CA-186

It is not necessary that a transaction should involve written financial contract for initiation of Insolvency under Section 7 of IBC, 2016 | Loan given contrary to the limit prescribed under Section 186 of Companies Act, 2013 is an ultra vires act and is not a legally enforceable debt | For taking action under Section 65 of the Code, it is necessary that documentary evidence is brought on record – Proplarity Infratech Pvt. Ltd. Vs. Sky High Technobuild Pvt. Ltd. – NCLT Principal Bench

Hon’ble NCLT Principal Bench held that:

(i) CIRP Regulation 8, it is clear that the FC can rely upon any relevant document including financial contract to prove the existence of debt. The regulation does not contemplate existence of all documents rather it uses the word “or” which indicates that by any relevant document the existence of debt can be proved.
(ii) In effect, transaction involving payment of interest along with principal is one type of financial debt and that if the transaction does not involve ‘payment of interest’ the said transaction would not be outside the purview of section 5(8) of the Code.
(iii) Mere recording of transaction in the balance sheet of the CD as “Inter-Corporate Deposit” would not constitute it as Financial Debt unless proved by supporting document
(iv) Even if we assume that the said transaction was in the nature of loan, material available on the record suggest that the amount given by the Petitioner is contrary to the limit prescribed under Companies Act, 2013 which amounts to an ultra vires act and is not a legally enforceable debt.
(v) For taking action under Section 65 of the Code for malicious prosecution against the FC, as prayed by the CD, it is necessary that documentary evidence is brought on record of this Tribunal which leads it to form a prima facie opinion that the proceedings have been initiated with such intention.

It is not necessary that a transaction should involve written financial contract for initiation of Insolvency under Section 7 of IBC, 2016 | Loan given contrary to the limit prescribed under Section 186 of Companies Act, 2013 is an ultra vires act and is not a legally enforceable debt | For taking action under Section 65 of the Code, it is necessary that documentary evidence is brought on record – Proplarity Infratech Pvt. Ltd. Vs. Sky High Technobuild Pvt. Ltd. – NCLT Principal Bench Read Post »

In IBC Section 7 application, Corporate Debtor cannot take shelter under Section 186 of Companies Act 2013, in case Financial Creditor have advanced loan in breach of Sec. 186(2) to Corporate Debtor – EDCL Infrastructure Ltd. Vs. Urban Infraprojects Pvt. Ltd. – NCLT Kolkata Bench

Hon’ble NCLT Kolkata Bench holds that:

(i) Section 186(2) of the Companies Act, 2013, is a protection mechanism to the shareholders/ stakeholders of the Company (Financial Creditor in this case) so that the persons who are managing the company cannot and should not give loan in excess of limits prescribed which would be in excess of their capacity and could land the company in deep trouble should there be a default of the loan lent.
(ii) Therefore, aggrieved party in such violation under Section 186(2) of the Companies Act, 2013, would be the shareholder/stakeholders of the Financial Creditor and Regulators. It is not open for the Corporate Debtor to take shelter under such violations and refuse to repay money borrowed.
(iii) Even if any proceedings of arbitration is invoked, the Adjudicating Authority is to consider the application under Section 7 of the IBC independently and pass necessary order pertaining to admission or rejection of the application, consequence of which will befall on the proceedings under the Arbitration and Conciliation Act, 1996. It is further submitted that in the instant case, the proceedings under Section 7 of the IBC have been initiated by the Financial Creditor and no proceedings has been initiated by the Respondent herein in terms of the Arbitration and Conciliation Act, 1996.
(iv) Even if any proceedings initiated by the Respondent or any other party under the Arbitration and Conciliation Act, 1996, that would be treated as a separate and independent proceeding and no proceedings will vitiate or influence each other.

