Saturday 29 July 2023

Shri. S. Palaniappan, Liquidator Vs. Shri. Nathella Prappanna Kumar & Ors. - It is also true that the transactions carried an exorbitant rate of interest but the same being the business transactions cannot be said to be the extortionate credit transactions. In commercial business, parties are free to make the transactions fixing the rate of interest which do not require the interference of the Tribunal.

 NCLT Chennai-2 (26.07.2023) In Shri. S. Palaniappan, Liquidator Vs. Shri. Nathella Prappanna Kumar & Ors.  [MA/89(CHE)2021 in CP/129/IB/2018] held that;

  • It is  also true that the transactions carried an exorbitant rate of interest  but the same being the business transactions cannot be said to be  the extortionate credit transactions. In commercial businessparties are free to make the transactions fixing the rate of interest  which do not require the interference of the Tribunal.


Excerpts of the Order;  

This application has been filed by Shri. S. PalaniappanLiquidator of M/s. Nathella Sampath Jewellery Private  Limited under Sections 43, 44, 45, 47, 48, 49 & 50 of the  Insolvency and Bankruptcy Code, 2016 ("IBC") read with Rule 11  of the NCLT Rules, 2016 seeking the following reliefs

  • a) Declare that the sale transactions in respect of 3 flats to the tune of Rs. 45  lakhs are preferential, defrauding creditors, Extortionate under section 4344, 45, 48, 49 & 50 of the Code

  • b) Direct the Respondents No. 4 & 5 to pay Rs. 45 lacs plus interest at 12p.a. from 12.06.2017 till the date of payment or present market value of  the property whichever is higher into the liquidation estate of the CD

  • or 

  • Direct the respondents to make contribution to the assets of the Corporate  Debtor either jointly or severally  

  • c) direct the Respondents No.4 to submit revised claim to the Liquidator  calculating interest rate at 12% per annum instead of existing interest rate  as per the loan agreement which are extortionate


# 2. The facts leading to filing of this application are that the  Corporate Debtor was admitted to Corporate Insolvency Resolution  Process ("CIRP") under Section 10 of IBC, 2016 ("Code") vide an  order dated 23.04.2018. Shri. N. Ravindranath was appointed as  Interim  Resolution Professional ("IRP"). On the approval   Committee of Creditors ("CoC"), Sri. Ram Ratan Kanoongo was appointed as Resolution Professional ("RP") vide an order dated  21.06.2018. In the 5th CoC meeting held on 19.09.2018, CoC  arrived at a conclusion that pursuant to the Enforcement  Directorate attachment order dated 31.07.2018 on the properties  of the Corporate Debtor and the action taken by the Economic  Offence Wing, Chennai Police on the Promoters, it has become  difficult to resolve the Corporate Debtor. Therefore, CoC  recommended for the liquidation of Corporate Debtor which  application was allowed by this Tribunal vide an order dated  03.01.2020. RP Sri. Ram Ratan kanoongo was appointed as the  Liquidator


# 3. The Liquidator made the public announcement in Form-calling upon the stakeholders to submit their claims. Last date  was fixed as 09.02.2020. In the meantime, pursuant to the  reference made by the Tribunal to the Insolvency and Bankruptcy  Board of India ("IBBI") proposing the name of another Insolvency  Professional, this Tribunal vide an order dated 23.01.2020appointed Sri. M. Raguuram as the Liquidator to carry out the  liquidation process of the Corporate Debtor. Since Mr. M. Raguram  expressed his inability to act as Liquidator, based  on the  recommendations of the IBBI, this Tribunal vide an order dated  25.02.2020 appointed the Applicant as the Liquidator. 


# 4The Liquidator verified the claims and filed the list of  stakeholders before the Tribunal. A public announcement was  made in the newspapers "Dinamani" (Tamil) and "Financial  Express" (English) in Chennai editions regarding the list of the  stakeholders of the Corporate Debtor. In response to the public  announcement, 4th Respondent viz., Sri Hemant Mehta raised the  claim of Rs.2,75,25,236/- (Rupees Two Crores Seventy Five Lakhs  Twenty Five Thousand Two Hundred and Thirty Six only)


# 5. As per the ledger for the period from 01.04.2016 to 31.03.2017 and from 01.04.2019 to 31.03.2020 of the Corporate  outstanding principal loan  Debtorcomponent  was  Rs. 1,35,00,000/- (Loan Amount of Rs.1,50,00,000 less amount  repaid Rs.15,00,000/-)It was found that the Respondent No.4  charged exorbitant interest @ 36% per annum besides charging  interest of Rs.10,00,000/- on the loan amount of Rs.1,50,00,000/for the first two months of the loan period from 21.12.2016 to  21.02.2017


