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Only amount directly lent to Corporate Debtor qualifies as Financial Debt

Cause Title : M/s Actioncor Consultants Private Limited vs M/s. Viprah Technologies Limited, Company Appeal (AT) (Ins) No. 916/2019, National Company Law Appellate Tribunal At Chennai

Date of Judgment/Order : 01/06/2023

Corum : Justice M. Venugopal (Member Judicial) & Shreesha Merla (Member Technical)

Citied: 

Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited Vs. Axis Bank Ltd. & Ors.

Background

While the Respondent, M/s. Viprah Technologies Limited was under BIFR, the MD and another director of the company entered into an investment agreement with the Appellant for a loan of Rs. 1.25 cr. to repay the secured creditors. A property belonging to the the Director Mrs. Sujatha Ananth was deposited as security. When the company did not repay a notice was issued to and subsequently an application was filed under Section 7 before NCLT which was rejected by the NCLT.

In their appeal, the Applicant argued that the finding of the Adjudicating Authority that the Appellant is not a Party to the ‘Investment Agreement’ is erroneous as the name of the Appellant is expressly mentioned in the Agreement.

The Respondent submitted that there was no repayment obligation on the Respondent and no admitted liability, even as per the ‘BIFR’ Records and that the loans were taken by Mr. Subramanian and his wife Mrs. Sujatha in their personal capacity and there was no ‘Promise to pay’ the Corporate Debtor Company.

Judgment

The NCLAT observed that the Investment Agreement has been entered into between Mr. Subramanian and Mrs. Sujatha and the Appellant and the Corporate Debtor is not a Party to the Agreement, so there is no mention of the Corporate Debtor. It is also crystal clear from the Investment Agreement that the Properties of the Promoters of the Corporate Debtor Company were given as Securities to the Appellant herein and the same could be used for the ‘recovery’ of the amount payable to the Appellant, in the event that the Respondent failed to deregister itself from the ‘BIFR’ within one year of the Investment Agreement dated 14/07/2010.

The NCLAT then agreeing with the NCLT declared that as established though the judgment of the Supreme Court in Anuj Jain (supra), there should be a direct disbursal of the amount owed, Financial Creditor to the Corporate Debtor for the amount to be construed as a ‘Financial Debt’. The transaction should be a direct transaction between the Financial Creditor and the Corporate Debtor which has not happened here. Though it is not in dispute that the amounts were taken as loan by the Managing Director and Director, the fact remains that the Transactions were never directly with the Corporate Debtor Company. Amounts taken by their Directors in their personal capacity, though used for the business purposes of the Company, will not fall within the ambit of the definition of ‘Financial Debt’ as defined under Section 5(8) of the Code.

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