In IBC Section 7 application, Corporate Debtor cannot take shelter under Section 186 of Companies Act 2013, in case Financial Creditor have advanced loan in breach of Sec. 186(2) to Corporate Debtor – EDCL Infrastructure Ltd. Vs. Urban Infraprojects Pvt. Ltd. – NCLT Kolkata Bench Read Post »

Interest free advances granted by Corporate Debtor to its related Companies are not classifiable u/s 45 of the Code, instead the loss of notional interest can be recovered from the Directors of the Corporate Debtor as per Section 66 of the IBC – Mr. Saurabh Kumar Tikmani Vs. Talwalkars Club System Pvt. Ltd. – NCLT Mumbai Bench

RP filed an application u/s 45 of IBC determining the notional loss to the Corporate Debtor, arising out of interest free advances extended by the Corporate Debtor to its related companies.
In this important judgment, NCLT Mumbai Bench held that:
(i) The loan amounts cannot be held to be in nature of undervalued transaction u/s 45 of the Code. Nonetheless, the Corporate Debtor is entitled to recover these amounts as its assets from these parties.
(ii) As regards claim of notional interest being in nature of undervalued, this bench is of the considered view that grant of loans without stipulation of interest thereon, per se, cannot said to be resulting into undervalued transaction.
(iii) Grant of unsecured loan without stipulation of interest thereon is in contravention of the Companies Act, 2013 and such act can be said to be a fraudulent purpose under section 66 of the Code.
(iv) The present transactions are classifiable u/s 45 of the Code. Instead, this bench is of the view that the loss of notional interest, as claimed in the present petition, can be recovered from the directors of the Corporate Debtor as contributions u/s 66 of the Code because they were the persons responsible for such fraudulent act of granting unsecured loan to the related parties.

Interest free advances granted by Corporate Debtor to its related Companies are not classifiable u/s 45 of the Code, instead the loss of notional interest can be recovered from the Directors of the Corporate Debtor as per Section 66 of the IBC – Mr. Saurabh Kumar Tikmani Vs. Talwalkars Club System Pvt. Ltd. – NCLT Mumbai Bench Read Post »

Operational Debt cannot be converted into Financial Debt merely on basis of MoU if company was not eligible to advance loan in terms of sec 186(2) of companies act 2013 – Jambudwip Exports and Imports Ltd. Vs. U P Bone Mills Pvt. Ltd. – NCLT New Delhi Bench Court-II

From the various facts, the Bench conclude that the amount advanced by the Applicant Company to the Corporate Debtor for purchase of certain goods was neither disbursed as loan per se nor the conversion of the said advance into an Inter-Corporate Loan through the instrument of an MoU is in accordance with the law. Further, it is observed that by executing the MOU dated 10.05.2019, the parties have cleverly attempted to convert an Operational Debt into a Financial Debt.

Operational Debt cannot be converted into Financial Debt merely on basis of MoU if company was not eligible to advance loan in terms of sec 186(2) of companies act 2013 – Jambudwip Exports and Imports Ltd. Vs. U P Bone Mills Pvt. Ltd. – NCLT New Delhi Bench Court-II Read Post »

If the borrowing given by the Creditor is contrary to the limit prescribed under Companies Act 2013 (Sec. 186), it is not a legally enforceable debt – M/s. UKG Steel Private Limited Vs. M/s. Erotic Buildcon Private Limited – NCLT Principal Bench

AA observed that ex-facie there is no evidence which reflects that the money was transferred from the Petitioner-financial creditor to the respondent-corporate debtor, however, Corporate Debtor in its reply has not denied the disbursement of loan.
AA referred Section 186 of Companies Act 2013 and held that the Petitioner has neither made the disclosure of such Inter Corporate Loan in its Balance Sheet nor it had produced the Special Resolution passed in the EGM of Shareholders for the purpose of compliance of Section 186(3) of Companies Act 2013. Therefore, the borrowing given by the Petitioner is contrary to the limit prescribed under Companies Act 2013 which amounts to an ultra vires act committed by the Petitioner. Hence the loan advanced by the Petitioner is not a legally enforceable debt.

If the borrowing given by the Creditor is contrary to the limit prescribed under Companies Act 2013 (Sec. 186), it is not a legally enforceable debt – M/s. UKG Steel Private Limited Vs. M/s. Erotic Buildcon Private Limited – NCLT Principal Bench Read Post »

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