# 6The Liquidator admitted the claim of the 4th Respondent to  the tune of Rs. 1,35,00,000/- being the principal outstanding in the  books of Corporate Debtor and communicated his decision vide  Statement of Verification dated 21.09.2020. This was subject to  furnishing a reply and property documents of the Corporate Debtor  sought by the Liquidator vide email dated 07.09.2020


# 7It is stated that the insolvency commencement date of the  Corporate Debtor was 23.04.2018, the financial transactions of  Respondent No.4 with the Corporate Debtor was on 21.12.2016  i.e. within two years of the insolvency commencement date. Since  it was extortionate credit transactions under Section 50 of the  Code carrying an interest rate at 3.33% per month, the Liquidator  has prayed this Tribunal to modify the interest rate at 12% per  annum for the above financial transaction with the Corporate  Debtor


# 8It is stated that while carrying out the process as prescribed  under Section 35 of the Code, it was noticed that besides other  assets, Corporate Debtor has three immovable properties as  detailed in para 11 at page-H as per the audited financial  statement as on 31.03.2016 and 31.03.2017 and the provisional  financial statement as on 15.01.2018. The above assets were  accounted in the books of the Corporate Debtor against which the  depreciation was claimed. It was found that the above properties  were purchased out of the funds of the Corporate Debtor and the  gross book value of the properties are Rs.34,86,123/- (Rupees  Thirty Four Lakhs Eighty Six Thousand One Hundred and Twenty  Three only). It was noticed that the Corporate Debtor had entered  into a Sale and Construction Agreement dated 29.01.2010 with  M/s. Antony Projects Private Limited for purchase of the above  three flats at Medavakkam. The seller of Medavakkam flats vide  separate letters dated 15.12.2011 had addressed to the Corporate  Debtor to take possession of the above three flats which were  ready for occupation. It was also noticed that these three flats  were in possession and control of the Corporate Debtor since  December 2011 as reflected in the books of the Corporate Debtor  and in the Provisional Financial Statements as on 15.01.2018 and the Corporate Debtor  depreciation on these assets


# 9. It is stated that on enquiry, Respondent No.1 through a mail  dated 11.08.2020 informed the Applicant/Liquidator that the above  three flats owned by the Corporate Debtor were registered to  Shri. Hemant and his family directly from Antony Projects Private  Limited vide Sale Deed and the sale consideration for the said flats  was paid by Sri. Hemant and his family to the seller i.e. M/sAntony Projects Private Limited @ Rs.12,00,000/- (Rupees Twelve  Lakhs only) each flat. However, no consideration has been shown  in the books of the Corporate Debtor towards return of money and  these flats continued to be shown as assets of the Corporate  Debtor on which the depreciation was claimed.


# 10. It is stated that the above flats are registered in the name of  Shri. Hemant Mehta and Smt. Sandhya Mehta, W/o. Shri. Hemant  Mehta by M/s. Antony Projects Private Limited through Sale Deed   dated 12.06.2017 for a consideration of Rs.2,63,940/- (Rupees  Two Lakhs Sixty Three Thousand Nine Hundred and Forty onlyeach who transferred the flats to different parties vide Sale Deeds  dated 19.12.2018 and 10.01.2019 respectively


# 11. It is alleged that the said transaction is preferential and  fraudulent with an intent to defraud the creditorsIn a query  raised by the Applicant through email dated 07.09.2020, it was  replied by Respondent No.4 vide his letter dated 03.10.2020 that  the above properties are not in anyway connected with the existing  claims or loans given by them through the loan documentationthough in the letter dated 12.06.2017 addressed to the Corporate  Debtor, it was stated that the above properties are secured to  them for the business loan availed by the Corporate Debtor. It is  stated that since no such business loan transaction existed in the  books of the Corporate Debtor, clarifications were sought from the  4th Respondent vide mail dated 22.02.2021 which was replied by  the 4th Respondent vide reply mail dated 03.03.2021


# 12. It is stated that in the email dated 11.08.2020, the sale  consideration was reported as Rs.12,00,000/- (Rupees Twelve  Lakhs only) each but in the letter dated 12.06.2017 the value of  the each flat was reported as Rs.15,00,000/- (Rupees Fifteen  Lakhs only). As per the sale deed dated 12.06.2017, the sale  consideration mentioned was Rs.2,63,940/- (Rupees Two Lakhs  Sixty Three Thousand Nine Hundred and Forty only) per flat. It is  stated that no money was passed on to the Corporate Debtor and  the aforesaid transactions are the undervalued transactions


