NCLT Mumbai (14.01.2019) in Vijay Rochlani Vs Shantai Exim Ltd. [C.P.(IB)-1712(MB)/2017] held that;-
“From the provisions of Law and discussion as made and quoted above, we find that following essential criteria’s to be fulfilled for a Creditor to come within the meaning of ‘Financial Creditor’:-
(i) A person to whom a ‘Financial Debt’ is owed and includes a person whom such debt has been legally assigned or transferred to
(ii) The debt along with interest, if any, is disbursed against the consideration for time value of money and include any one or more mode of disbursed as mentioned in clause (a) to (i) of sub-section (8) of Section 5”.
Excerpts of the order;
It is a Company Petition filed on 07.12.2017 by an individual Mr. Vijay Rochlani as Financial Creditor, u/s 7 of the Insolvency and Bankruptcy Code, 2016 against the Corporate Debtor viz. Shantai Exim Ltd., having its Regd. Office at ‘3&4, Kanaiya Building, 250-B Linking Road, Bandra, Mumbai’ for a claimed ‘financial debt’ of ₹50,00,000/-. Since there is no payment received even after the legal notice sent to the Corporate Debtor on 11.10.2017, the Petitioner has filed this Petition to initiate Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor on the ground that this Corporate Debtor failed to pay the total outstanding debt of ₹50,00,000/- with interest as on 11.10.2017.
# 3. The Petitioner states that during December 2016 the Corporate Debtor approached him for a short term financial assistance as the Corporate Debtor was in financial crunch and assured that the fund will be repaid by March 2017. On the assurance of the Corporate Debtor, the Petitioner provided financial assistance up to ₹55,00,000/- in December 2016. In the mid of March 2017, the Corporate Debtor repaid ₹5,00,000/- to the Petitioner assuring that the balance amount will be paid in December 2017. The Corporate Debtor further offered an interest of @12% p.a. for the remaining amount of ₹50,00,000/- till the time of repayment and further assured that the interest part will be paid on 1st day of each quarter. Accordingly, the Corporate Debtor paid interest for three quarters i.e. up to June 2017 after deducting the TDS. …….
# 6. The Corporate Debtor filed its reply on 19.02.2018 which is on record. It is a company engaged in the business of export of synthetic textile items and finished garments with approximate yearly turnover of ₹30 crores. The Corporate Debtor states that the company is very much solvent and capable of repaying its all dues. In respect to the above claim amount of ₹50,00,000/-, the Corporate Debtor stated that there was no loan taken from the Petitioner, as alleged, and the amount transferred to the account of the Respondent/Debtor Company from the account of Petitioner and his wife (joint account) was only an internal arrangement as the Petitioner in this case is closely related to the family of the Directors of the Respondent/Debtor Company. The Petitioner’s wife; Mrs. Karishma Rochlani is the sister of Mr. Vasudev Sawlani and Mr. Harish Sawlani who are the directors of the Respondent/Debtor Company. It further states that Mrs. Karishma Rochlani has filed a divorce petition with the Family Court, Bombay. Therefore, ₹50,00,000/- is retained by the Respondent/Debtor Company for the final decision on the Petition of their sister in the Family Court, Bombay. The said amount of ₹50 lakhs is thus retained by them as an escrow amount for the alimony of their sister who is seeking divorce from the Petitioner. It is further pleaded that it is clear from the petition itself that no documentary evidence for the loan given is placed on record hence in this situation such an arrangement must not be treated as a loan liability on the on going Company, which is not an Insolvent under any law. Although it is agreed that TDS was deducted but argued that when a payment was made on the request of the Petitioner, TDS deducted under compulsion as it is necessary as per the law. Therefore, through other letters between them, it had been clearly informed to the Petitioner that the amount will not be released until the order of Family Court.
# 7. In the rejoinder the Petitioner has contested that the payment of interest is evidenced by a handwritten workings of the accounts department of Corporate Debtor sent to him by email. Further pleaded that in the absence of any Court Order the Company must return the amount. It is not legally permissible to retain the amount. Although not connected with Insolvency proceedings, but informed that due to unlawful business by the Directors at one instance a director was arrested in Jan 18 by EoW, proof attached i.e. newspaper cutting. On the issue of Financial Debt attention was drawn that it was confirmed in the accounts that the amount was received as ‘Short Term Borrowing’.
# 8.2 In the light of the above factual matrix, the issue to be decided is that whether the impugned amount falls under the definition of Financial Debt or not? The Definition as prescribed u/s 5(8) of the Code is that a ‘Financial Debt’ has a component of ‘Interest’ and in other words has a component of “Time Value of Money”. In my view, the present position of the transaction is thus coming within the definition of Financial Debt as defined u/s 5(8) of the Code, because of few reasons as below:
i. That the transfer of money has the element of payment of interest.
ii. That the records of the Debtor Company have recorded in its books of accounts as ‘Short Terms Borrowings’, thus showing as a financial liability.
iii. That the TDS was deducted as and when interest was paid.
