Endogram Leasing and Trading Company Pvt. Ltd. vs Alchemist Capital Limited - Hon'ble Supreme Court in Orator Marketing Pvt. Ltd. v. Samtex Desinz Pvt. Ltd. (2021) has clarified that even interest-free loans can qualify as financial debt, provided the disbursement has the commercial effect of borrowing. In the present case, the deferred interest and call option were commercial arrangements, but the underlying structure remains a debt obligation.

 NCLT Chandigarh (2025.08.01) in Endogram Leasing and Trading Company Pvt. Ltd. vs Alchemist Capital Limited [CP (IB)142/Chd/Hry/2024 ] held that;

• Hon'ble Supreme Court in Orator Marketing Pvt. Ltd. v. Samtex  Desinz Pvt. Ltd. (2021) has clarified that even interest-free loans can  qualify as financial debt, provided the disbursement has the commercial  effect of borrowing. In the present case, the deferred interest and call  option were commercial arrangements, but the underlying structure  remains a debt obligation.

• The objection regarding non-submission of Record of Default (RoD)   from an Information Utility (IU) is a procedural one. It is true that recent  circulars and judicial pronouncements encourage submission of IU RoD;  however, such filing is not mandatory.

• Hon'ble  Supreme Court in Swiss Ribbons v. Union of India and Innoventive  Industries v. ICICI Bank has emphasized the objective test of default  under Section 7 of the Code. Once default is established and the debt is  undisputed, the Tribunal is not required to assess solvency or fairness.

Excerpts of the Order;

The present Application has been filed by  by an Authorised   epresentative on behalf of Endogram Leasing and Trading Company  Pvt. Ltd. (hereinafter referred to as "Financial Creditor") under Section 7  of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as  "Code") for initiation of Corporate Insolvency Resolution Process (CIRP)  against Alchemist Capital Limited (hereinafter referred to as "Corporate  Debtor"), through its Authorised Signatory for the default amount of Rs.  5,57,00,740/- (Rupees Five Crores, Fifty Seven Lakhs, Seven Hundred and  Forty only) as on 31.12.2021. The date of default, as mentioned in the  Application is 31.12.2021. 

# 2. Brief facts of the case as stated in the Application and argued  presented by the Learned Counsel for the Petitioner are summarised as  follows: 

(i) The Corporate Debtor had obtained an unsecured loan of Rs.  2,91,00,973/- from the Financial Creditor on 30.06.2011, pursuant  to a Loan Agreement dated 01.07.2011. The tenure of the loan was  ten years commencing from 01.07.2011. The Agreement contained a 

call option enabling the Financial Creditor to convert the loan into  equity shares, but this option was not exercised. As per Clause 10 of  the Agreement, the unconverted portion was to be repaid with  interest at the applicable G-Sec rate on dates to be mutually agreed.  Clause 11 of the said Agreement stipulated that no interest would  accrue until 30.06.2014 in lieu of the said call option. 

(ii) Throughout the ten-year period, the Corporate Debtor neither  repaid the principal nor paid any interest due from 01.07.2014, leading to an outstanding liability of Rs. 5,18,14,642/- as of  30.06.2021. Upon completion of the loan tenure, the Financial  Creditor issued a demand letter dated 12.07.2021, calling upon the  Corporate Debtor to repay the said amount. The Corporate Debtor,  via letter dated 06.08.2021, acknowledged the entire liability and  requested time until 31.12.2021 for repayment, also agreeing to pay  interest at 15% per annum in case of default beyond this date.  Despite a further reminder on 07.01.2022, the Corporate Debtor  failed to discharge the liability. 

(iii) As a result, on 31.12.2021, the Corporate Debtor defaulted on  a total outstanding amount of Rs. 5,57,00,740 as on 31.12.2021  thereby constituting a default under Section 3(12) of the Code.  

# 3. The Petitioner has proposed the name of the interim resolution  professional namely, Mr. Manoj Kumar Jain having Registration Number:  IBBI/IPA-001/IP-P02707/2022-23/14173 to act as Interim Resolution  Professional; having address at B-7/45, Second Floor, Safdarjung Enclave  Extension New Delhi and Email - mkjain365@gmail.com to act as an IRP  under Section 13(1)(c) of the Code, to act as an Interim Resolution  Professional. Form 2 along with the written communication given by the  proposed IRP along with Authorisation for Assignment has been annexed  as Annexure P-4 to the Petition. 

# 4.  The Petition has been opposed by the Corporate Debtor by filing a  Reply, vide Diary No.00505/1 dated 29.07.2024 The various contentions  raised in the Affidavit in Reply and as argued by their counsel are briefly  summarised as under:- 

(i) The alleged financial dispute arises from a Loan Agreement  dated 30.06.2011 between the parties. A close reading of the  Agreement reveals that the sum of Rs.2,91,00,973/- disbursed by  the Financial Creditor was intended to be treated as equity and not  as debt. The fact that this amount was never converted into equity  does not change its essential nature, and thus, it cannot be  construed as a financial debt. 