# 13. It is stated that primary objectives of the IBC are to preserve  and maximize the insolvency estate.  


# 14. It is prayed that the above sale be declared as solely  covering under Section 43, 44, 45, 48, 49 and 50 of the Code and  Respondent No. 4 & 5 be directed to pay Rs.45,00,000/- plus  interest at the rate of 12% per annum from 12.06.2017 till the  date of payment over the market value of the three flats to the  liquidation account of the Liquidator for liquidation under 53 of the  Code


# 15. On getting notice of the application, the Respondent No. 4  and 5 filed their reply alleging that the said transactions were  entered between a third party i.e. Antony Projects Private Limited  and not with the Corporate Debtor. The Respondents have not  purchased any asset from or of the Corporate Debtor.  


# 16. It is stated that the above transactions are neither the  preferential nor the fraudulent transactions. It is stated that the  loan was given under the valid agreement and the prayer as to  reduction of rate of interest is not maintainable


# 17. Rejoinder is filed by the Liquidator along with the copy of the  audited financials/provisional financials, copy of ledger for the  above flats wherein the Liquidator denied all the averments made  in the reply and reiterated what has been stated in the applicationIt is stated that Respondent No. 4 & 5 are admittedly one of the  creditors of the Corporate Debtor under liquidation. In fact, they  have filed their claims before the Liquidator in their capacity as  creditors to the Company in liquidation and the Liquidator has  partly admitted their claims.  


# 18. We have heard Learned Counsel for the parties and perused  the written synopsis filed by the Liquidator


# 19. A perusal of ledger of Hemant & Co. for the period from    01.04.2016 to 31.03.2017 at page-3 of the application reflects  credit and debit entries of Rs.1,50,00,000/- and 15,00,000/respectively as on 21.12.2016 and 28.03.2017. The said entries  are also reflected in the account maintained by M/s. Nathella  Sampath Jewellery Private Limited ("Corporate Debtor"), in the  ledger from 01.04.2019 to 31.03.2020 in respect of Hemant & Co.  Ledger (all) showing a balance of Rs.1,35,00,000/-. The document  at page-5 of the application contains the loan agreement dated  21.12.2016 signed between M/s. Hemant & Co. and M/s. Nathella  Sampath Jewellery Private Limited towards advancement of loan of  Rs.1,50,00,000/- vide RTGS 000314 dated 21.12.2016. Personal   Guarantee was also given by Mr. Nathella Prappana Kumar as seen  from the document at page-9. The document at page-11 contains  the statement of accounts of M/s. Hemant & Co. maintained with  the HDFC Bank Limited reflecting the receipt from M/s. Nathella  Sampath Jewellery Private Limited on 28.03.2017. M/s. Nathella  Sampath Jewellery Private Limited had also issued the post-dated  cheques for the said amount for the date 20.09.2017 as seen from  page-10 of the application. Page-14 to page-18 of the Paper Book  contains the summary statement for the total outstanding against  M/s. Nathella Sampath Jewellery Private Limited. There is resolution to the effect at Page-19 of M/s. Nathella Sampath  Jewellery Private Limited regarding borrowing of a sum of  Rs.1,50,00,000/- (Rupees One Crore Fifty Lakhs only) from  M/s. Hemanth & Company


# 20. The statement of  verification/admission/rejection  and  determination of quantum of claims issued by the Liquidator at  Page-20 shows that there was an outstanding amount of  Rs. 1,35,00,000/- (Rupees One Crore Thirty Five Lakhs only) in the  books of the Corporate Debtor against which a claim of  Rs. 1,35,00,000/- was admitted and it was in the form of an  Unsecured debt. The said claim was admitted on 21.09.2020 after  collecting all the details from M/s. Hemanth & Company vide letter  dated 07.09.2020