# 8.6 One more position of settled law is that the NCLT is a legal forum to deal summarily the insolvency proceedings. This Tribunal cannot go into the complex question of dispute over a debt or a claim. According to Ld. Counsel, such type of disputes are within the domain of a Civil Court. In such precedents the Petitioner had resorted to several legal proceedings, therefore, it was held that the Tribunal cannot enter into the disputed question of fact which could be resolved only through formal proceedings of a Civil Court. As against that, the distinguishable feature is that the family dispute among husband and wife has nothing to do with the impugned transaction of a transfer of money from the Petitioner in the accounts of the Debtor company. In the present case, the cause of action had arisen when the Debtor company had refused to return the loan. However, in the Civil proceedings the cause of action is in operation when the litigating parties file a suit of divorce. Both the legal proceedings are independent having no nexus with each other, therefore, can be independently adjudicated by two different judicial forum.
# 8.7 Ld. Counsel of the Respondent has also placed a reliance on an order of NCLT Mumbai bench passed u/s 7 dated 07.07.2017 (TCP 411/IBC/NCLT/MB/MAH/2017) cited as 2017 SCC OnLine NCLT 7655 in the case of “Mr. Vir Vikram Vaid v. M/s. Offshore Testing & Inspection Services (I) Pvt. Ltd.” for the legal proposition that a related party cannot file a Petition under Insolvency Code and that in the absence of any documentation to demonstrate that the money transaction was having the consideration of time value of money or it was an interest bearing transaction, therefore, out of the ambit of the provisions of section 7 of the Insolvency Code. Facts of the cited precedent are altogether different because the Petitioner in that case happened to be a “Director” of the Respondent Company. Because of this status of the Petitioner, a view was taken that in a situation even if his claim has accepted, the Petitioner shall be debarred to be a member of Committee of Creditors. In addition, the most important feature on the basis of which the application u/s 7 of the Code was dismissed, was that, quote “A financial debt is to be examined in the light of the definition that a Financial Debt means a Debt along with interest which is disbursed against the consideration for the time value of money” unquote. The law pronounced in that decision has a persuasive value hence to be applied on the facts of the present case to arrive at a correct decision. In my humble opinion, the condition requisite to declare a transaction as a financial debt has duly been accomplished in this case, therefore, without hesitation it is hereby declared that the transaction was within the definition of Section 5(8) “Financial Debt” of the Insolvency Code.
# 9. On the other hand, from the side of the Petitioner a reliance was placed on the decision of the respected NCLAT pronounced in the case of “Nikhil Mehta and Sons v. AMR Infrastructure Ltd.” dated 21.07.2017 bearing No. Company Appeal (AT) (Insolvency) No. 7 of 2017, wherein an observation was made as under:-
“11. According to Appellants they are the “Financial Creditors” of the Respondent, and the Respondent was deducting TDS on the amount which it was paying to the Appellants as Committed returns/Assured Returns under Section 194(A) of the Income Tax Act, which is applicable to deduction of TDS on the amount which is paid to some as “Interest, other than Interest on Securities”. This therefore, makes it clear that the payment made by the Respondent to the Appellants in the form of Committed Returns/Assured Returns is nothing but a payment of “interest” to the Appellants by the Respondent thereby making the amount paid by the Appellants to the Respondent at the time of booking of their unit a Loan given by the Appellants to the Respondent for constructing the project. In support of the above claim the Appellants have placed on record, their Form 16A and 26AS which are at pages 5-33 of their paper book dated 17.04.2017, filed before tis Appellate tribunal”.
# 9.1 Further it was also observed as under:-
“From the provisions of Law and discussion as made and quoted above, we find that following essential criteria’s to be fulfilled for a Creditor to come within the meaning of ‘Financial Creditor’:-
(i) A person to whom a ‘Financial Debt’ is owed and includes a person whom such debt has been legally assigned or transferred to
(ii) The debt along with interest, if any, is disbursed against the consideration for time value of money and include any one or more mode of disbursed as mentioned in clause (a) to (i) of sub-section (8) of Section 5”.
# 9.2 In the said decision, the claim of the Petitioner as a Financial Creditor was dismissed by the Adjudicating Authority, which was challenged by the Financial Creditor as Appellant before respected NCLAT. The Hon’ble Tribunal has taken into account the fact that on the impugned amount TDS was deducted, has also happened in the case in hand, and that the amount in question was disbursed against the consideration for time value of money, hence it was held that the rejection was incorrect, therefore, set aside the said order. The twin condition as discussed by the Hon’ble NCLAT stood satisfied in the case in hand, therefore, the transaction in question can safely be held as a “Financial Debt”.
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