possesses a separate and distinct legal personality from its directors or shareholders. A financial made directly to an individual director’s bank account cannot, by stretch of imagination, be treated as a extended to the corporate entity, in the absence of direct corporate borrowing resolutions and direct receipt of funds by the company.”
The bench further noted that the loan repayment schedule and email communications were addressed to TRM Venkatesh in his personal capacity, and repayments were tendered by him individually—all pointing to a transaction with the director, not the company.
Petition Dismissed
Holding that the petitioner had failed to establish the primary requirement of a “” disbursed to Veremax Technologie Services Ltd, the NCLT dismissed the insolvency petition with no order as to costs.
The ruling reinforces the critical distinction between a loan to a company and a loan to its directors. Creditors seeking recourse under the IBC must ensure that funds are routed through the ’s accounts and supported by proper corporate resolutions, failing which the remedy under Section 7 may not be available.