(ii) The Financial Creditor has claimed Rs.2,65,99,767/- as  interest at 15% per annum. However, the Loan Agreement contains  no clause specifying any interest rate, and thus, the creditor cannot  unilaterally impose interest. A letter dated 06.08.2021 from the  Corporate Debtor further evidences that the Financial Creditor was  requested not to levy interest until 31.12.2021. 

(iii) Moreover, the Financial Creditor relies solely on Form-C  uploaded on the NeSL website and fails to furnish the mandatory  Record of Default issued by an Information Utility, as required by  NCLT, New Delhi order dated 03.04.2023 and IBBI Circular dated  16.06.2023. 

(iv) The letter dated 06.08.2021 from the Corporate Debtor clearly  states that the Company was facing temporary financial constraints  due to the global pandemic. The Corporate Debtor further put  reliance on the Hon'ble Supreme Court in Invent Asset Securitisation  and Reconstruction Pvt. Ltd. v. Girnar Fibres Ltd. and Vidarbha   Industries Power Ltd.

v. Axis Bank Ltd. wherein it has emphasized  that Section 7 petitions may be rejected if the Corporate Debtor is  otherwise solvent. 

# 5. It is noted that the Short written Submission was filed by the  Financial Creditor vide Diary No.00505/2 dated 18.09.2024, and  Corporate Debtor filed its written submission vide Diary No.00505/3 dated  24.09.2024. 

# 6. We have heard the submissions made by the Learned Counsel for  the Petitioner Financial Creditor as well as the Respondent/Corporate  Debtor and have gone through the material available on record carefully,  along with the extant provisions Code and the settled position of law on the  subject issue. 

# 7. From the material on record, it is evident that a sum of Rs.  2,91,00,973/- was disbursed by the Financial Creditor to the Corporate  Debtor on 30.06.2011 under a Loan Agreement dated 01.07.2011, with a  clear repayment tenure of 10 years. The Agreement incorporates provisions  typical of a debt transaction, including: 

• A fixed tenure, 

• Call option for conversion (which was not exercised), 

• Provision for repayment of the unconverted portion with interest, 

• Specific deferment of interest until 30.06.2014 (Clause 11). 

# 8. The existence of these clauses and structure of the transaction  particularly the repayment obligation upon expiry of 10 years clearly meets  the criteria of a “financial debt”* under Section 5(8) of the Code. The  submission of the Corporate Debtor that the disbursed amount was  intended to be equity is untenable, especially in light of: 

• The absence of actual conversion into equity, 

• Acknowledgement of liability in writing post tenure, 

• Specific agreement on interest obligation post default (15% p.a.). 

# 9. Hon'ble Supreme Court in Orator Marketing Pvt. Ltd. v. Samtex  Desinz Pvt. Ltd. (2021) has clarified that even interest-free loans can  qualify as financial debt, provided the disbursement has the commercial  effect of borrowing. In the present case, the deferred interest and call  option were commercial arrangements, but the underlying structure  remains a debt obligation. The letter dated 06.08.2021 issued by the  Corporate Debtor,  acknowledging the entire  of  Rs.5,18,14,642/- and requesting time till 31.12.2021 to repay, constitutes  a clear acknowledgment of liability under Section 18 of the Limitation Act,  1963. Further, the Corporate Debtor undertook to pay interest at 15% per  annum in case of default beyond 31.12.2021, which confirms not only the  existence of a financial debt but also the mutual understanding on  applicable interest post default, regardless of whether a fixed interest  clause existed in the original agreement. Furthermore, the Corporate  Debtor in its written submission stated that "merely because the said  amount has not been converted into equity, it cannot be considered debt”,  which demonstrates that the said amount was not converted into equity. 

# 10. The argument from the Respondent side that the Financial Creditor  has unilaterally claimed interest lacks merit. It is noted that Clause 10 of  the agreement envisaged repayment of the unconverted portion with  interest at the G-Sec rate, and the letter of 06.08.2021 records Corporate  Debtor's consent to 15% interest post 31.12.2021. Therefore, any  argument regarding absence of contractual rate becomes irrelevant once  post-tenure mutual agreement on interest is established. 

# 11. The objection regarding non-submission of Record of Default (RoD)   from an Information Utility (IU) is a procedural one. It is true that recent  circulars and judicial pronouncements encourage submission of IU RoD;  however, such filing is not mandatory where: 

• Sufficient documentary evidence of default exists (e.g. loan  agreement, default demand, debtor's acknowledgment), and  

• The debt and default are otherwise undisputed or admitted.  

# 12. The reliance on Vidarbha Industries v. Axis Bank is misplaced, as  that case was decided in peculiar facts involving a regulatory stay on  receivables and a clear solvency situation. In contrast the Corporate Debtor  here has expressly acknowledged inability to repay and default of a  significant financial debt has occurred and remained unpaid. The Hon'ble  Supreme Court in Swiss Ribbons v. Union of India and Innoventive  Industries v. ICICI Bank has emphasized the objective test of default  under Section 7 of the Code. Once default is established and the debt is  undisputed, the Tribunal is not required to assess solvency or fairness. 