# 21. Admittedly, there are Sale and Construction Agreements  dated 29.01.2020 between M/s. Antony Projects Private Limited  and M/s. Nathella Sampath Jewellery Private Limited i.e. Flat  Nos. 'B1', 'C1' & 'D1' @ GREENLANDS (page-51), but there is no  record indicating that the complete sale consideration amount is paid  by the Corporate Debtor to M/s. Antony Projects Private LimitedIn the Sale Agreement, the amount paid as Rs.1,00,000/- as  against 2,63,940/- towards purchase of the land has been shown  while in the Construction Agreement against the amount of  Rs.11,06,238/- (Rupees Eleven Lakhs Six Thousand Two Hundred  and Thirty Eight only), a sum of Rs.65,936/- (Rupees Sixty Five  Thousand Nine Hundred and Thirty Six only) has been shown as  received. Although there is a mail addressed to the Liquidator  dated 11.08.2020 containing the transaction details with M/sHemant & Co. from Nathella Sampathu Chetty that three  apartments owned by Nathella Sampath Jewellery Private Limited  were registered to Hemant Family directly from M/s. Antony  Builders and the sale consideration for each flat, Hemant & family  have received from the buyer as Rs.12,00,000/- (Rupees Twelve  Lakhs only) per flat showing as the security value but neither the  statement of accounts nor the Balance Sheets reflect any such  transactions that the above flats had been put as security with  M/s. Hemant & family. These are three separate Sale Deeds dated  12.06.2017 executed by M/s. Antony Projects Private Limited in  favour of Mr. Hemant Mehta and Sandhya Mehta but these sale  deeds have been executed independently of the sale/construction  agreement with Nathella Sampath Jewellery Private Limited and  the developer (Antony Projects Private Limited).  


# 22. We find force in the contention of Respondent No. 4 & 5 that  they had not purchased any asset from or of the Corporate Debtor  and all the transactions were entered with Antony Projects Pvt. Ltd.  and not with the Corporate Debtor. There is no document to show  that the Corporate Debtor had anytime requested Antony Projects  Pvt. Ltd. to transfer the above flats to the Respondent No. 4 & against the debt receivable from the Corporate Debtor. These flats  have subsequently been sold by Respondent No. 4 & 5 as seen  from the sale deeds executed by them in favour of the third  parties. Respondent No. 4 & 5 in their letter dated 03.10.2020  have also clarified that the properties as questioned are not in  anyway connected with the existing claims raised or loan given by  them to the loan documentation with Hemant & Co.. Though there  is a letter addressed by Hemant Mehta to Nathella Sampath  Jewellery regarding securitizing three flats in Medavakkam  purchased by the Corporate Debtor from Antony Builders and  registering the same in their names in lieu of part of business loan  availed by it from them of which market value is around 15 lakhs  each and on settlement of business loan, they agreed to pay the  stamp charges for transfer back to Nathella Sampath Jewellery  Private Limited but on scrutiny of the records we find that the sale  deeds are of date 12.06.2017 where independent transactions  have been shown without any reference to three flats


# 23. The  ledger/statement of account  maintained by the  Corporate Debtor with respect to Hemant & Co. does not show any  transactions relating to the said flat. It may be true that the  Corporate Debtor had entered into sale agreement and  construction agreement with M/s. Antony Builders in respect of  three flats but there is no entry or document to the effect that the  Corporate Debtor securitized those flats with Hemanth & Company  and registered those flats in the name of Hemanth & Family.  


# 24. The loan given by Respondent No. 4 & 5 is independent  against which a loan agreement was entered into on 21.12.2016A sum of Rs. 1,50,00,000/- was transferred to the Corporate  Debtor. Part amount of Rs.15,00,000/- was paid by the Corporate  Debtor on 28.03.2017 to Hemant & Co.. The Corporate Debtor had  issued post-dated cheques for the amount of Rs.1,50,00,000/- on  20.09.2017 which on presentation were dishonoured. Thus, the  disbursement amount of Rs.1,50,00,000/- (Rupees One Crore Fifty  Lakhs only) by R4 & R5 and receipt of the same as loan by the  Corporate Debtor is not at all denied by any party


# 25It is true that the said loan transaction was within the period  of two years preceding the Insolvency commencement date but on  perusal, we find that these transactions were done in the usual  course of business and the same cannot be said to be  preferential/avoidance or extortionate credit transactionsIt is  also true that the transactions carried an exorbitant rate of interest  but the same being the business transactions cannot be said to be  the extortionate credit transactions. In commercial businessparties are free to make the transactions fixing the rate of interest  which do not require the interference of the Tribunal 


# 26. For the aforesaid discussions, we find no merits in the  application filed by the Liquidator as to declaring the sale  transactions in respect of three flats as preferential, undervalued, extortionate or fraudulent/wrong trading


# 27. The application is accordingly dismissed with no orders as  to costs


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The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.