# 13. Considering the above, we are of the considered view that there  exists financial debt which is payable and has been defaulted by the  Respondent. The debt is more than the threshold limit of Rs. 1 crore as per  Section 4 of the Code. This application is filed within the limitation and is  defect-free; as such, the Application deserves to be admitted. 

# 14.  On the basis of the facts, the Application is otherwise defect-free &  on record. Accordingly, we admit this application and Order as under:  

(i) the Corporate Debtor Alchemist Capital Limited is admitted  in the Corporate Insolvency Resolution Process under Section 7 of  the Insolvency and Bankruptcy Code, 2016. 

(ii)  The moratorium under section 14 of the Insolvency and  Bankruptcy Code, 2016 is declared for prohibiting all of the following  in terms of Section 14(1) of the said Code. 

• (a) the institution of suits or continuation of pending suits  or proceedings against the corporate debtor, including  execution of any judgment, decree, or order in any Court of  Law, Tribunal, Arbitration Panel, or other Authority; 

• (b)  transferring, encumbering, alienating, or disposing of by  the Corporate Debtor, any of its assets or any legal right or  beneficial interest therein; 

• (c) any action to foreclose, recover, or enforce any security  interest created by the Corporate Debtor in respect of its  property, including any action under the Securitisation and  Reconstruction of Financial Assets and the Enforcement of  Security Interest Act, 2002; 

• (d) the recovery of any property by an owner or lessor where  such property is occupied by or in the possession of the  Corporate Debtor. 

• (e)  the Order of moratorium shall have effect from the date  of this Order till the completion of the Corporate Insolvency  Resolution Process or until this Adjudicating Authority  approves the Resolution Plan under sub-section (1) of Section  31 or passes an order for the liquidation of the Corporate  Debtor Company under Section 33 of the Insolvency &  Bankruptcy Code, 2016, as the case may be. 

(iii) We are hereby appointed Mr. Manoj Kumar Jain having  Registration Number: IBBI/IPA-001/IP-P02707/2022-23/14173 to  act as Interim Resolution Professional having address at B-7/45,  Second Floor, Safdarjung Enclave Extension New Delhi and Email  mkjain365@gmail.com to act as an IRP under Section 13(1)(c) of the  Insolvency and Bankruptcy Code, 2016. He shall conduct the  Corporate Insolvency Resolution Process as per the provisions of the  Insolvency and Bankruptcy Code, 2016, r.w. Regulations made  thereunder. The IRP shall make a public announcement of the  initiation of the Corporate Insolvency Resolution Process and call for  submission of claims under Section 15 as required by Section 13(1)(b) of the Insolvency and Bankruptcy Code, 2016. 

(iv) the supply of essential goods or services to the Corporate Debtor, if continuing, shall not be terminated or suspended, or   interrupted during the moratorium period. The Corporate Debtor is  to provide effective assistance to the IRP as and when it takes charge  of the assets and management of the Corporate Debtor.  

(v) The IRP shall perform all its functions as contemplated, inter  alia, by sections 17, 18, 20 & 21 of the Insolvency and Bankruptcy  Code, 2016. It is further made clear that all personnel connected  with Corporate Debtor, its Promoter, or any other person associated  with the management of the Corporate Debtor are under legal  obligation under Section 19 of the Insolvency and Bankruptcy Code,  2016, to extend every assistance and co-operation to the IRP. Where  any personnel of the Corporate Debtor, its Promoter, or any other  person, is required to assist or co-operate with the IRP, do not assist  or co-operate, the IRP is at liberty to make an appropriate  Application to this Adjudicating Authority with a prayer for passing  an appropriate Order. 

(vi) The IRP shall be under a duty to protect and preserve the  value of the property of the 'Corporate Debtor Company' and manage  the operations of the Corporate Debtor Company as a going concern  as a part of the obligation imposed by Section 20 of the Insolvency  and Bankruptcy Code, 2016. 

(vii) The Financial Creditor is directed to pay an advance of Rs.  2,00,000/- (Rupees Two lakh only) to the IRP within two weeks from  the date of receipt of this Order for smooth conduct of Corporate  Insolvency Resolution Process and IRP to file proof of receipt of such 

amount before the Adjudicating Authority along with First Progress  Report. Subsequently, the IRP may raise further demands for Interim  funds, which shall be provided as per the Rules. 

(viii) The Registry is directed to communicate a copy of this Order to  the Financial Creditor, Corporate Debtor, and the Interim Resolution  Professional and the concerned Registrar of Companies, after  completion of the necessary formalities, within seven working days,  and upload the same on the website  immediately after pronouncement of the Order.  

(ix) The IRP shall also serve a copy of this Order to the various  departments, such as Income Tax, GST, State Trade Tax, and  Provident Fund, etc. those who are likely to have their claim against  Corporate Debtor as well as to the trade unions/employees  associations so that they are timely informed about the initiation of  CIRP against the Corporate Debtor. 

(x) The commencement of the Corporate Insolvency Resolution  process shall be effective from the date of this Order. 

# 15. The Registry is directed to communicate a copy of this Order  immediately to both the Parties and also to IRP 

# 16. As a result CP (IB) No.142/Chd/Hry/2024 stands allowed and  disposed of. `

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